The Hindu Business Line : Cap on floating of investment companies likely

PROMOTERS and corporate houses may soon be required to grapple with a new set of norms that seeks to regulate the much abused `investment company' route for corporate control.

Armed with the experiences gained out of the practices adopted by different players in the stock market scam of 2001, the Government is likely to place a cap on the number of investment companies that could be floated by promoters or a corporate group.

The Department of Company Affairs (DCA) is now looking at incorporating provisions to this effect in the Companies (Amendment) Bill 2003. The department had set up a five-member committee to examine the prospects of plugging the loopholes that allow for corporates to float several investment firms, and facilitate control of the shareholding of the promoters.

"Instead of putting a restriction on a number of companies an individual can float the department is considering to put a cap on a class of companies," sources said.

The move to get cracking on investment firms floated by corporates was a fall-out of the March 2001 stock scam and the investigations by a Joint Parliamentary Committee (JPC).

Further, the Securities and Exchange Board of India in its report on the scam to the JPC had also made out a strong case against the investment firms promoted by corporates.

In fact, investigations by the capital markets regulator had established links between some of the corporate groups and their investment firms. In some cases, the investment firms were used by the promoters to engage in circular trading, negotiated deals and to ramp up their stock prices.

Further, the Companies (Amendment) Bill, 2003 may also have provisions relating to transfer of funds among group companies. "In such cases the onus will lie with the companies to prove that it has not been done for their own benefit," sources told Business Line.

Apart from tightening certain provisions, the department is also looking at liberalising the corporate environment in keeping with the recommendations of the Naresh Chandra Committee in the proposed Bill. "Though certain legal provisions are to be liberalised, punishments for non-compliance are going to be tighter," sources said.

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