Financial Daily from THE HINDU group of publications
Friday, Jan 27, 2006
Financial Daily from THE HINDU group of publications Friday, Jan 27, 2006 |
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Economic Offences Markets - Regulatory Bodies & Rulings IPO scam: Company Affairs Ministry for joint probe with SEBI, RBI Richa Mishra
New Delhi , Jan. 26 THE Ministry of Company Affairs, which has been closely following the recent demat scam in the public issue of Yes Bank Ltd and IDFC Ltd, has called for a coordinated investigation by the three regulators — the Reserve Bank of India, the Securities & Exchange Board of India, and the Ministry — in order to assure prospective investors against recurrence of any malpractices in forthcoming new public issues. The Ministry is, therefore, considering writing to the RBI and SEBI proposing a joint investigation into all aspects of the scam. A final decision on joining the probe will be taken at a meeting next week. Speaking to Business Line, the Company Affairs Minister , Mr Prem Chand Gupta, said, "It is a matter of serious concern affecting the interests of common investors. Such incidents lead to erosion of investors' confidence and immediate steps need to be taken to restore confidence in the primary market system." Asked what could be the issues under which Company Affairs Ministry can initiate action, a senior Ministry official pointed out that the information provided by SEBI to the public indicated that four investor entities opened approximately 42,000 benami accounts and applied for shares offered in IPO and cornered allotments. This means that applications made during the IPO issue to the extent of 42,000 cases are fictitious in nature, the official said. Therefore, the applicants are liable to be prosecuted under Section 68A of the Companies Act - impersonation for acquisition of shares, he added. The Section provides for imprisonment for a period that may extend to five years for individuals who make applications in fictitious names to a company for acquiring or subscribing for any shares. However, to initiate any prosecution under the Companies Act, the Registrar of Companies would require evidence against the entities, which have opened the accounts in connivance with the banks, brokers and other market intermediaries, the official pointed out. For this, a close coordination with other regulators was required. The official pointed out that an inspection into affairs of the company, which made IPO under Section 209 A of the Act, would not serve any purpose as the powers of the inspecting officer were limited to the records of the company. However, if an investigation is ordered under Section 235/237 of the Act, then the inspector appointed could expand the investigation and look into the nexus between various parties. If required, the Serious Fraud Investigation Office could be roped in, the official said.
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