Will be under administrative control of corporate affairs ministry.
In the wake of various financial frauds, including the Rs 14,000-crore Satyam scam, the government is planning to set up an authority to compensate duped investors by recouping money from fraudsters.
The disgorgement authority, which will be under the administrative control of the corporate affairs ministry, was mooted in the aftermath of various stock market scams in which small investors lost crores of rupees.
Disgorgement, as a financial term, means the forced giving up of profits obtained illegally or unethically.
The Companies Bill, 2009, has provisions for strengthening the disgorgement clause, which is at present “not precise” and “left to individual interpretation”, according to a senior official of the ministry.
“What we are planning is to set up a body, on the lines of the Serious Fraud Investigation Office (SFIO), whose main purpose will be to trace and collect money from wrongdoers and distribute it among duped investors,” the official said.
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Clause 33 of the new Companies Bill “seeks to provide that any person who makes, abets making of an application in fictitious name or makes or abets making of multiple applications or otherwise induces companies to allot shares in fictitious name, shall be punishable with imprisonment and with fine”.
The clause further provides that a court may order disgorgement of any such gain and seizure and disposal of such securities.
According to the present company law, the penalty for duping an investor is up to two years of imprisonment, or a fine of Rs 5,000, or both.
Following scam unearthed by Sebi in IPOs of 21 companies during 2003-05, the market regulator has come out with a mechanism of disgorgement.
In April this year, Sebi began with disbursing about Rs 23 crore to 1.28 million investors from the amount disgorged in the scam. The money was distributed to unsuccessful IPO applicants in 21 IPOs.
In April 2006, Sebi investigations found irregularities in allotment of shares to retail investors in 21 IPOs, including those of IDFC, NTPC, TCS, YES Bank and Suzlon Energy.
In November 2006, Sebi passed a disgorgement order, estimating the amount to be collected at Rs 115.82 crore.