A MCA should develop a policy for reviewing mature start-ups to ensure compliance with corporate governance : Ajay Tyagi
Following the fiasco involving edtech major Byju’s, former SEBI Chairman Ajay Tyagi made a strong recommendation that the MCA step in to put in place a codified review of the mechanism on the corporate governance compliances of certain mature start-ups.
Tyagi told businessLine on the sidelines of the Start-ups Corporate Governance Conclave that the Ministry of Corporate Affairs (MCA) should develop a policy to analyse and review the corporate governance practises of mature start-ups with high valuations, high turnover, or plans to launch an IPO. MCA must do this, and SEBI cannot, according to Tyagi. He stated that SEBI can only intervene during the listing process.
Tyagi’s comments contrast sharply with G20 Sherpa Amitabh Kant’s advice in his address to the same conference that, rather than regulation, India must create a robust system of self-governance if it wants a dynamic and energetic start-up environment. Tyagi also encouraged mature start-ups contemplating an IPO to follow corporate governance practices required for listed firms well in advance. “Mature start-ups should do this three years before their IPO, not six months before.”They should make it known when they go public that they have been following it for the past three years. That demand should come from a regulatory mandate for unlisted companies, which MCA alone is capable of fulfilling” he added.
Private enterprises, especially start-ups, that want to go public should put in place institutions and methods. “It should not be that six months before listing, you should say to me, ‘Let me have a board of directors, an NRC, and an audit committee. I would recommend that you familiarise yourself with these frameworks a few years before going public. I’m referring to mature-stage start-ups. These arrangements will be costly, but they will provide investors with confidence when the corporation goes public,” he said.
It is not something that can be checked off the list and completed quickly, as this will be counterproductive, according to Tyagi. According to the former SEBI chairman, most of the practices recommended for public businesses also apply to private enterprises. Everyone benefits from transparency and an ethical approach. A financial statement audit is needed for private enterprises and will help them in the long term, he adds.
Tyagi also stated that SEBI’s decision to allow loss-making companies to list in India was a daring move that should be continued. Former SEBI chief stressed the importance of credible valuation with objectivity and rationale in maintaining investor trust in the startup ecosystem. “They (investors) should not blame issuers and merchant bankers,” he added.
Tyagi also asked for a reconsideration of the restrictions on private equity, venture capital, and promoters’ offer for sale. “From the standpoint of investor interest, that should be slightly tightened,” he continued. Tyagi stated that it is critical for start-ups to enhance corporate governance practices. This is required to retain credibility and to realise India’s ambition to become a start-up nation.
