Governments as Issuers of Securities

As we have been constantly focusing on this Blog (here, here and here), public sector enterprises (PSEs) in India that are substantially owned by the Government often take advantage of relaxations and special dispensations from the applicability of securities laws and corporate governance norms that otherwise apply in their entirety to their private sector counterparts. Even where actions have been initiated by regulators, they have been dropped. For instance, about two years ago when SEBI required PSEs to comply with minimum requirements for appointment of independent directors, the action was not pursued because the PSEs argued that the appointment was beyond their control as it required (under their respective articles of association) the approval of the President of India, which was not forthcoming.

An interesting contrast emerges from a recent U.S. experience where the SEC has charged the State of New Jersey for violating federal securities laws by not disclosing in various state bond offerings that two of its public employee pension funds were underfunded. The Conglomerate Blog observes that this might be the beginning of a wave of legal actions against state and municipal authorities that may have violated securities laws. More interestingly, it points to several political compulsions that may drive state agencies away from ensuring full compliance with securities laws, such as fair disclosure.

For a start, if even a single instance of non-compliance by governments or public enterprises is pursued to its logical conclusion, it may at least motivate others to move towards greater compliance.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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