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Investor protection -- in search of a messiah

Shaji Vikraman

LAST year, a few Parliamentarians led by Mr. Kirit Somaiya had taken up the issue of investors who had been taken for a ride by a host of private companies.

Mr. Somaiya, subsequently, came up with a private member's Bill on investor protection, on one of those dull Friday afternoons when the handful of members who were present were trying hard to fight off sleep. Early this year, the Finance Ministry initiat ed an exercise to address the concerns of the small or retail investors, after intense criticism from various quarters.

So step one, the National Law School was mandated to examine the existing laws relating to protecting the interests of investors and to suggest, if need be, changes or drafting of a new legislation. This was followed up by meetings by the Finance Ministr y with the Department of Company Affairs, the Securities and Exchange Board of India and the Reserve Bank of India. All of them are in one way or other involved in regulating some segments of the financial sector.

Last week, this inter-Ministerial committee met again to take stock of some of these issues. One of the issues to be sorted out is whether the aim of protecting the interests of the investors can be better served by making suitable amendments in either t he Companies Act or the SEBI Act.

Otherwise, thought would have to be given on drafting an omnibus Bill for investor protection, it was felt. This in turn would mean a long tortuous course before it gets Parliament sanction.

SEBI's initial view as articulated to the Committee was that a new Investor Protection Bill needed to be introduced. As usual, the capital markets regulator talked about how helpless it was in taking on the role of a scam-buster without adequate powers. Its spiel was that big brother - the Department of Company Affairs - was not playing fair, by not delegating enough powers to book errant promoters of companies.

A mini spat followed with the Secretary of the DCA, Mr. Sanjiv Reddy saying that SEBI was barking up the wrong tree.

The inter-Ministerial committee is looking at the problems faced by investors who are cheated by promoters who raise money from the capital markets and then vanish.

As officials say, the idea is to have a comprehensive review of all the Acts and then to ensure that all these investors need to approach only one agency for redressal. Right now, investors run around from the Company Law Board to SEBI and to the RBI and to various other quarters with each one passing the buck.

The proposal which has been mooted is that one authority could be mandated to take on this onerous responsibility. So, a few more rounds of meetings are on to tackle this issue.

While this exercise is expected to go on for a while, the Finance Ministry is close to clearing the guidelines on venture capital funds and venture capital companies, worked out by the new one-stop regulator for this - SEBI.

With the definition of a VCU, VCF etc, and the illustrative negative list for investment by VCFs having been vetted by the Central Board of Direct Taxes and with the nod from the Department of Industry to do away with the mandatory Foreign Investment Pro motion Board approval, an announcement on this is on course.