Market watchdog Sebi has asked the government to frame a strong central legislation to tackle the menace of companies collecting large amount of money from the public without requisite regulatory approvals and for dubious investment projects.
Stating the existing legal provisions are weak and allow such companies to benefit from certain loopholes in the regulatory framework, Sebi Chairman U K Sinha told PTI that the market regulator takes action against such entities whenever it suspects anything wrong and gets evidence.
"People make all sorts of excuses - in some cases they claim they are under the state government, some cases they are saying they are registered with the Ministry of Corporate Affairs, some cases they are saying they are housing companies and in some cases they claim to be NBFCs. And in most cases, they say that we are not under the Sebi jurisdiction," Sinha said in an interview here.
"But wherever we suspect and we get information and evidence, we take action against them. But the legal provision is relatively weak on this front and I agree that there is need for one strong central legislation because big amount of money is being collected from the citizens of the country," he said.
Giving an example, Sinha said he was recently in Assam and there he was told that all the mutual funds put together have a combined AUM (Asset Under Management) of less than Rs 1,000 crore in the state.
At the same time, there is a company that launched one scheme and managed to collect more than Rs 1,000 crore, he said, without naming the company.
"So if you make the comparison, you will see the dimension is quite big. We have urged the government to make one strong central legislation to tackle this issue," he said.
Sebi is mandated to protect the interest of investors in securities market and to promote and regulate the various segments and entities in the capital markets, including the public listed companies.
However, raising of funds from public investors numbering 50 or more by unlisted companies also comes under Sebi's jurisdiction - a regulatory position which recently came to light in the high-profile case involving the Sahara group.
Asked about the Sahara matter and another case involving alleged violation of Sebi rules in an investment scheme involving Emu birds in Tamil Nadu, Sinha said, "I will not be able to answer anything about any particular company or the examples you are giving, but the fact remains that there are lacunae in the Act and in the legislations, giving rise to people to claim that they are not under the jurisdiction of Sebi or RBI or other regulators and then raise money".
The issues related to the companies raising funds from the public investors without Sebi's approval have come to the light in the recent past after the Supreme Court verdict on Sahara group, whose two companies have been asked to refund about Rs 24,000 crore to about three crore investors within three months with an annual interest of 15%.