By Tarunkumar G. Singhal, Raman Jokhakar, Chartered Accountants
11. HC dubs tree felling for Metro a tsunami
The Bombay high court on Friday said it will not immediately
vacate the interim stay on cutting of trees for Metro III unless shown that
there is nothing illegal or improper in the procedure adopted.
A bench of Chief Justice Manjula Chellur and Justice Girish
Kulkarni were categorical while granting time to Mumbai Metro Rail Corporation
Ltd (MMRCL) to place on record information regarding the survey done before the
firm proceeded with the cutting of over 5,000 trees for the Colaba
Andheri-Seepz corridor. Justice Chellur said, “Even then I will not immediately
vacate the stay. You can’t cut trees like that.“
The judges said that “maybe, if required“ they will ask
another committee to oversee the removal of trees. The stay will be vacated “if
nothing is (found) illegal or improper (in the procedure adopted)“, said
Justice Chellur. The bench said MMRCL must state what assessment was done for
tree cutting, including a list of trees, their kind and age, and whether there
is any plan for replantation.
The court questioned the BMC and told it “to justify how all
permissions are granted“.“Look at the photographs. Like a tsunami… tsunami as
far as trees are concerned,“ said Justice Chellur.
(Source: The Times of India, February 11, 2017)
12. Looking the Part
Say you had the choice between two surgeons of similar rank
in the same department in some hospital. The first is highly refined in
appearance; he wears silver-rimmed glasses, has a thin built, delicate hands, a
measured speech, and elegant gestures. His hair is silver and well combed. He
is the person you would put in a movie if you needed to impersonate a surgeon.
His office prominently boasts an Ivy League diploma, both for his undergraduate
and medical schools.
The second one looks like a butcher; he is overweight, with
large hands, uncouth speech and an unkempt appearance. His shirt is dangling
from the back. No known tailor in the East Coast of the U.S. is capable of
making his shirt button at the neck. He speaks unapologetically with a strong
New Yawk accent, as if he wasn’t aware of it. He even has a gold tooth showing
when he opens his mouth. The absence of diploma on the wall hints at the lack
of pride in his education: he perhaps went to some local college. In a movie,
you would expect him to impersonate a retired bodyguard for a junior
congressman, or a third-generation cook in a New Jersey cafeteria.
Now if I had to pick, I
would overcome my suckerproneness and take the butcher any minute. Even more: I
would seek the butcher as a third option if my choice was between two doctors
who looked like doctors. Why? Simply the one who doesn’t look the part,
conditional of having made a (sort of) successful career in his profession, had
to have much to overcome in terms of perception. And if we are lucky enough to
have people who do not look the part, it is thanks to the presence of some skin
in the game, the contact with reality that filters out incompetence, as reality
is blind to looks.
When the results come from
dealing directly with reality rather than through the agency of commentators,
image matters less, even if it correlates to skills. But image matters quite a
bit when there is hierarchy and standardized “job evaluation”. Consider the
chief executive officers of corporations: they not just look the part, but they
even look the same. And, worse, when you listen to them talk, they will sound
the same, down to the same vocabulary and metaphors. But that’s their jobs: as
I keep reminding the reader, counter to the common belief, executives are
different from entrepreneurs and are supposed to look like actors.
Now there may be some correlation between looks and skills;
but conditional on having had some success in spite of not looking the part is
potent, even crucial, information.
(Source: Nassim Nicolas Taleb, February 24th, 2017, from
INCERTO)
13. Checks and balances: Permitting tax authorities to
conduct raids without due process will be disastrous
Having elections to decide who is to govern us meets only the
most basic definition of a democracy. But at a deeper level, democracies
require checks and balances in governance. Otherwise, no matter how free and
fair the elections, they would be autocracies with periodic changes of
leadership.
The proposal in this year’s budget to amend Section 132 of
the Income Tax (IT) Act is an example. The amendment would do away with the
requirement for IT officials to demonstrate they had “reason to believe” that
violations existed, or that the assessee would not comply, before conducting a
search and seizure “raid”.
The danger in this is obvious. Without having to show they
had good reasons for raids, there is nothing to prevent IT officials from
conducting them arbitrarily. Harassment and rent seeking – the term economists
use for corruption – are sure to follow.
Nevertheless, it is worth taking stock of the opposite
arguments as well. Checks and balances are meant to prevent the autocratic,
mindless, or subjective exercise of authority, but not to block its legitimate,
justifiable application.
So where does the Indian government’s crackdown on IT evaders
stand? The statistics clearly show that the pace has been considerably stepped
up in the past two years. For instance, the number of raids in the first half
of 2016, at 148, was nearly triple of the 55 in the first half of 2015.
Similarly, cash, jewellery and other assets seized during
raids in the first seven months of 2016, at Rs 330 crore, was more than 300% of
the same period in 2015. And unpaid taxes surrendered by assessees in 2016 were
Rs 3,360 crore, a more than 50% increase over 2015.
However, it was never going to be easy to rapidly scale up
such scrutiny or, indeed, conduct raids. It is not simply a matter of
allocating more resources for it, but also having to deal with judicial
hurdles. As the Finance Bill explains, “certain judicial pronouncements have
created ambiguity in respect of the disclosure of ‘reason to believe’ or
‘reason to suspect’ recorded by the income tax authority to conduct a search
under Section 132.”
But therein lies the rub. If judges have imposed constraints
on raids because of unconvincing reasons to believe they were justified, then
it is almost inevitable they will find fault with altogether doing away with
all justification! Though the executive and legislative branches may decide to
abjure cumbersome procedural requirements in the interest of efficiency, that
must pass the test of natural justice and constitutional guarantees in order to
deter the judicial branch from overturning it.
Using the principles of checklist management, IT officials
could be given an objective list of items to be ticked off that would serve as
a record of due process having been followed prior to a raid. And surely the
finance ministry has the expertise to craft such a checklist that would pass
judicial muster.
(Source: Article by Shri Baijyant ‘Jay’ Panda, BJD Lok
Sabha MP, in The Times of India dated 15.02.2017)
14. Vyapam scam: Supreme Court cancels degrees of 634 doctors
Coming down hard on corruption in MBBS admissions in Madhya
Pradesh between 2008 and 2012, the Supreme Court cancelled the degrees of 634
doctors on Monday and said admissions obtained through a mass fraud called
“Vyapam scam”+ could not be condoned.
“The actions of the appellants are founded on
unacceptable behaviour and in complete breach of rule of law. Their actions
constitute acts of deceit… National character, in our considered view, cannot
be sacrificed for benefits – individual or societal,” a bench of Chief
Justice J S Khehar and Justices Kurian Joseph and Arun Mishra said in an
83-page judgment.
“If we desire to build a nation on the touchstone of
ethics and character, and if our determined goal is to build a nation where
only rule of law prevails, then we cannot accept the claim of the appellants
(students) for suggested societal gains (by allowing them to keep the degrees
on the condition of doing social service free of cost for some years),”
the bench said.
Writing the unanimous judgment, Justice Khehar said, “We
have no difficulty in concluding in favour of rule of law… Fraud cannot be
allowed to trounce, on the stratagem of public good.”
All these admissions to MBBS courses between 2008 and 2012
were cancelled by the MP Professional Examination Board. A bench of Justices J.
Chelameswar and A. M. Sapre had found them to be illegal on May 12, 2016.
While Justice Sapre had ordered cancellation of the
admissions and annulling of the degrees, Justice Chelameswar had said since the
students had completed their courses, it would be a national waste to annul the
degrees.
Instead, Justice Chelameswar allowed them to keep their
degrees provided they did social service for a certain period. Given the split
verdict, the matter was placed before a three-judge bench of Chief Justice J S
Khehar and Justices Joseph and Mishra. Writing the unanimous judgment, Justice
Khehar agreed with the view taken by Justice Sapre and annulled the degrees
obtained by these 634 students, who had got admission into medical colleges on
the back of influence peddling.
(Source: The Times of India dated 14.02.2017)
15. ‘Cashless economy an invitation to online fraudsters’
The international standards body for the payments industry
has called for a cybersecurity breach notification law to raise awareness of
online criminals. According to the Payment Card Industry (PCI) Security
Standards Council, the move towards a cashless economy post-demonetisation has
also sent an invitation to online fraudsters of a new market opening up. In
information security circles, any unauthorised access to an individual’s data
is called a breach.
Jeremy King, international director, PCI Security Standards
Council, said that while the migration to a cashless society will be beneficial
to a wider population in India and provide greater opportunity to merchants and
banks, the biggest challenge is that online criminals have become very
organised and global.
Without a breach notification, we pretend we have never been
breached, and banks and organisations accept the loss. That means that people
think there is no fraud happening when there is a lot of fraud happening,”
he said.
The risk to banks were not just in the payments business but
wherever personal data was stored. There have been instances when telecom data
was hacked to access bank details. While the demand for auditing payments
infrastructure has gone up, India is facing a shortage of IT security auditors.
The RBI wants more approved assessors in India to support the large base of
merchants and banks. We are working on that. We need more security
professionals and we need more organizations.
Criminals are also learning to work around security features.
For instance, with card analytics now identifying unusual patterns based on
transactions being done in different pin codes, fraudsters are now selling
cards on the Dark Net — an underground network with restricted access used to
sell stolen content — based on pin code of the issuer so that the frauds do not
ring alarm bells.
Another challenge for the council is that countries are
moving away from cards to newer form factors like account-to-account transfers.
While people were looking at ways of making new form factors work in a
frictionless and secure manner, there were trade-offs. The balance between risk
and security is where we live. You can make something very, very secure, but
it’s of no use. So you know that there is a level of risk that you are willing
to accept in order to make the process work smooth enough so that people will
use it.
(Source: The Times of India dated 21.02.2017)
16. India Inc is better
off avoiding the flawed US practice of unrealistically high CEO compensation.
The debate between Infosys’ founders and the current
management and board about senior management compensation can be an important
signpost for corporate governance in the country.
The key question is, should shareholders, corporate
governance activists and policymakers allow India Inc to transplant some of the
ugly corporate governance practices from Corporate America? While the moral
aspects to mimicking such ugly features in a country significantly poorer than
the US remain open to debate, I will focus on economic aspects.
Between 1992 and 2000, following the Bull Run in US stock
markets, the average real (inflation-adjusted) pay of chief executive officers
(CEOs) of S&P 500 firms more than quadrupled, climbing from $3.5 million to
$14.7 million. This growth of executive compensation far outstripped
compensation for other employees. In 1991, the average large-company CEO in the
US received about 140 times the pay of an average worker; in 2003, this ratio
was about 500:1.
When compared to the value added by an average employee, did
the value add by the CEO of an S&P 500 firm quadruple in just eight years?
What super-diet did the CEOs of S&P 500 firms consume from 1992 to 2000 to
quadruple their relative contribution? Did such a super-diet quadruple a CEO’s
strategic thinking abilities?
Since none of us has heard about any such super-diet hitting
retail outlets, it is safe to conclude that such quadrupling represented the
outcome of a game that gets fixed between the CEO and pliant board. Academic
research, summarised in Bebchuk (2004), has provided robust evidence of such
match-fixing. “In judging whether Corporate America is serious about reforming
itself, CEO pay remains the acid test. To date, the results aren’t encouraging,
Warren Buffett said.
In an ideal world, a CEO would get paid commensurate to the
value he or she adds to the firm. The board would design the compensation to
provide strong incentive to the CEO to contribute to shareholder value. But
this represents a Utopian concept. First, for various reasons, directors in a
firm support arrangements favourable to the company’s top executives. Social
and psychological factors contribute to this phenomenon.
Second, limited time and resources often make it difficult
for even well intentioned directors to do their pay setting job properly. When
not well prepared for the ensuing battle, directors can often choose peace within
the boardroom.
Finally, CEOs exert considerable power in shaping their pay
packages and those directly reporting to them.
Research shows that CEOs’ influence over directors enables
them to obtain “rents” — benefits greater than those commensurate to the true
estimate of the value they add to the company.
These findings followed research on CEO pay in the US after
the spate of corporate scandals that began in late 2001and shook confidence in
the performance of public company boards.
Research now recognises that many boards have employed
compensation arrangements that do not serve shareholders’ interests. Flawed
compensation arrangements have been widespread, and systemic, stemming from
defects in the underlying governance structure.
For instance, oil company
CEOs get paid significantly more when the crude oil price increases — an
outcome in which the oil company CEO had no role. Most CEOs get paid more when
the average stock market performs well; again, the CEO had no role to play in
the stock market’s performance.
A large portion of CEO pay comes in forms other than equity,
such as generous severance packages, salary and bonus, which correlate weakly
with firms’ industry-adjusted performance.
Thus, academic research underlines the fact that CEO pay is
the outcome of a game that gets fixed between the CEO and pliant boards. Given
this evidence in the US, Sebi and corporate governance activists must watch the
developments at Infosys carefully and ensure that some rotten governance
practices in the US do not develop root in India.
(Source: Extracts from Article by Krishnamurthy
Subramaniam, Associate Professor of Finance, at Indian School of Business,
Hyderabad, in the Economic Times dated 17.02.2017)
One Republic
When you call yourself an Indian, Muslim, Christian, European
or anything else, you are being violent. Because you are separating yourself –
by belief, by nationality, by tradition – from the rest of mankind. This breeds
violence.
– J.
Krishnamurti
(From Sacred Space)
