Call for better rules on making good investor losses due to malpractice

Justice AR Dave committee report had sought feedback from the public in June

Investor groups have called for improved attention on rules for making good the losses that investors may suffer due to malpractices in the securities market.

Procedures should be amended to make it more participative for affected investors and the rules for restitution could also be made simpler, according to investor associations who pointed out that recovered money often doesn’t find its way to investors. The feedback comes on the back of a report last month where a high level committee under the chairmanship of Justice Anil R. Dave looked at enforcement issues including issues of restitution. It had sought comments on the report from the public.

Losses should also cover compensation for non-compliance with listing agreements such as not filing results on time, or where companies raise money from investors and then become untraceable (so-called ‘vanishing’ companies), according to Virendra Jain, President, Midas Touch Investors Association; a copy of whose letter following the Dave committee report has been seen by Business Standard. Investors in companies whose actions result in suspension or compulsory delisting should also be considered for restitution, according to the organization. It added that compensation should be decided upon by including investors in the process.

“It should be made mandatory to make an investor who may have suffered losses a party in the proceedings,” it said.

Investors who have been defrauded in collective investment schemes may not always be aware that compensation can be obtained from disgorgement noted Santosh Kumar Agarwal, President of the Bhopal Stock Investors Association. Greater efforts towards increasing awareness and a straightforward practice for returning investor money would be a positive, according to him. He pointed out that in the case of the Sahara group, only a small portion of the recovered amount made its way to investors. A report in February suggested that investors claimed less than Rs 100 crore out of Rs 22,000 crore that the Sahara group deposited with the regulator.

“That process should be simplified,” he said.

The 424 page report had, among other things, also sought to introduce clarity into the way that an investor’s gains or losses may be calculated.

“In respect of quantification of profit made and loss caused to the investors as a result of the default, the Committee is of the view that public non-mandatory guidelines may be issued for the benefit of all stakeholders, which can be constantly revised and updated with ease,” the June 16 report had said.

Compensating investors:

Sebi committee looks to revamp enforcement

Sought to improve norms on quantifying investor losses due to malpractices

Had called for public comments in June

Investor associations suggest more participation for investors in proceedings

Easier norms for restitution also suggested