'So much data, noise': SC-appointed panel in Adani-Hindenburg case flags info burden on investors 

At a time when many stakeholders of India Inc have said that there are too many rules and disclosures that make doing business difficult in India, the expert committee appointed by the Supreme Court in the Adani-Hindenburg matter has highlighted the fact that there is an urgent need to introspect whether regulatory bodies have mandated a “surfeit of disclosures” that actually makes it difficult for the investors to make an informed decision.

The SC-appointed committee highlighted the fact that the disclosures that have been mandated by the Securities and Exchange Board of India (Sebi) are of two types – one set required to be made at the time of issuing any form of security and the second set pertaining to those that need to be made after listing.

“Under both heads, there is an urgent need to introspect and take a hard close look at whether there is a surfeit of disclosures that loads and burdens the investors with so much data and noise that the real content necessary to make an informed decision may be lost,” noted the SC committee.

“Offer documents and prospectus issued at the time of listing in compliance with the ICDR Regulations run into several hundreds of pages, which begs the question as to whether investors actually read these documents,” it added.

Interestingly, Sebi, as part of its submissions made before the expert committee, stated that the quantum of statutory disclosures required in India is much more than those mandated in the US as well.

For instance, while the US mandates the disclosure of only material related party transactions, every related party transaction needs to be disclosed under the Indian regulatory framework.

Incidentally, while listed entities are bound by the regulatory framework laid down by the capital market watchdog, those are not the only rules that govern businesses in India.

At the Business Today India@100 Economy Summit in New Delhi in August last year, industry participants highlighted the fact that there were as many as 1,536 laws that directly or indirectly govern doing business in India.

Cumulatively, these laws – some enacted at the Centre and some at the state level - add up to 69,233 compliances at an aggregate level that businesses have to comply with, they said.

More importantly, half of the laws carry imprisonment clauses while two out of every five compliances carry a jail term for violations. In all, there are 26,134 imprisonment clauses that businesses have to face while operating in India.

“The system is such that it pays to be below the regulatory radar. The economies of scale that are available in many overseas economies are not available in India. The moment a factory of say 150 employees gets formalised, immediately over night the company has to face between 400 to 900 compliances for which it has to spend Rs 12 to Rs 18 lakh a year,” Gautam Chikermane, Vice President, Observer Research Foundation had said as part of a panel discussion titled ‘The Regulatory Cholesterol That is Getting in the Way of Doing Business’.

While there are 63 million enterprises in India, just one million are in the formal sector, he had said.

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