monopoly rules bankruptcy
CLOUD NINE BELOW and dirt
The most striking fact about the legal system of India, the difference between investor protection is provided by the law, that the protection against in practice. Table 2.1 compares India's Scores compared to other legal origin groups in the law and finance literature (from LLSV and others) considered and other emerging markets along several dimensions of law and institutions. As already mentioned, discussed with the English common law system, India has a strong Protection of investors in the paper. For example, the scores on both creditor rights (with a score of 4.4 in LLSV (1998), based on the Company's Act of 1956, at 04:02 in DMS (2005), based on the Sick Industrial Companies Act 1985) and the rights of shareholders (6.5), the highest of any country in the world.
Corruption is a major problem systemic in many developing countries and is of particular importance for India. Studies of the World Bank (World Development Report 2005) have noted that corruption was the number one barrier to business in South Asia and that the two corrupt public institutions by the respondents in India (and in particular the most Countries in South Asia) were the police and the judiciary. Based on Transparency International's Corruption Perception Index, India has a value of 2.9 from 10 in 2005 (one higher score means less corruption), which has 88 out of 140 countries (with the range to rank from 1.5 to 9.7), and the ranking compared to other countries does not improve much in the last ten years.
Next we have two measures of the quality of accounting systems. The disclosure index (0-1, higher Score means more disclosure, LLS 2006) measures the extent to which companies are listed, their ownership structure, business operations and corporate governance mechanisms, disclose the legal authorities and the public. India's score of 0.92 is higher than the averages of all LLSV subgroups of countries, including the English origin countries, suggesting that Indian companies have to disclose a large amount of information. However, this does not mean the quality Disclosure is also good. In terms of the level of earnings management (higher value means more earnings management; Leuz, Nanda and Wysocki 2003), India score is much higher than the average of English origin countries, and is only lower than the German origin countries, suggesting that investors have a difficult time in the evaluation Indian companies based on publicly available reports. It seems that while Indian companies to produce large quantities of data, form wins out over Substance in the disclosure and with an accounting, which allows great flexibility, there is enough room for companies to conceal or disguise the truth.
The efficiency and effectiveness of the legal system is essential for contract enforcement, and we have two measures. First, after the legal Formalism (DLLS 2003) index, India has a higher formalism index than the average of English origin countries, and is only lower than that of French origin. The legality index, a composite measure of the effectiveness of a country's legal institutions, on the weighted average of the five categories of the quality of legal institutions and government authorities in the country (Berkowitz, Pistor and Richard 2003). In line with other measures, India Score is lower than the average of all LLSV subgroups of countries, suggesting that India's legal institutions are less effective than that of many countries, and that it will be difficult for India to adopt and enforce new legal rules than other countries.
Finally, as for the entrepreneurial Environment in India, a recent World Bank study
found that among the top ten obstacles to Indian businesses, the three that the company
interviewed as a "large" or "very severe" obstacle and more than the world average are corruption (the most important problem), availability of electricity and employment legislation. Threat nationalization or direct government intervention in the economy is no longer a major issue in India. With rampant tax evasion, is the shadow economy in Germany significantly. It is estimated to be about 23% of GDP. Creditor and investor rights were largely unprotected in practice, with Banks little bargaining power against deliberate non-payer. Large corporate houses often come with standard or has bad projects financed by the state banks, often through connections with influential politicians and bureaucrats.
Since the beginning of liberalization in 1991 were two important improvements in the rights of creditors Protection taken – the creation of the quasi-legal Debt Recovery Tribunal, that delinquency and reduced lending rates accordingly (Visaria (2005)) and the passing of the securitization and reconstruction of financial assets and enforcement of Security Interest Act 2002 and the subsequent enforcement of Security Interest and Recovery of debts Laws (Amendment) Act 2004th These laws have paved the way for the establishment of asset reconstruction firms and banks and financial institutions to act decisively against defaulting Debtor. In the last years have shown significant improvement in recovery, probably because, at least in part, with a well-functioning economy (Table 2.1).
2.1. Comparison of legal systems: India, agriculture groups and the major emerging Economics *
Creditor
Rights
Anti-director
Rights
Corruption Perception Index
Legal Formalism
Index
Legality
Index
Announcement
Request
Yield
Managem score
India
2
5
3.3
3.51
11.35
0.92
19.1
English-origin A ve.
2.28
4.19
5.33
3.02
15.56
0.78
11.69
French-origin Ave.
1.31
2.91
4.39
4.38
13.11
0.45
19.27
German-origin Ave.
2.33
3.04
5.58
3.57
15.53
0.60
23.60
Nordic-origin Ave.
1.75
3.80
9.34
3.32
16.42
0.56
10.15
LLSV Sample Ave.
1.828
3.3729
5.24
3.5830
14.98
0.6031
16.00
China (G)
2
1
3.3
3.40
N / a
N / a
N / a
Pakistan (E)
1
4
2.2
3.74
8.27
0.58
17.8
S. Africa (E)
3
5
4.6
3.68
11.95
0.83
5.6
Argentina (F)
1
2
2.9
5.49
10.31
0.50
N / a
Brazil (F)
1
5
3.3
3.83
11.43
0.25
N / a
Mexico (F)
0
3
3.3
4.82
10.79
0.58
N / a
Malaysia (E)
3
5
5
3.21
13.82
0.92
14.8
Sri Lanka (E)
2
4
3.1
3.89
9.68
0.75
N / a
Thailand (E)
2
4
3.6
4.25
10.70
0.92
18.3
Egypt (F)
2
3
3.3
3.60
10.14
0.50
N / a
Indonesia (F)
2
4
2.4
3.88
8.37
0.50
18.3
Peru (F)
0
3.5
3.3
5.42
9.13
0.33
N / a
Philippines (F)
1
4
2.5
5.00
7.91
0.83
8.8
Turkey (F)
2
3
3.8
3.49
9.88
0.50
N / a
Korea (South) (G)
3
4.5
5.1
3.33
12.24
0.75
26.8
Taiwan (G)
2
3
5.9
3.04
14.26
0.75
22.5
Average of the EM
1.69
3.63
3.60
4.00
10.59
0.63
16.61
Source of EM
* Including all emerging from Table 1, for which information was available. Notation (E) (F), or (G) in a country means that the country is said, in English, German, fresh or legal origin groups.
28: DMS average of 30: DLLs (2003) average
29: DLLs (2007) average of 31: LSS (2006) average
To summarize, despite strong protection where the law is the legal considerably in practice because of an inefficient judicial system by overburdened courts, slow court characterized weakened, and the widespread corruption within the legal system and the government. While the need for judicial and legal reform has long been recognized, has little legislative action has actually taken place so far (Debroy (2000)). Currently, the government tries, the success of to emulate China after the Special Economic Zone approach rather than overhaul the entire legal system.
Finance / Business Laws and Regulations in India
Bureaucracy and regulations still rank among the leading deterrent to business and foreign investments in India to its latest ranking 116 of 155 in the World Bank Ease of Doing Business in 2006 indicator (World Bank, 2006). India has consistently in the second half of the sample for all aspects of the business Regulation (And out of the top 100 for most aspects), except for investor protection. To start a business in India, entrepreneurs have in the vicinity of the double Number of procedures such as in OECD countries follow, About three and a half times the delay and close nine times the cost (as a percentage of per capita income). Delays and costs in dealing with licenses in India is approximately in proportion with their respective corresponding OECD figures. More recently (second half of August 2007), The Indian government decided to improve this situation and has announced a drastic reduction in the number of approvals and permits necessary to develop new business opportunities to start. If and when this must be translated into practice to be seen.
It is almost twice as heavy, people in India as a rent in the OECD countries and almost three times so difficult and expensive to fire. show with considerable variation in their labor legislation on states, Besley and Burgess (2004) that during the three and began a half decades before the liberalization in 1991, Indian states, the more pro-worker policies followed experienced lower power range, investment, employment productivity and output in the registered or "formal" sector, and higher urban poverty with an increase in the informal sector.
In the area the availability of credit, lags behind India not because the rights of creditors (the close to OECD standards), but because of the lack of credit information by the use of public surveillance or reporting of private offices. However, India's excellent investor protection provisions in the law should work together with their Performance in the enforcement of contracts are considered when the number of procedures and delays are about twice as high as in OECD countries and the costs of contract enforcement about four times as high as in OECD countries.
As with regulation of securities markets, using the framework of La Porta et al (2006) focuses on the Disclosure and liability requirements and the quality of public enforcement of the rules controlling securities markets, India scores 0.92 in the index of disclosure requirements third highest after the United States and Singapore. As the standard for liability, India is the fifth-highest score, 0.66, while the average of the sample is 0.47. In relation to the quality of public enforcement, ie the nature and powers of the regulator, the Securities and Exchanges Board of India (SEBI), India mean scores 0.67 higher than the total sample, and the English-origin average of 0.52 and 0.62 respectively and 14-series in the sample.
In a Comparison of the legal powers and performance of the SEBI with the SEC (Securities and Exchanges Commission) in the U.S., Bose (2005) concluded that while the size of the Indian Securities laws, quite ubiquitous, there are significant problems in enforcement, particularly in areas such as price manipulation and insider trading. Between 1999 and 2004 found that Bose SEBI took action in 481 cases compared to 2789 cases for the SEC, although the latter a much more mature market regulated. As a ratio taken measures to increase the number of companies in their field, SEBI out, comes to an insignificant 0.09, while the SEC is 0.52. Also, the relationship for the measures taken to ensure the investigation is set quite low for SEBI (eg 1 of 24 cases in connection with the exhibition manipulations in the years 1996-97, 7 of 27 in the 5-year period 1999-2004). As for appeals before higher authorities – the Securities Appellate Tribunal (SAT) or the Ministry of Finance – in 30-50% of cases the decision goes against SEBI. Although SEBI has had some success, the pursuit of agents has not been able to convince the SAT in its action against corporate insiders and major Market participants. To ensure the quality of public enforcement of securities laws appears to be a problem in India.
The carrier rate of recovery tribunal (DRT) in the early 90s and the
Passage of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002 were in the Rehabilitation of the slowness of the judicial proceedings addressed. The SARFAESI Act paves the way for the establishment of Asset Reconstruction Companies (ARCS) that the Non-Performing Assets (NPA) from the balance sheets of banks and can be restored. Operations of these sheets would securitizatipn asset reconstruction and not be restricted. It allows including banks and financial institutions use direct property of a defaulting debtor, not reacting to the default settings within 60 days of a message. The borrower can will be confiscated until after the appeal DRTs assets and the law allows the sale of seized assets. The SARFAESI law itself, not a final Solution for the recycling problems. The lender the right to approach the DRT, the DRAT (Debt Recovery Appellate Tribunal) and in some cases even a high Court, a case easily for three minutes, four years ago, during the time of the sale of forfeited assets are not held to be drawn. It may be too early to assess its impact on the reduction of the default values, however, public banks have some success recovering their debts by seizing and Sale of assets, as the law had created. The recovery rates of bad debts have registered a sharp increase in the years 2005-06, but it is difficult from the contribution of the booming economy at that, that to separate the improvement of corporate governance.
Another positive development in the area of disclosure , the adoption of Accounting Standard (AS) 18, Institute of Chartered Accountants of India (ICAI) was established in 2001, which makes, among other aspects of the "business related party "by Indian companies mandatory. Related parties include Holding and subsidiary companies, the key management personnel and their direct Relatives, "parties with control exist, which include joint ventures and affiliates, and other parties such as promoters and staff were familiar. Transactions cover the purchase / sale of goods and commodities, borrowing, lending and leasing, leasing and brokerage arrangements to guarantee agreements, transfer of research and development and management contracts. This step has a long way to bring transparency gone the way the Indian companies, especially the group-affiliates.
The area of the Ease of Doing Business Index, on which India fares worst is no doubt that the closure of a company. India has the dubious honor of being among the Countries in which it takes the longest to through bankruptcy in the world (on average 10 years go). Consequently recovery rates are very low too – less than 13% compared about 74% in OECD countries to meet. Kang and Naya'r (2004) point out that there is no single, comprehensive and integrated policy on corporate bankruptcy in India in the lines of Chapter 11 or Chapter 7 of U.S. Bankruptcy Code. Overlapping responsibilities of the High Courts, Company Law Board, the National Board for Industrial and Financial Reconstruction (BIFR) and the debt recovery tribunal (DRT) will contribute to the costs and delays of bankruptcy. The Companies (Second Amendment) Act, 2002 should this Problems through the creation of a National Company Law Tribunal address and fixing a time-bound rehabilitation or liquidation process within less than two years and brings about other positive changes in the Bankruptcy Code.
Stock exchanges in India
India currently has two main Stock exchanges: the National Stock Exchange (NSE), established in 1994 and the Bombay Stock Exchange (BSE), the oldest exchange in Asia, founded in 1875. Up to 1992 BSE was a monopoly, characterized by inefficiencies, high costs of mediation, and manipulative practices, so that external market users often found themselves at a disadvantage. The economy Reforms created four new institutions: the Securities and Exchanges: Board of India (SEBI), the National Stock Exchange (NSE), the National Securities Clearing, Corporation (NSCC) and the National Securities Depository (NSDL). The National Stock Exchange (NSE), a limited liability company owned by the public sector financial institutions, now representing about two-thirds of the stock exchange in India, and virtually all of its derivatives trading.
The National Securities Clearing Corporation (NSCC) is the legal counterparty net obligations of each brokerage firm, and thus both counterparty risk and the possibility of payments crises. It follows a strict "risk containment framework with collateral and intra-day monitoring. The NSCC is properly supported by the National Securities Depository (NSDL) supports, has an excellent record of reliable Processing schedules since its beginnings in the mid-nineties.
The Securities and Exchanges Board of India (SEBI) has a strict regulatory regime to Fairness, transparency and good practice introduced. For example, for greater transparency, SEBI disclosure requirements for all transactions in which the total quantity of Shares more than 0.5% of the equity of the company responsible. Brokers disclosure to the stock exchange, trade immediately after execution to the customer's name in addition to trade Details, and the stock exchange shall forward the information to the general public on the same day.
The new environment of transparency, fairness and efficient regulation BSE led, in 1996, including a transparent electronic order book market is similar with an efficient trading system of NSE. is Equity and Equity Derivatives Trading in India add enormously to a level over the last ten years.
In 2005, some 5,000 companies were listed and traded in NSE and / or BSE. While the dollar value of trade is on the Indian stock markets are much lower than the dollar value of trade in Europe or the U.S., it is important to note that the number of equity transactions on BSE / NSE times larger than that of Euronext or London ten, and the same order as the NASDAQ / NYSE. Similarly, the number of derivatives trades on NSE is several times larger than by Euronext / London, and of a magnitude comparable with U.S. futures exchanges. The number of trades is an important indicator of the level of interest of Investors in the equity shares and share trading, and highlights the central importance of corporate governance practices in India.
Enforcement of corporate Governance Laws
The enforcement of corporate laws, "the Achilles heel of the legal and corporate governance system in India. The World Bank has Reports on the Observance of Standards and Codes (ROSC) in its 2004 report on India (World Bank (2004)) noted that while India observed or largely Most of the principles adhered to, it could do better in areas such as the contribution of nominee directors of financial institutions, control and monitoring management, enforcement certain laws and regulations as they related to stock exchange listing in the major stock exchanges and insider trading as well as in dealing with breaches of the Companies Act – the Backbone of the company's governance system in India. Some of the problems arise because of the unresolved questions about legal issues of jurisdiction and powers of SEBI.
Indian courts, an assessment
Djankov et al (2003) (DLLs) on its analysis of "formalism" in the judicial process around the world, gave India a score of 3.34 higher on its formalism index as the English origin average of 2.76, but slightly lower than the average for all countries, 3.53. Among the 42 English-origin in their sample, India has the 11th highest formalism. India has the 16th longest process of a tenant eviction (212 days) under the English common law countries of origin (an average of 199 days). For data collection on bad checks, but India has in the 16 shortest duration (106 days) under the English common law countries of origin (an average of 176 days). In both cases, India's total duration of the process is much shorter than the general The average duration of all 109 countries (254 and 234 eviction of the tenant to collect on bad checks). So, in spite of its formalism, Indian dishes not seem to meet that considers bad (relatively speaking) makes these two types of.
The DLLs are in arrears despite assurances and decades of legal battles commonplace in India. Despite the courts with some 10,000 meals (excluding meals and special), India has a serious, shortage of judicial Service. While the U.S. has 107 judges per million citizens, Canada on 75, 50 and the UK via Australia on 41, for India the figure is just over 10, (Debroy (1999)). In April 2003, for example, had the Supreme Court of India, almost 25,000 cases are pending (Parekh 2001). Hazra and Micevska (2004) report that there are about 20 million cases pending in the lower courts and another 3.2 million cases in high courts. A termination dispute can take all the way to challenge up to 20 years for disposal. Written petitions in high courts may take 8-20 years for the disposal. About 63% of the pending civil Cases over a year old and 31% are older than 3 years old. Automatic appeals of extensive litigation of the government, underdeveloped alternative mechanisms of dispute resolution such as arbitration, the deficit carry all of the judges on this enviable status in the Indian courts. Because the same courts in both civil and criminal matters and try the latter receives priority, economic disputes are suffering even greater delays.
Small and Medium Enterprises (SMEs) in India
Allen et al (2006) surveys the extent study to which the formal legal environment directly supports and regulates businesses, particularly small and medium enterprises, which make an increasingly important part of Indian industry. This seems to indicate that the small business sector to operate in a system governed in practice by informal mechanisms based on trust, reciprocity and reputation with little recourse to the legal system and deals with the widespread Corruption.
More than 80% of companies needed a license to start a business, and get to about half of them had it is a difficult process. Government representatives were most often solved the problem usually by paying bribes or friends of government officials to negotiate. Of course networks and connections are crucial in negotiating the state bureaucracy.
As for the conduct of day-to-day business, are legal concerns far less important
than the unwritten rules of the informal networks in which the companies operate. In cases of insolvency and breach of contract, the main concern is the loss of reputation, followed closely by loss of property, with the fear of legal consequences to the least-important concern.
About half of the companies surveyed do not have a regular legal adviser, and less than half of those who had attorneys in that capacity has. For placement in a business or disputes under the contract, enforce the first choice was "mutual friends or business partners." Only 20% of the Respondents referred to courts is as the first option specifies that the legal system which, although not as effective as the informal mechanisms, is not entirely absent.
The informal System is not perfect in the settlement of disputes and has its costs. About half of the respondents experienced a breach of contract or non-payment by a supplier or major customers in the past three years. More than a third of them re-negotiated, with more than 40% have nothing but the business continued with the offender groups.
In general, the economic environment of the SME sector is characterized by a strong informal mechanisms such as family ties, reputation and trust. Appeal if present, are far less important than the rules of the informal networks.
References
Allen, F., R. Chakrabarti, S. De, J. and M. Qian Qian, 2006, "Financing firms in India", Working Paper, The Wharton School.
Bose, Dipankar and Suchismita Coondoo, 2004, "The impact of FII Regulations in India", Money and Finance, July-December.
Bose, Suchismita, 2005. "Regulation of securities markets: Lessons from the U.S. and Indian Experience ", Money and Finance, Jan-June, from 83 to 124th
Besley, Timothy and Robin Burgess, 2004, "Can Labor Regulation Hinder Economic Performance? Evidence from India" Quarterly Journal of Economics.
Debroy, Bibek, 1999, "some Problems in Law Reform in India ", in Jean-Jacques Dethier Ed. Governance, decentralization and reform in China, India and Russia. Boston, Kluwer Academic Publishers.
Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, 2002. "The Regulation of Entry" Quarterly Journal of Economics "Courts" Quarterly Journal of Economics, 118 (2), 453-517.
Hazra, Arnab K., and Maja Micevska, 2004, "The Problem of Court Congestion: Evidence from Indian courts," Working Paper, University of Bonn.
Kang, Nimrit and Nitin Nayar, 2004, "The Evolution of Corporate Insolvency Law in India", Money and Finance, October 3 to March 4.
About the Author
Dr. S. Tameem Sharief, Ph.D.,
Lecturer & Research Supervisor
P.G. & Research Department of Commerce
The New College, Chennai – 14
E-mail: tameem08@hotmail.com
Monopoly Man Goes Bankrupt
