The Hindu Business Line : Government promises to reallocate shares to IPO scam victims

Though it is heartening that the Government has promised to reallocate shares to IPO scam victims, it has to be seen whether the proposed move will stand legal scrutiny.

It has been reported that the persons involved in the last year's YES bank IPO scam have been caught and punished. But public memory is short, and such IPO scams may recur in the absence of strict vigil on the opening of demat accounts.

Therefore, the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) take measures and issue clear guidelines to the depositories and depository participants for opening such accounts.

S. Nallasivan, Tirunelveli

The Government decision is welcome. The scam victims should also be given price preference . IPO shares may be allotted to a fresh batch of retail individual bidders and qualified institutional buyers (QIBs) and mutual funds on a proportionate basis. The balance, if any, may be allocated to non-institutional bidders. SEBI's vigilance in IPO issues may be tightened to avoid scams in future.

T. S. Sundareswaran, New Delhi

The RBI has penalised those involved in the IPO scam. When the illegal beneficiaries are dislodged, the shares should naturally be re-allotted to those eligible. The Finance Minister's assurance in this regard in the Lok Sabha is welcome.

A. Jacob Sahayam, Thiruvananthapuram

The policy of disgorgement is not new to financial markets and it is being followed in many countries, including the US. The US laws impose both disgorgement as well as civil penalties on defaulting agencies. However, the concept of disgorgement entails that the defaulting agencies should partake with the gains that they had made through illegal means.

That brings us to the question, "What gains did depository participants (DPs) make in the IPO scam?" The DPs were only a conduit used by cunning individuals to channel their IPO applications.

At the most, these DPs would have made only additional commissions as gains from the sale of IPOs. The fact that the benami accounts were not detected is a mistake of both the DPs and the banks, where such accounts were opened.

Thus, in this case, the DPs have committed a mistake but they have not made any significant gains as a result of it. Therefore, the disgorgement order is unfair from the point of view of the DPs. Additionally, the policy of joint and several liabilities only serves to make the punishment more unfair as there is no proven record of the various DPs conniving to commit the mistake.

The government should certainly impose civil penalties on the DPs for failing to comply to `know your customer' norms. The same penalties should also apply to those banks where the benami accounts were opened. The IPO scam has certainly opened the eyes of the regulator and the market participants. The decision of the government to make PAN mandatory for participating in the primary markets is a good move. Postal addresses in India are not standardised, unlike in the US.

Steps taken in this regard could help track fraudulent accounts as well as other criminal acts involving fake addresses.

P.H. Karthik, Mumbai

Responses to Sticklish Issues dated December 4

Good managers are particular only about meeting deadlines and are generous with leave once the work is done. Thus, it is often left to the discretion of managers to permit employees leave.

Companies resort to such measures of cutting the number of holidays when they become one too many and have to recruit people who may not be the best in terms of merit and skills. That is why we find big companies increasing their working hours.

Eashwar Natarajan, Chennai

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