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Ministry to make company deposits safer

Richa Mishra

One of the ideas that the Ministry is otherwise also encouraging is the concept of class action by depositors — where instead of an individual, a group of depositors come together and file an appeal.

New Delhi , Oct. 30

WORRIED at the spate of complaints received on defaults in repayment of deposits raised by companies, the Ministry of Company Affairs is working on a strategy paper that will seek to protect the depositors' interest and make public deposits a much safer avenue.

The latest move comes, as efforts to protect the depositors by way of bringing amendments to the existing provisions in the Companies Act and making non-payment of deposits a cognizable offence have proved largely ineffective, official sources said.

"The Ministry is working on a strategy paper, which is yet to be made public. The paper will look at how best we can increase the avenues for the depositors and the investors to ensure that their rights are protected," the sources stated.

Even while working on the strategy, one of the ideas that the Ministry is otherwise also encouraging is the concept of class action by depositors — where instead of an individual, a group of depositors come together and file an appeal. "An individual depositor is not able to enforce his right and ends up spending more on litigation. If we encourage class action, the percentage of expenses per individual will come down," sources explained.

Talking to Business Line, the Minister of Company Affairs, Mr Prem Chand Gupta, said, "Greater emphasis would be on depositor's protection." Continuing with its concept of involving all stakeholders before framing any norms, the Government will be approaching forums such as industry associations on how to improve the existing mechanism so that the interests of the investors or depositors are protected, sources said.

In fact, in the backdrop of rising incidence of defaults by companies on this front, a high-level committee set up by the Ministry had recommended that public deposits should be regulated in the same manner as secured debentures issued by public companies. If the Government accepts the recommendation of the Naresh Chandra Committee II, public deposits would no longer bear the character of `unsecured' funds.

Corporate honchos stated, "What is important is that public needs to be educated that if they want to invest their savings in the unsecured mode, they should avoid companies, which do not have a credit rating. Also, insurance coverage should be provided for public deposits, which would take care of the interest of small depositors in a major way."

The Federation of Indian Chambers of Commerce and Industry said, "The focus of the strategy should be to make it more reassuring for the depositors to invest in company deposits, while avoiding acute stringency that will only drive away companies from this source of financing."

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