Financial Daily from THE HINDU group of publications
Saturday, May 18, 2002
Corporate - Regulatory Bodies & Rulings
Vanishing cos: `DCA to go for hot pursuit'
COIMBATORE, May 17
THE Department of Company Affairs (DCA) is in hot pursuit of companies which duped gullible investors by floating public issues and vanished subsequently, according to Mr Vinod Dhall, Secretary, DCA.
Speaking at a meeting organised by the Indian Chamber of Commerce and Industry (ICCI), Coimbatore, he said many of the companies during the stock market boom in 1990s sported fancy names and lured investors into parting with their savings. Some simply vanished after that and these could not be even traced now.
He said this issue was being seriously discussed at the monthly conference of Regional Directors of DCA. He said "we are very serious. Never mind it has been many years. But we are going to try and pursue this."
He said the DCA would "find out where they were, capture them and prosecute them" not under the small procedural sections of the Companies Act, but under sections dealing with fraud, misrepresentation, where the punishment was imprisonment and not merely a penalty of Rs 5,000, he said.
Mr Vinod Dhall said he also felt that the penalty under the Companies Act was too small to be a deterrent to erring people.
He said the penalty should be stringent and there should be a healthy respect for law.
He said DCA "became too much withdrawn into itself'' and it "needs to be a little bit more proactive".
He said a company law advisory committee consisting of ``extremely good professionals'' had been constituted to suggest ideas to bring about improvements, changes in law and services provided and improve corporate governance and make the sector globally competitive.
The DCA Secretary felt that DCA should be more concerned about the issues in the corporate world.
One of the tasks of DCA was to usher in an era of good corporate governance so that Indian corporate sector was respected and enjoyed the confidence of not only domestic, but also foreign investors.
Speaking about the role of non-executive independent directors on the board of companies, he said there was ``no company which really welcomes these independent directors''. Some companies were interested merely in adding some of the distinguished persons to their directors' list.
He said the role of independent directors and audit committees should be strengthened. The audit committees should be given ``genuine authority'' to scrutinise the accounts. If the "board of directors only consist of management and the cronies of management or the relatives of the management", such companies, at some stage, may fail the stakeholders.
Mr Vinod Dhall said his department was coming out with a ``strategic action plan'', the draft of which had been prepared. It outlines what the DCA should do in the next few years and it would be given a final shape after intense discussions.
It would touch upon several issues such as good corporate governance, the kind of relationship between the companies and their auditors and how did the auditors discharged their work.
He also wanted the responsibilities of company secretaries to be codified in a certain way so that proper responsibility was fixed.
`200 cos have done disappearing act'
IT is estimated that more than 200 companies have done a vanishing trick after coming out with public issues during the stock market boom in the 1990s, with companies from South India accounting for nearly 25 per cent of them.
The total amount that was mobilised from the investors by these companies was estimated to be close to Rs 700 crore, according to Mr Vinod Dhall, Secretary, Department of Company Affairs (DCA).
Regarding companies that floated shares on a private placement basis but did not go for public issues later or simply vanished in Coimbatore in the 1990s, Mr V. Sreenivasa Rao, Regional Director, DCA, Chennai, said wherever specific complaints were lodged regarding private placements, DCA has started inspection and was trying to trace them.
When pointed out that several companies came out with private placement of shares in the 1990s but have not been sending annual reports or dividends in Coimbatore, he said there was only one complaint. Unless there were complaints, the DCA would not know.
Mr Sreenivasa Rao said as per SEBI identification, there were 229 companies that vanished after collecting money from the public through public issues.
Of this, the number of companies based in South India was 54.
If one considered that a minimum mobilisation amount for listing was Rs 3 crore at that time, then the mop-up by these vanishing companies should be nearly Rs 700 crore.
The Regional Director of DCA said out of the 54 vanishing companies in the South, three companies had refunded the money collected from the investors, including one from Coimbatore.
The department has filed criminal complaints against seven vanishing companies in Coimbatore.
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