EXECUTIVE SUMMARY
Ownership issues and Powers
of CPSEs
1. For effective governance
of Central Public Sector Enterprises (CPSEs), their ownership functions, the
powers and operational procedures of the Board of Directors and their
responsibilities together with suitable checks and balances for exercising
control over the Management should be properly designed and implemented.
(Para 2.1)
2. The Ad-hoc Group of Experts (AGE)
recommends that any decision to reduce Government share holding to a level less
than 51% in case of Category I CPSEs i.e. Navratna, Miniratnas and consistently
profit making CPSEs, should be taken only with the consent of the
Parliament. The Board of Directors
should have all the powers to raise equity capital from the market so long as
the Government’s share of the overall
equity remains above 51%. However, in
case of Category II CPSEs i.e., other than those mentioned above, Government
should have full flexibility of owning or disinvesting their shares.
(Para 2.3, Para 2.16)
3. The AGE recommends that governance of
CPSEs, especially the Navratnas and
Miniratnas and other profit making companies, should continue to be
supervised by the three tier system, namely, the Ministry concerned representing
the Government, the Board of Directors and the Management, with the role,
powers and functions of each of them clearly defined and codified.
(Para 2.5)
4. The AGE recommends that an institutional arrangement is required in order
to ensure harmonious relations and interactions among the three tiers and to
provide for the redressal of grievances of the stakeholders. To fulfill this requirement, the
establishment of six overarching Supervisory Bodies, each consisting of ten
members (three Ministers, five independent distinguished experts of the
relevant sector and Secretary of the Ministry / Department and CMD concerned)
is considered essential. The AGE has
suggested the setting up of such Supervisory Bodies for six different sectors.
(Para 2.5)
5. The Supervisory Body should not give
any direct instructions to the CPSEs.
The Body should give its views only on matters referred to it.
(Para 2.6)
6. The Ministry should effectively perform
the role of the sole/major shareholder as well as owners of the company. The Ministry should consult other
Ministries, including Finance and other relevant Departments and, where
necessary, obtain the approval of
the Cabinet. It
should assist the implementation of the projects of CPSE in its charge in line
with Government Policy.
(Para 2.9)
7. Adverse actions like reprimand,
suspension, premature termination, denial of extension of tenure, supercession
of the recommendations of PESB, etc. must be referred to the Supervisory Body
and the ACC should take its views into account before taking any decision on
such matters. Appointments to Board
level positions in CPSEs may be made for the period until superannuation
instead of fixed tenures.
(Para 2.10)
8. The Ministry should not give
instruction directly or indirectly to the Management. It should be the responsibility of the concerned Board of
Directors. The views of the Ministry should be communicated to the Board
through Government Directors.
(Para 2.11)
9. If the Ministry considers it necessary
to issue mandatory instruction to a CPSE, the same must be given in the form of
a Presidential Directive. The issuance
of such Presidential Directives should have the approval of the Cabinet.
(Para 2.12)
10. The Ministry should not normally review
the functioning of the company more than twice a year. Such reviews should be based on the reports
of the relevant Board of Directors and selected major performance
indicators. Since the profitability of
CPSEs is influenced by several factors such as the administered price mechanism
and fluctuations in international price of the commodities, the Group
recommends that the Ministries concerned should develop CPSE-specific criteria
to determine their overall performance, independent of profitability.
(Para 2.13)
11. There should be a negative list of areas
which must be kept away from the intervention of the Government (except for
respective jurisdiction of CAG and CVC).
(Para 2.14)
12. The current restrictions regarding
capital expenditures, joint ventures, etc. need to be done away with. Such decisions should be left entirely to
the Board of Directors. However, if
that is not possible at one stroke, as the first step towards this desirable
goal, enhanced powers should be given to Navratna / Miniratna and other profit
making companies in respect of Capital expenditure, setting up of Joint Ventures (JVs) / Subsidiaries, subsequent investment in JVs. JVs between Navratnas, merger and
acquisition, appointment of Directors in subsidiaries and JVs etc. The Chief Executive of CPSE concerned should
be a member of Search Committee for selection of non-official Directors.
(Para 2.15)
13. There should be detailed procedural
guidelines including limits of financial expenditure on foreign travel of Chief
Executives and Board Members, formulated by the Board of Directors of the CPSEs
concerned and no reference to the Government for approval should be necessary
unless deviation from such guidelines is intended.
(Para 2.17)
14. The Board of Directors should be fully
responsible for the supervision and control over the Management of the company.
(Para 2.18)
15. Subject to statutory requirements,
Government policy and regulatory guidelines issued by the RBI, the Board of
Directors should have full powers of pursuing new lines of business, deciding
on suitable Acquisitions and Mergers, setting up Subsidiaries and exiting from
any line of business, as also of making Capital expenditure up to the levels
indicated in Para 2.15, without any prior clearance from the Government.
(Para 2.19)
16. No more than two officers should be nominated
as Board Members by the Government on the Board of Directors of Navratna,
Miniratna or other profit making CPSEs.
The performance of Government Directors must be suitably reflected in
their personal CRs. An appraisal system
for performance review of Independent Directors should be formulated.
(Para 2.20)
17. The Chief Executives and the Functional
Directors should also be entitled to performance linked bonus / incentive
within the permissible limit of 5% of distributable profit. The Compensation Committee of the Board as
constituted under the ‘Listing Agreement’ should have the authority to decide
on the quantum of such performance-linked incentives on the basis of
individual’s performance and contribution during the year under review. Such bonus / incentive would, however, be
governed by the limits prescribed in the Companies Act.
(Para 2.21)
18. The Chief Executive should be entirely
responsible for the day-to-day management and operation of the company under
the overall supervision of the Board of Directors.
(Para 2.22)
19. The Management should be free to exercise
all powers explicitly delegated by the Board of Directors. It should function under the supervision of
the Chief Executive and Functional Directors on the Board.
(Para 2.23)
20. The Management should be responsible for
implementation of the decisions of the Board of Directors, and compliance of
all statutory requirements as well as policy guidelines.
(Para 2.24)
Audit of Government
Companies
21. The AGE
has made various suggestions for streamlining of the present system of test /
supplementary / transaction audit of CPSEs in order to save time and to avoid
duplications.
(Para 3.4)
Article 12 of the
Constitution and CPSEs
22. The AGE has suggested that the issue relating to amendment of Article 12 of the Constitution could be revisited by the Policy makers at an appropriate time.
(Para 4.5)
Parliamentary Accountability
23. The AGE
has made some suggestions in regard to Parliamentary accountability of CPSEs in
order to enable them to focus on their business and to avoid disclosure of
commercially sensitive information.
(Para 5.5)
Vigilance Management in CPSEs
24. The AGE,
after taking into account suggestions made by Arvind Pande Committee, has made
several recommendations in regard to Vigilance related issues concerning CPSEs.
(Para 6.12)
REPORT OF AD HOC
GROUP OF EXPERTS
ON EMPOWERMENT OF
CENTRAL PUBLIC SECTOR ENTERPRISES
|
Chapter 1: INTRODUCTION |
|
|
1.1 |
The last couple of decades have witnessed
an accelerated pace of political and economic integration across the world
and the increasing |
|
1.2 |
The response of India to this changing
world environment has resulted in far-reaching economic reforms initiated
more comprehensively since the beginning of the 1990s. Fiscal and monetary
policies, trade and export-import policies, industrial policies, etc. have
all been aligned with the new reforms and initiatives. |
|
1.3 |
With increasing competition from the
domestic private sector as well as foreign companies in the wake of
liberalization and globalisation, the need to empower Central Public Sector
Enterprises (CPSEs) with greater financial and operational powers was
realized in order to enable them to effectively face increasing levels of
competition. To delegate these powers, the concept of Navratna and Miniratna
was introduced in July and October 1997. The powers delegated were related to
incurring Capital expenditure, formation of Joint Ventures/ Subsidiaries /
strategic alliances, implementation of HRD policies including VRS etc. Later,
certain powers for incurring Capital expenditure were also delegated to other
profit making CPSEs. The professionalization of Boards of Directors was made
a precondition to ensure that the enhanced powers were used prudently.
Professionals were inducted in the Boards of Directors of these CPSEs and
audit committees were also set up. These measures have helped in more objective
and quicker decision-making by the Boards of Directors of CPSEs, with the
independent Directors bringing in fresh thinking. The National Common Minimum
Programme of the UPA Government has mandated devolution of full managerial
and commercial autonomy to successful and profit making CPSEs operating in a
competitive environment. Such measures are expected to motivate the
Management and the employees of the Navratna and Miniratna CPSEs to perform
better. These would also motivate other CPSEs to improve their performance in
order to achieve the coveted status of being either a Navratna or Miniratna. |
|
1.4 |
The first delegation of powers to
Navratnas/Miniratnas in 1997 has certainly contributed to the improved
performance of some of those Enterprises.
But the fast changing world economic environment and the mandate of
the National Common Minimum Programme now call for some bold and new
thinking, and not mere incrementalism in empowerment. The last decade or so
has witnessed perceptible performance improvements in a number of companies,
whether it be GE or Motorola elsewhere in the world or Bajaj Auto, Infosys or
Wipro at home. The managements of these companies did not believe in
incrementalism of performance; and the quantum leaps in their performance have
been the result of fully accountable but fully empowered management teams.
Repeating / inducing such success in the CPSEs will require more than
incremental empowerment. In a
deregulated, fast changing and competitive economy, and with gradual
dismantling of tariff barriers as envisaged in the non-agricultural market
access negotiations in WTO, a company which is not adaptive and not growing
fast enough will definitely cease to exist. The rigour of these new
challenges is equally matched by unprecedented opportunities in the new world
order which are such that a determined management can take its company to new
levels of success much more quickly and effectively than in the past. Such
opportunities can, however, be exploited fully by CPSEs only if certain specific
areas are addressed in respect of autonomy accompanied by accountability.
They are: Ø Issues of ownership by the Government and
delegation of administrative and financial powers to CPSEs Ø Audit of Government companies Ø Constitutional Issues Ø Parliamentary Accountability Ø Vigilance Issues |
|
Chapter 2: OWNERSHIP ISSUES AND POWERS OF
CPSEs |
|
|
2.1 |
The question of the autonomy of CPSEs
essentially relates to the issues of ownership, control and management.
Ownership is usually associated with the overall control of the enterprise
for the long-term value creation of the company and achieving its medium and
long-term objectives. The shareholders who are the owners seldom get involved
in controlling the day-to-day operations
of the company. For that, the companies
have their Board of Directors, who are responsible for reviewing and
overseeing the effectiveness of operations and management at periodic
intervals. The Management, in turn,
is in the charge of the Chief Executive of the company assisted by other
functional Directors. In order to ensure effective governance of the company,
it is necessary to properly design and implement the ownership functions, the
powers and operational procedures of the Board of Directors and the
responsibilities together with suitable checks and balances for exercising
control over the Management. |
|
2.2 |
For maintaining the overall control of the
company, it is not necessary that the owner should own 100% of the shares. A
majority of shareholding is in most cases sufficient for all purposes and
even a minority shareholding in a widely held company may often let the
owners have basic control of the company operations, necessary to ensure the
maintenance and improvement of the value of the assets of the company, as
well as implementation of the programmes for realizing its basic objectives. |
|
2.3 |
The National Common Minimum Programme
(NCMP) of the UPA Government affirms commitment to a strong and effective
public sector. To facilitate better commercial functioning of the successful
and profit-making CPSEs which are operating in a competitive environment, the
NCMP has pledged to devolve full managerial and commercial autonomy. It is
also mentioned in the NCMP that generally profit-making CPSEs will not be
privatized. The Ad-hoc Group of Experts (AGE),
therefore, felt that the Government, as the principal owner of the CPSEs,
should have complete flexibility of owning or disinvesting its shares to
obtain the maximum value for their assets through sale and purchase or
disinvestment and reinvestment of the shares. The Group was of the view that
this issue has to be dealt with differentially by dividing the CPSEs in two
categories: Navratnas, Miniratnas and other consistently profit-making CPSEs
(those CPSEs which have been making profits for the past three consecutive
years and have a positive net worth) in Category I and the other CPSEs in
Category II. In keeping with the letter and spirit of
the NCMP, the Group was of the view that a decision, if any, to privatize a
Category I CPSE by reducing Government shareholding to a level less than 51%
in it should be taken only with the consent of the Parliament, as the
ultimate representative of the people.
However, in case of other CPSEs (Category II), the Government should
have full flexibility of owning or disinvesting their shares. The Board of
Directors of both categories of CPSEs should also have the power to raise
equity capital from the market, so long as the Government’s share of the
overall equity remains above 51%. |
|
2.4 |
The Ministry in charge of the company
should recognize the fact that they are not the owners of the company but are
only exercising the functions of ownership as a custodian on behalf of the
Government and the public at large.
The Group felt that the current system of the Ministry being in
overall charge of a CPSE, facilitating its functions and looking after its
interests has been quite useful and should therefore be continued, subject to
certain suggestions which have been made in the subsequent paragraphs. However,
it must be ensured that the Ministry takes into account not only the interest
of the Government as a whole but also of the non-governmental shareholders,
who are equally interested in safeguarding the value of their asset. This is
particularly important as many of the CPSEs are now listed in the stock
markets, with their shares held by members of the public at large as well as
financial/non-financial institutions. Furthermore, it also must be ensured
that the Government in discharging the functions of ownership does not get
involved in controlling the details of operations and the day-to-day
management of the company. Finally, as far as the listed CPSEs are concerned,
the Government should also facilitate the fulfillment of the provisions of
Clause 49 of listing agreement, in conformity with the guidelines of the
market regulator, SEBI. |
|
2.5 |
The Group considered several models of
ownership of companies and an arms-length relationship of government with the
Board of Directors and the Management and came to the view that the
governance of CPSEs, and especially the Navratnas and Miniratnas and other
profit making companies should continue to be supervised by the three tier
system, namely, the Ministry concerned representing the Government, the Board
of Directors, and the Management, with the role, powers and functions of each
of them clearly defined and codified.
After studying the working of all the three tiers involved, the Group
was strongly of the view that an institutional arrangement is required in
order to ensure harmonious relations and interactions among the three tiers
and to provide for the redressal of grievances of the stakeholders. To
fulfill this requirement, the Group recommends the establishment of six
overarching sectoral Supervisory Bodies, consisting of ten members each, with
the following composition: Permanent Members: Minister of Finance Minister in charge of DPE – Convener Five independent distinguished experts of
the relevant sector Agenda Specific Members: Minister of Administrative Ministry of the
concerned CPSE Secretary of Administrative Ministry of
the concerned CPSE Chief Executive of the concerned CPSE The five independent expert members
representing diverse, professional and non-political interests from the
relevant sector should be nominated for a fixed term by the Prime Minister. Separate Supervisory Bodies should be set
up for the sectors indicated below. These six sectors have been suggested to
ensure that these bodies are not ministry-specific but cover a broad and
diverse group of CPSEs. Energy Manufacturing Infrastructure Trading & Services Food & Agriculture Social Sector |
|
|
The
Role of the Supervisory Body
|
|
2.6 |
The Supervisory Body will undertake the
following responsibilities: Ø To take an overview of the conformity of
corporate strategy to the Vision and the Mission of the CPSE Ø To periodically review interactions
between the administrative Ministry and the CPSE Ø To be the arbiter of ethics; in
particular, to review all allegations against the members of the Board of
Directors and make appropriate recommendation to the concerned authority. Ø To recommend continuation / separation of
Functional Directors in case of difference between recommendations of the
Public Enterprises Selection Board (PESB) and the Ministry concerned. Ø To monitor redressal of stakeholder
grievances Ø To consider any other issue to promote
independent, efficient and cohesive functioning of the concerned Board of
Directors The Supervisory Body should not give any
direct instructions to the CPSEs. It should give its views only on matters
referred to it. The Supervisory Body would also provide a formal grievance
redressal system for the Board Members of CPSEs. |
|
2.7 |
There are some issues related to
Vigilance. Details of the same along with the suggested role of Supervisory
Body in the resolution of such issues are dealt with in Chapter-6 under the
heading ‘Vigilance Management in Public Sector Enterprises’. |
|
2.8 |
In all other matters, whenever there is a
difference of views between the Ministry and the Management, the advice of
the Supervisory Body must be sought prior to deciding any course of action by
the Government. |
|
|
The Role of
the Ministry: |
|
2.9 |
The Ministry should effectively perform
the role of the shareholders and owners of the company. The Ministry should
consult other ministries, including finance and other relevant departments
and, where necessary, obtain the approval of the cabinet. It should
facilitate the implementation of the projects of the company in conformity
with overall Government policy. |
|
2.10 |
The Ministry, in exercising the function
of ownership, is responsible for the appointment of the Chief Executive as
well as the Functional Directors of the company. It should follow the
established guidelines with regard to these appointments, based on the
recommendation of PESB. Although the Ministries have the power to recommend
the termination of their services to the PESB, in the case of appointment and
termination (except in case of Schedule ‘C’ & ‘D’ CPSEs where the Ministry
concerned is competent for such approvals if the same are in line with the
PESB recommendations), the decisions of the Ministry concerned must continue
to be subject to the approval of the Appointments Committee of the Cabinet.
In the case of adverse actions like reprimand, suspension, premature
termination, denial of extension of tenure, superseding the recommendations
of PESB, etc., the case should be referred to the new Supervisory Body and
ACC should take its views into account before taking any decision. It is
further suggested that considering the benefits of continuity in leadership
positions, the appointments to the Board level positions in CPSEs may be made
for the period up to superannuation instead of shorter fixed tenure. In any
case, the current system has a provision for premature termination in case of
non-performance. |
|
2.11 |
The views of the Ministry should be
communicated for consideration by the Board of Directors through the
Government Directors, who would take up these matters at the meetings of the
Board of Directors. The Ministry should not give instruction directly or
indirectly to the management. That should be the prerogative of the Board of
Directors. |
|
2.12 |
The Government Director(s) should interact
with the companies only as Members of the Board, where decisions in general
should continue to be taken by a consensus or a majority. If the Government Director(s) feel that
the Board of Directors has not appropriately taken into account the views of
the Ministry on a given subject, they ought to refer the matter back to the
Ministry, which after consulting the Supervisory Body, can instruct the Board
of Directors and the Management to follow its directions. But such
instructions must be given in the form of Presidential Directives. The issuance
of such Presidential Directives should have the approval of the Cabinet. |
|
2.13 |
The Ministry should not normally review
the functioning of a CPSE more than twice a year. Such review should be based
on reports of the Board of Directors and selected major performance
indicators. These indicators, numbering not more than five, may be chosen
from among the indicators agreed upon in the MoUs and considered appropriate
by the Cabinet Secretariat and other agencies. The Ministry should be able to
assess the performance of the company in terms of these indicators and also
consider the fulfillment and non-fulfillment of the obligations of both the
management of the company and of the Government departments concerned as
spelt out in the MoUs. A special review may, however, take place in addition
to the half-yearly session, if the concerned Ministry wishes to take stock of
any issue of outstanding importance referred by it to a CPSE. Since the profitability of CPSEs is
influenced by several factors such as the administered price mechanism and
fluctuations in international price of the commodities, the Group recommends
that the Ministries concerned should develop CPSE-specific criteria to
determine their overall performance, independent of profitability. |
|
2.14 |
The Group felt that to increase the
autonomy of the CPSEs the Government must accept the difference between
ownership and management and ensure that CPSEs are run by the Boards of
Directors and not by the owner. The procedures of governance suggested above
should ensure such autonomy. However,
in order to make the whole relationship clear and transparent, the Group
recommends that there should be a negative list of areas which must be kept
away from the intervention of the Government (except for respective
jurisdiction of CAG and CVC). That
list should, inter alia, include: Ø Decisions relating to Pricing /
Distribution policy Ø Decisions on Exports / Imports Ø Appointment of dealers and agents Ø Appointment / promotion / transfer /
suspension of below Board level employees Ø Award of Contracts and procurement
decisions Ø Selection of Consultants and Joint Venture
partners Ø Issuance of directive or guideline
restricting the authority of the Board of Directors [empowerment once
provided to the Board of Directors should not be diluted without the approval
of the authority which had originally sanctioned it]. Ø Insistence on CPSEs furnishing information
considered commercially sensitive by the Board of Directors in answers to
questions raised in the Parliament and its Committees. Ø Issuance of instructions for intervening
in any manner in the business or administrative decisions of the CPSEs. Ø Withholding of implementation of
recommendations of PESB in respect of tenure extensions of Board Members Ø Non observance of SEBI stipulations for
listed companies regarding appointment of non-official Directors. |
|
2.15 |
In regard to the investments of the
company and the ceilings that currently exist for Joint Ventures and other
Capital expenditures for the Navratna and Miniratna companies, the Group is
of the view that these decisions should be left entirely to the Board of
Directors and owners should only review the implementation of these decisions
in light of the MOU-related performance indictors mentioned above. In case,
there is any difficulty in implementing this recommendation immediately, it
is suggested that the same could be executed in two steps. As the first step, the Group recommends
the delegation of authority to the Board of Directors of the Navratna,
Miniratna and other profit-making CPSEs be raised as mentioned hereunder: A.
Investments for Capital Expenditure: For Navratnas: The Board of Directors to continue to
enjoy the powers to approve investments in their own projects without any
limits. For Miniratnas-I: The delegation may be increased from the
existing Rs. 300 cr. to Rs. 500 cr. or an amount equivalent to their net
worth, whichever is less. For Miniratnas-II: The delegation may be increased from the
existing Rs. 150 cr. to Rs. 250 cr. or an amount equivalent to 50% of their
net worth, whichever is less. For other Profit-making CPSEs: The delegation may be increased to Rs. 150
cr. or an amount equivalent to 50% of their net worth, whichever is less. B.
Investments in Joint Ventures and Subsidiaries: For Navratnas: Keeping in view the increasingly large
size of infrastructure projects and in order to achieve better economies of
scale, Navratna delegation to invest equity in Joint Venture Companies /
Subsidiaries needs to be enhanced from Rs. 200 crore (up to a maximum of 5%
of Net Worth) in one project to at least Rs.1000 crore or 15% of Net Worth,
whichever is less, in one Joint Venture / Subsidiary. Further, the present
overall ceiling of equity investment up to 15% of Net-worth in all Joint Ventures/Subsidiaries
put together also needs to be increased to at least 30% of the Net Worth. For Miniratnas-I: Miniratna-I delegation to invest equity in
Joint Venture Companies / Subsidiaries needs to be enhanced to Rs. 500 crore
or 15% of Net Worth, whichever is less, in one Joint Venture / Subsidiary.
Further, the overall ceiling of equity investment in all Joint
Ventures/Subsidiaries put together also needs to be increased to at least 30%
of Net Worth. For Miniratnas-II: Miniratna-II delegation to invest equity
in Joint Venture Companies / Subsidiaries needs to be enhanced to Rs. 250
crore or 15% of Net Worth, whichever is less, in one Joint Venture /
Subsidiary. Further, the overall ceiling of equity investment in all Joint
Ventures/Subsidiaries put together also needs to be increased to at least 30%
of Net Worth. For other Profit-making CPSEs: These CPSEs may be delegated the powers to
invest equity in Joint Venture Companies / Subsidiaries up
to Rs. 100 crore or 15% of Net
Worth, whichever is less, in one Joint Venture / Subsidiary. Further, the
overall ceiling of equity investment in all Joint Ventures/Subsidiaries
should be 30% of Net Worth. However, if the Board of Directors feels
it necessary to exceed the levels of investment limits recommended above in a
given case, it may refer the matter to the Ministry for an appropriate
decision in cases deserving of special consideration on individual
merit. C.
Creation and Disinvestment of Subsidiaries: The Board of Directors may be empowered to
create Subsidiaries for existing/new activities with equity investments
within the overall limits specified for creating Subsidiaries. The Board of
Directors may be further empowered to transfer assets to such subsidiaries
from the parent company. The Board of Directors may also be empowered to
float fresh equity and divest their shareholding in such Subsidiaries
complying with SEBI guidelines. However, in case any existing fixed assets of
the holding company have been transferred to a Subsidiary, then such
subsidiary may not be allowed to transfer these assets to anyone other than
the parent CPSE. Also, disinvestment in such a subsidiary company to an
extent of more than 50%, if proposed at a later date by the holding CPSE,
would require the approval of the Government. D.
Subsequent investments in Successful JVs: The above mentioned limits may be
applicable only for initial investments in these joint ventures. In case the
JV Company is operating successfully for a defined period, say two years, any
further investment in such successful and profitable Joint Ventures may not
have any limitations prescribed. E.
JVs between Navratnas: While there is no restriction on Capital
investment that a Navratna company can make in its own projects/ventures,
there is a restriction on the amount of investment it can make when two or
more Navratna CPSEs take up a project / venture together. It would therefore be in the fitness of
things that Navratna CPSEs should have powers to make equity investments
without any limit in Joint Ventures with other Navratna CPSE(s). F. Mergers and
Acquisitions: As per existing Delegation of Powers,
Navratna and Miniratna companies can enter into Joint Venture arrangements
within the parameters laid down in the respective circulars. However, for
equity participation in existing companies or acquiring stake in existing/new
companies or for deciding on mergers and acquisitions for promoting further
business, prior approval of Government is required. The powers to decide on mergers,
acquisitions and acquiring minority or majority stakes in existing or new
companies should be delegated to the Boards of Directors of Navratna and
Miniratna CPSEs where such decisions are necessary to facilitate business
promotion within ceilings as proposed for Joint Ventures. G.
Investment Approvals where Budgetary Support is involved: At present the
Navratnas, Miniratnas and other profit making CPSEs are not permitted to
avail of Budgetary Support even for expansion, diversification or other
developmental purposes without losing their Navratna/Miniratna status. The
Group recommends that these restrictions may be relaxed so that Budgetary
Support to implement planned developmental activities should not result in
disqualifying the CPSEs from retaining their Navratna/Miniratna status. H.
Investment Approval for Projects involving Government Guarantees: The Boards of Directors of Navratna,
Miniratna and other profit making CPSEs should be given powers to approve
Capital expenditure without the requirement of seeking PIB / CCEA approvals
even in case of projects involving government guarantees, as funding by
multilateral agencies invariably involves government guarantee. However, this
should be subject to ceilings, if any, prescribed for investment delegations.
I. Appointment of Functional Directors in
Subsidiaries and JVs by the Board of Directors of the Holding Company: CPSEs have been entering new business
fields to add value to their core business. Sometimes they choose to do so
through a JV or a Subsidiary with the intention to bring in the required
technological/managerial expertise as well as to protect the parent balance
sheet from the business risks of the new venture. Such new ventures can
succeed only when they work in a seamless manner with the parent organization
to leverage the parent’s strength. Also, complete accountability of the
management of the Joint Venture/Subsidiary to the parent organization is
absolutely essential for the new venture to progress and add value to the core
business of the parent organization. Company law provides for the placement
of Functional Directors in the subsidiaries by the holding company. However,
Government of India (Transaction of Business) Rules, 1961 provide for the
appointment of Functional Directors by the Government. The Group recommends
that full-time Board level appointments in Joint Ventures/Subsidiaries may be
made by the Board of Directors of the holding Company in line with provisions
of Section 255, 256 and 257 of the Companies Act for partly owned Government
companies. J. Chief Executive to be Member in the Search
Committee for Independent Directors: The guidelines of DPE and SEBI require
CPSEs to have some Independent Directors on their Board of Directors. With
the market becoming more complicated, performance and survival of the CPSEs
require the wise counsel and directions by eminent persons with good stature
in the industry and the market. To identify and induct such eminent persons,
there is a need to adhere strictly to the prescribed qualification
requirements without any dilution. Also, Search Committees formed to identify
Independent Directors should include the Chief Executive of the concerned
CPSE as a Member. The Group further recommends that the
restrictions contained in the interim delegation by way of the first step
towards autonomy of successful CPSEs as described above, should be removed as
the next and final step within a period of three years from now, whereafter
investment decisions should be entirely left to the Board of Directors. |
|
2.16 |
The Board of Directors already have the
full authority to raise short-term or long-term loans from the market without
any prior approval from the Government, subject to existing rules and
procedures laid down by regulatory authorities like the RBI or SEBI. In the same manner, the Board of Directors
should have the power to raise equity capital from the market, so long as the
Government’s share of the overall equity remains above 51 per cent. Raising
such equity may require enhancement of the authorized capital, for which
Government permission would be necessary.
It may be stipulated that such permission for expanding the authorized
capital would be given in a time-bound manner provided the Government’s
shareholding does not fall below 51 per cent. At the time of granting such
approval, the Government may decide to extinguish a part of its shareholding
at the price which the company shares command in the market. If the Government does extinguish some
shares in this manner it would amount to disinvestment in a transparent
market-determined way. But if the Government does not extinguish any share,
the proportion of the Government’s shareholding would come down without
giving up the ownership or control over the company. |
|
2.17 |
Finally, there are certain issues like
foreign travel of the Chief Executive and the Functional Directors, which are
currently referred to the Ministry for approval. The Group felt that there should be detailed procedural
guidelines including limits of financial expenditure in this regard
formulated by the Board of Directors of the CPSE concerned, and accordingly
recommends that no reference to the Government for approval should be
necessary unless deviation from guidelines approved by the Board is intended. |
|
|
The
Role of the Board of Directors
|
|
2.18 |
The Board of Directors should be fully
responsible for the control and supervision of the Management of the company.
It should be responsible for placement and promotion of senior personnel,
formulation of company’s policy for creation/ abolition/ up-gradation of
posts, rewards and incentives for meritorious performance and out-of-turn
promotions, and on all matters relating to human resource development. |
|
2.19 |
The Board of Directors, subject to
statutory requirements, Government policy and regulatory guidelines issued by
RBI, should have the powers to pursue new lines of business, make suitable
acquisitions of companies, set up JVs/ Subsidiaries and exit a line of
business, and to make Capital expenditure up to levels as indicated in Para
2.15 without prior approval of the Government. |
|
2.20 |
No more than two officers should be
nominated as Board Members by the Government on the Board of Directors for
Navratna, Miniratna or other profit- making CPSEs. The performance of Government Directors on
Board of Directors of CPSEs must be suitably reflected in their Confidential
Reports. Furthermore, it is suggested
that a suitable appraisal system for performance review of non-official
Independent Directors may also be developed. |
|
2.21 |
Existing DPE guideline for CPSEs permits
5% of distributable profit to be allocated to employees as performance-linked
bonus / incentive. Functional Directors of CPSEs serve on contract / covenant
and their compensation is governed by the terms and conditions of the
appointment. However, keeping in mind the significance of the role played by
the leadership (the Chief Executive and the Functional Directors) in the
success of the organization, the Group is of the view that the Chief Executive
and the Functional Directors should also be entitled to performance linked
bonus / incentive within the permissible limit of 5% of distributable profit.
The Group recommends that the Compensation Committee of the Board as
constituted under the ‘Listing Agreement’ may decide the quantum of such
performance linked incentives, on the basis of the individual’s performance
and contributions during the year under review. The Compensation Committee
may also devise CPSE-specific norms for determination of such incentives. Such bonus / incentives would, however, be
governed by the limits prescribed in the Companies Act. |
|
|
The
Role of the Management
|
|
2.22 |
The Chief Executive should be entirely
responsible for the day-to-day management and operation of the company under
the overall supervision of the Board of Directors. The appointment of the Chief Executive should be made strictly
in accordance with the procedures laid down for this purpose. |
|
2.23 |
The Management
should be free to exercise all powers explicitly delegated by the Board of
Directors. It should function under
the supervision of the Chief Executive and Functional Directors on the Board. |
|
2.24 |
It
should be responsible for implementation of the decisions of the Board of
Directors and compliance of all statutory requirements as well as policy
guidelines. |
|
Chapter 3: AUDIT OF GOVERNMENT COMPANIES |
|
|
3.1 |
Pursuant to Section 19(1) of Comptroller
and Auditor-General’s (C&AG) Duties, Powers and Conditions of Service
Act, 1971, audit of the accounts of Government companies is conducted by the
Comptroller and Auditor- General in accordance with the provisions of the
Companies Act, 1956. Under Section
619 of the Companies Act, 1956, the Auditor (Chartered Accountant) of a
Government Company is appointed or re-appointed by C&AG. It is further
stipulated that C&AG shall have the power to (a) direct the auditor to
conduct the audit in a specified manner, (b) give instructions on any matter
relating to the performance of his functions, (c) conduct himself a supplementary
or test audit of the company’s accounts and (d) comment upon or supplement
the audit report in such manner as he (C&AG) thinks fit. The comments of
C&AG are to be placed before AGM along with Auditor’s Report. |
|
3.2 |
As regards the present status of audit in
CPSEs, C&AG appoints the statutory auditor of Government Company. The statutory auditor audits the account
of the CPSEs in accordance with the provisions of Companies Act and other
applicable statutes. C&AG has issued directions to statutory auditors of
Government Companies requiring them to furnish to C&AG a detailed report
covering various items specified in the questionnaire, in addition to the
normal auditor’s report under Companies Act, 1956, within three weeks from
the date of signing their Auditors’ Report.
After the receipt of certified accounts and Auditor’s Report, C&AG
conducts supplementary or test audit based on which the comments of C&AG
upon the report of Statutory Auditors or a supplementary report by him may be
issued. These comments form part and
parcel of Auditor’s Report. C&AG
also does a transaction/propriety audit in addition to supplementary/test
audit. In some CPSEs there are
resident audit parties who conduct concurrent audit. Under such audit, the propriety of the transaction
is also subjected to scrutiny. The
authority of such audit is not specified as far as Companies Act, 1956 is
concerned. |
|
3.3 |
CONCERNS OF CPSEs Test/Supplementary Audit The basic concern of CPSEs regarding
test/supplementary audit of C&AG is that it leads to delay in
finalization of audit of accounts resulting in non-compliance of directives
of SEBI regarding publication of audited results and quarterly results. Since statutory audit is conducted by
statutory auditor appointed by the C&AG in the manner directed by him, it
is felt that the test/supplementary audit is duplication of audit work
already done by statutory auditor. Transaction/Test Audit The main focus of such audit is to bring
to light the mistakes made in the past. On account of the benefit of
hindsight, circumstances/ compulsions under which such business decisions
were taken tend to get glossed over or ignored by the auditor. Such audit highlights only isolated
deficiencies of CPSEs which damage their corporate image in the public to the
detriment of their commercial interests. Such audit also leads to a defensive
attitude on the part of corporate executives leading to delay in decisions
which may not be in the best commercial interests of the Company. |
|
3.4 |
The requirement of transaction audit is
perhaps borrowed from the system of audit in government. CPSEs, being
commercial entities, have their own system of internal audit which requires
compliance in conformity with standards laid down by the Institute of
Chartered Accountants of India, disclosure guidelines of SEBI (for listed
companies) and compliance to the observations of Audit Committees and
Statutory Audit. Keeping in view the above statutory
requirements and concerns of CPSEs, the Group makes the following suggestions
which may be considered for implementation. Test/Supplementary Audit :
Ø Test/supplementary audit may be resorted
to only in exceptional cases rather than as a routine exercise. Ø Appointment of Statutory Auditors may be
made at the earliest in the beginning of financial year. Ø Appointment of Branch auditors may be
dispensed with. Only those firms of Chartered Accountants which are capable
of making Head Office as well as Branch Office audit may be considered for
appointment. Ø C&AG may also consider giving suitable
directions for consultations with Statutory Auditors at appropriate levels to
minimize the need for supplementary audit. Ø C&AG may consider making its audit
concurrent with the audit by statutory auditors so as to complete it along
with the audit by the statutory auditors.
Normally statutory auditors conduct their audit in two phases i.e. one
up to December which is completed before end of the year and next phase after
year end. C & AG may also like to
adopt similar practice Transaction/Test Audit: After considerable deliberation, the Group
was of the view that only malafide intentional mistakes, frauds, gross
negligence or willful ignorance of advice/suggestions should form part of
Audit Observation. However, bonafide
errors of judgment may be mentioned by the audit only as suggestions for
improvement of performance in future. Overall performance should be the
guiding criterion rather than review of individual commercial decision. Otherwise the Executives will be
apprehensive of making commercial judgements and decisions, which will be
detrimental to the commercial interest of CPSEs. |
|
Chapter 4: ARTCLE 12 OF THE CONSTITUTION
AND CPSEs |
|
|
4.1 |
Some judicial pronouncements have declared
public enterprises to be an extension or arm of the State under Article 12 of
the Constitution. Under Article 12,
‘State’, unless the context otherwise requires, includes the Government and
Parliament of India and the Governments and Legislature of each of the States
and all local or other authorities within the territory of India or under the
control of the Government of India.
Although Article 12, in so many words, does not provide that CPSEs
fall within the definition of the ‘State’, they still are deemed as being
included in the category ‘other authorities’ and therefore, covered under the
definition of ‘State’ as pronounced by different Courts including the Apex
Court. |
|
4.2 |
In the competitive environment in the wake
of liberalization/globalization, this situation undermines the
entrepreneurial and commercial functioning of public enterprises and puts
them at a disadvantageous position vis-à-vis their private sector
counterparts and competitors. This
negation of the essential distinction between government per se and public
enterprise – a distinction conceived by Parliament and embodied in the
Industrial Policy Resolution of 1956 – has led to a situation where any
aggrieved employee or contractor can move the court against the Management of
public enterprises calling in question individual actions or decisions in the
same way as against the State. This
would seem to imply that government enterprises can function only as government
departments and in accordance with the modalities, procedures and styles
similar to government administration.
This impedes decision-making in CPSEs, particularly in the competitive
environment in the wake of liberalization/globalization. Indeed, it is precisely because business
cannot be run efficiently in the normal governmental style and in accordance
with government procedures that public enterprises have been organized in the
corporate form. |
|
4.3 |
It was brought to the notice of the Group
that the matter was considered by the Committee of Secretaries in 1987 and,
based on its decision, the same was referred to the Ministry of Law
suggesting that the possibility of inserting an explanation below the Article
12 may be examined. The suggested insertion was as under: “A statutory corporation,
a company formed and registered under the Companies Act, 1956 or a society
under the Societies Registration Act shall not be considered as ‘State’ for
the purpose of this Article”. |
|
4.4 |
The Ministry of Law placed the issue
before the Law Commission which looked into various possibilities but could
not find a solution. In its 145th
Report submitted in 1992, the Law Commission concluded as follows: Such an amendment would not be a proper or
necessary measure to be adopted for dealing with the difficulties that may be
experienced by public sector undertakings in the matter of award of
contracts, rejection of tenders, service matters and the like arising out of
the present applicability of Article 12 to such undertakings. Having regard to
the Preamble and total philosophy of the Constitution, even if such an
amendment is made, some of the problems experienced by the public sector
undertakings would still survive under the ordinary law. In particular, judicial intervention in
the form of injunctions issued under the ordinary law cannot be ruled out,
even after the suggested amendment. It is highly doubtful whether, in the
light of the theory of non-amenability of the basic features of the
Constitution as at present recognized, such an amendment will pass muster on
the Constitution level. |
|
4.5 |
While taking note of the deliberations on
the subject in the past, one should still consider the dynamic changes that
are taking place in the business and economic environment on account of
globalization. Global competition is cutting into the margins and market
shares of Indian corporates, including CPSEs, facilitated by crumbling tariff
barriers. The far-reaching mandatory legal implications of Article 12 inhibit
the functioning of CPSEs as commercial entities like similar companies in the
private sector. In consideration of the foregoing position, the Group
recommends that this issue could be revisited by the policy makers at an
appropriate time in future. |
Chapter 5: PARLIAMENTARY ACCOUNTABILITY
|
|
|
5.1 |
In India, Government Companies are governed by the provisions of Indian Companies Act 1956. Under Section 620 of the Act, the Central Government has a right to exempt partly or wholly the application of any provision of the Act to the government companies except Section 618, 619 (A). The audit and accountability to Parliament is prescribed under sections 619 and 619(A) of the Companies Act which relate to audit and admission of annual report. |
|
5.2 |
Public enterprises
are accountable to the people through their elected representatives.
Parliament exercises surveillance of a general nature over them and makes
major legislative decisions about the policies relating to public
enterprises. Parliament also authorizes budgetary allocations for investment
and other needs of public enterprises where required. The property, assets,
powers and functions of public enterprises emerge directly or indirectly from
one or another legislation passed by the Parliament. Public enterprises,
while enjoying autonomy in financial matters, are ultimately accountable to
Parliament for investments made in them from the Consolidated Fund of India. |
|
5.3 |
Currently,
Parliament exercises control over the CPSEs in the following manner: Ø
Members of the Parliament can ask questions to the concerned Minister
on the working of public enterprises under his charge. Ø
Members of Parliament can discuss the affair of the public enterprises
when the House takes up demands for grants for discussion and vote. Ø
Parliament can examine the working of selected enterprises through its
committees. Ø
Parliament receives every year a comprehensive appraisal of the working
of selected public enterprises done by the Audit Board. Ø
Public enterprises are required to present to Parliament their annual
report together with a copy of the audit report made by the C&AG of
India. Ø
Oral Evidence of CPSEs before Parliamentary Committees is also required
to be given from time to time. |
|
5.4 |
The Chief Executives of Navratna CPSEs
were given an opportunity to express their views before the Group. Their
views are summarized below: Ø
Accountability to Parliament may be deemed as complied with through
Annual Reports. Ø
Questions on sensitive operational matters need to be avoided in the
interest of business confidentiality and competitiveness of CPSEs. Ø
Screening Committee may be set up for Parliament Questions so as to
avoid submission of voluminous data and sensitive business information. Ø
Instead of various Parliamentary Committees, there should be only one
Committee which should cover all aspects. Ø
Obligations should be the same for public and private sector in the
interest of level playing field. Ø
Independent body should be created to exercise all ownership rights of
the Government. Ø
Parliament should focus mainly on the review of performance of CPSEs. |
|
5.5 |
On the basis of the above cited
presentations and discussions, the Group would suggest the following for the
consideration of appropriate authorities: Ø
Day to day affairs of CPSEs may not be taken up in the Parliament Ø
Conduct of Chief Executive and Functional Directors may not be
discussed in the Parliament as there are other fora available for this
purpose. Ø It is essential to
distinguish between accountability to Parliament and involvement of the
Government in day to day functioning, personnel related matters etc. of
CPSEs. Ø
Control points and occasions could be few, effective and concerned with
major aspects of public enterprise policy. Their focus should be on enabling
the enterprises to fulfill the norms of accountability expected of them. Ø
Profitability and working could be tested from time to time by the
Parliament in enterprises where production and expansion are taking place
since it involves government expenditure. Ø Appropriate competent authorities in the
Government and the Parliament may therefore like to consider setting up of a
screening committee to screen Parliament questions from the angle mentioned
above as well as the need for confidentiality of business decisions. |
|
Chapter 6: VIGILANCE MANAGEMENT IN PUBLIC
SECTOR ENTERPRISES |
|
|
6.1 |
The Central
Vigilance Commission (CVC) was set up by the Government of India by its
Resolution dated 11.2.1964 in pursuance .of the recommendations of the
Santhanam Committee. The Commission acts as the apex body for exercising
general superintendence and control over vigilance matters with a view to
ensuring probity in public administration. It is vested with the authority of
initiating investigations/enquiries into cases involving corruption,
malpractices and lack of integrity. The CVC possesses statutory status by
virtue of the Central Vigilance Commission Bill passed by the Parliament
which received assent of the President on 11th September, 2003.
The aim of the Act is to provide for the constitution of CVC to inquire into
offences alleged to have been committed under the Prevention of Corruption
Act, 1988 by certain categories of public servants including those of public
enterprises. |
|
6.2 |
Section 8(1)(h) of
the Act provides that the Commission shall exercise superintendence over the
administration of various Ministries of the Central Government or
Corporations established by or under any Central Act, Government Companies,
Societies and Local Authorities owned or controlled by the Government. Executives on the Board of Directors of
CPSEs and two levels below the Board of Directors fall within the purview of
CVC, as important decision making in most of the CPSEs is limited to two
levels below the Board level. The Commission tenders appropriate advice to
the concerned disciplinary authorities in all matters of corruption,
malpractices, misconduct, lack of integrity etc. |
|
6.3 |
Special Chapter on Vigilance Management in CPSEs: CVC in consultation with the Department of Personnel
and Training (DoPT) and some other bodies had issued a Special Chapter on
Vigilance Management in CPSEs and the role and functioning of CVC. It covers
the entire gamut of vigilance principles and procedures to regulate vigilance
management in CPSEs to deal with any complaints of corruption, gross
negligence, misconduct, recklessness, lack of integrity or other kinds of
malpractices on the part of public servants. |
|
|
PRESENT VIGILANCE
SET UP IN CPSEs: |
|
6.4 |
A study was conducted by Department of AR
& PG on vigilance set-up in respect of CPSEs. It prescribed a Model
Vigilance Structure at different levels (Corporate/Unit/Regional) in CPSEs to
deal with investigations, disciplinary proceedings, anti-corruption work and
preventive vigilance with adequate personnel to carry out all necessary
functions to prevent possibilities of corruption. Guidelines have been issued
to the CPSEs for necessary compliance as per the size of the
organization. Under Section 8(1)(h)
of the Act Central Vigilance Commission has issued instructions to the CPSEs
to encourage a culture of honesty, greater transparency in administration,
speedy departmental inquiries, transparent decision-making on NITs etc. |
|
6.5 |
Appointment of Chief Vigilance Officers: To provide for adequate vigilance apparatus in CPSEs,
appointment of Chief Vigilance Officer (CVO) with concurrence of Central
Vigilance Commission has to be made along with a number of vigilance officers
with desired manpower requirements of skilled and trained vigilance
personnel. The CVO acts as a link with the CVC and CPSEs. He functions as the
principal vigilance aide to the Chief Executive and as the focal point in
respect of the entire work relating to vigilance. The role of the Chief
Vigilance Officer is both preventive and punitive. |
|
6.6 |
CPSEs having
full-time posts of CVOs fill up such posts as per the procedure prescribed
for appointments under the Central Staffing Scheme. DoPT requests the Cadre
Controlling Authority of various organized services to offer officers of
proven integrity for these posts. The names so received are forwarded along
with bio-data of the officers concerned and their ACR dossiers to the
Commission for approval. The DoPT maintains a panel of names approved by the
Commission, which are operative for a period of one year. The Commission then
prepares a panel of names and recommends it to the administrative
Ministry/Department concerned for making appointment. In case of CPSEs which do not have
full-time posts of CVOs, one of the officers from a panel of three senior
officers forwarded to CVC by the PSE is selected by the Commission as the
CVO. |
|
6.7 |
Examinations/Investigations of Complaint against Board Level Appointees: CVC has issued necessary instructions in the matter
of dealing with complaints against the Board Level Appointees. If the CVO of
an administrative Ministry asks for a factual report against a Board level
appointee from the CVO of the PSE, the latter sends the same to the CVO of
the Ministry, after endorsing a copy of the report to the CMD to keep him
informed of the development. However, if the CMD himself is the subject matter
of the investigation, the CVO of the PSE need not endorse a copy of the
report to him. In such cases it is the responsibility of the CVO of the
Ministry to obtain the version of CMD at the appropriate time. The CVO of the
Ministry has to make a reference to the CVC after collecting all the relevant
facts and following the prescribed procedure. |
|
6.8 |
Investigations by the CBI-Constitution of Central Advisory Board: The special chapter on Vigilance Management issued by
CVC provides as under: Considering the
complexities involved in commercial decisions of the PSE, the CBI may find it
worthwhile to obtain the benefit of expert advice from various disciplines
before registration of PE/RC. A Central Advisory Board may be constituted to
assist CBI for this purpose. Appointments on the Board may be made from the
panel of names approved by the CVC. The Board should give its considered
opinion within one month from the date of reference before registration of
PE/RC, failing which the CBI would be competent to decide the matter without
advice. Advice of the Board should not be binding on the CBI. |
|
6.9 |
Strengthening of Vigilance Machinery in CPSEs: CVC has been issuing necessary instructions to
strengthen vigilance set-up in the CPSEs. The CVOs of the level of Joint
Secretaries to the Govt. of India and above in the Schedule 'A' and 'B'
Companies have been given status equivalent to that of a Functional Director
with other facilities and perquisites available to the Functional Directors
in these companies. CVC has also recommended creation of the post of CVO at
the level of Functional Director in Schedule 'A' companies, which has
hitherto been acted upon only in the Navratna CPSEs. |
|
|
CONCERNS/SUGGESTIONS
OF CHIEF EXECUTIVES OF CPSEs: |
|
6.10 |
The current business
environment calls for speedy decision making amid a welter of factors and
changes induced by globalization, liberalization, technology changes and
continuously increasing competition. Public Sector Enterprises are being
evaluated as commercial entities and are expected to take business decisions
in a dynamic scenario. There is need to empower these CPSEs by providing
mechanisms which would enable speedier decision making in a changing business
environment with all the inherent risks. |
|
6.11 |
During the discussions
with Chief Executives of some of the Navratna central public sector
enterprises, certain points relating to vigilance administration in CPSEs
were brought to the notice of the Ad-hoc Expert Group. Views were expressed to the effect that
the role of CBI/ CVC should be restricted and CPSE executives may be
protected against misconceived and unnecessary vigilance action based on lack
of full appreciation of business related decisions. It was suggested that necessary measures may be recommended in
this regard so that executives in CPSEs do not shy away from taking business
decisions on account of fear of vigilance action. This is particularly significant for improving the commercial
functioning of CPSEs in the competitive environment in the wake of liberalization/globalization. |
|
6.12 |
CVC had constituted a Committee under the
Chairmanship of Shri Arvind Pande, ex-Chairman, SAIL to study the vigilance
administration in the Public Sector Enterprises and to recommend measures to
strengthen it. The Committee has since submitted its report to the Commission
and the recommendations made therein are under consideration of the
Commission in consultation with concerned Ministries/ Departments for a final
decision on the report. Some of the recommendations of Arvind Pande Committee are relevant to the
issues raised by the Chief Executives of some Navratna CPSEs before the
Expert Group. Keeping the committees recommendations in mind, the Group
recommends the following: |
|
|
Ø
The CVC and the CPSEs need to adopt an approach of capacity building
that can integrate better with the modern day requirements of risk
management, security management, and financial controls and compliance. This
effort will add discernible value to the competitiveness of the enterprise
apart from promoting probity, and integrity amongst public officials and
supporting, synergizing and fostering corporate governance |
|
|
Ø
The coverage of CVC's jurisdiction should be restricted to executives
of E-8, E-9 levels and Functional Directors (including the Chief Executive)
of all companies. This ensures parity going by the pay scales of Schedule-D
companies' directors and the E-8. However, the CVC may consider making
specific exemptions in the case of select Navratnas,
which have in place internal systems, controls, and procedures that would
demonstrably meet the preset standards evolved by the CVC. In case of such
exceptions, the CVC's jurisdiction could be limited to the Director level
only. However, it is recommended that this empowerment should be earned by the
respective organizations by meeting quality standards and subject to
withdrawal of the privilege should their systems fall short of the standards
in future. |
|
|
Ø
Anonymous and pseudonymous complaints forwarded by Hon’ble MPs or MLAs
should be verified by the concerned CVOs or official. Where the complainant
is identifiable, it could be suggested to the MP or MLA concerned to obtain
the complainant’s signature and name, failing which the case may be proceeded
with as if the Hon’ble MP or MLA is the complainant. |
|
|
Ø
The CVC may consider issuing guidelines specifically allowing CPSEs to
initiate proceedings under the relevant sections of the IPC and the CrPC in
all cases wherein complaints have delayed strategic decisions and are
ultimately found to be unfounded, malicious and false. |
|
|
Ø
The process of vigilance clearance may be simplified in the case of PSE
officials aspiring for Board appointments. The CVO concerned should be
empowered to verify the records, make enquiries, and furnish the assessment
without countrywide scrutiny through various CBI offices. It is also
recommended that a period of 5 years should be the periodicity of
reverification, unless there is good reason to do so at a shorter interval. |
|
|
Ø
Prior approval of the Government in the concerned Ministry is required
for launching criminal prosecution against officers above a designated rank
working with the Ministry. The
employees of PSEs who are equivalent in rank to that level should be treated
on par with the latter as CPSEs are treated as Government and its employees
as public servants. Ø
Furthermore, the vigilance cases against Board members of CPSEs need to
be referred to the ‘Advisory Board’ of CVC (similar to the one constituted
for the Banking sector) as envisaged in para 3.3.29 of Pande Committee Report
to determine whether a given decision was bona fide or mala fide. The decision of the Advisory Board should be
binding on the investigating agency. Ø If as a result of the inquiry it is proposed to launch prosecution, then the sanctions / permissions for initiating prosecution or suspension of the Board level incumbents should be granted after fully consulting the Supervisory Body. The recommendation of the Supervisory Body should normally be accepted by the prosecuting agencies, unless there are strong reasons for a contrary view. |
|
|
Ø
The CVOs should be trained more frequently and intensively, and should
be adequately equipped with knowledge of management audit, decision making
processes, domain issues of particular industries, financial analysis and
transaction, risk management, control systems, coordination abilities etc. |
|
|
Ø
The vigilance set up of Subsidiaries of CPSEs should be under the
vigilance administration of the holding company and need not have direct
interface with the CVC. |
|
|
Ø
Decision on suspension of Board level officials by the Ministry must be
taken after obtaining the concurrence of the Supervisory Body. In case of other officials below
Board-level concurrence of the sub-committee of the Board must be obtained. |
