Another wild goose chase

As part of the desire to be seen to be doing something for the "aam aadmi" who lost thousands of crore rupees to shady company promoters, the government has dusted the cobwebs off the proposal to deal with "vanishing companies" and, according to Company Affairs Minister Prem Chand Gupta, plans to issue advertisements in the major newspapers with details of promoters who raised money from the capital market in the early 1990s and then disappeared.

Apart from the details of the promoters themselves, the ads will have details of officers who can be contacted. The lowdown has already reportedly been compiled on 122 of these vanishing companies.

If the aim is just to give the impression that the government is doing something for the small investor, this will be a good PR exercise, but other than that it will achieve little. For one, this is not the first time such an exercise has been flagged off.

In 1998, on October 24 to be precise, the then Prime Minister Vajpayee chose a Ficci annual session to announce that he'd set a 90-day deadline for the department to track down and take punitive action against offenders.

Promptly, Sebi and the department of company affairs (DCA) came up with a list of 80 "vanishing companies", and no one knows what happened after that. In any case, anyone familiar with the stock market will tell you that the amount of money these "vanishing companies" raised from the market was no more than Rs 284.74 crore!

While that's a large amount of money for those who invested and lost in these firms, it's peanuts compared to the much larger problem of thousands of crore being lost by those who invested in firms whose promoters simply siphoned off the money, and then got de-listed, and thereby slipped off the radar screen.

In one celebrated case, a promoter was accused of siphoning off several hundred crore rupees and the DCA (which Prem Gupta now heads) simply compounded the matter for Rs 58,000 and let off the company as if the matter was a technical violation.

The problem of vanishing companies as well as vanishing funds goes back to regulators not doing their jobs. If the case of the plantation companies (where it was not clear if the RBI, Sebi or the forest department was supposed to monitor them) is old hat, there is even today the ambiguity over who really controls cooperative banks: the RBI or the registrar of cooperatives?

When the United Front government was doing work on the vanishing companies, it found that of the 137 companies listed on the Ahmedabad exchange that raised funds from the public in 1994-95, only 52 had filed their balance sheets, and in Mumbai just 95 of 209 companies had done the same.

Yet, no action was taken. In 1998, when the Bombay Stock Exchange decided to de-list 658 companies for non-payment of listing fees and sent notices around, some 130 of these came right back as the companies had moved. It's hard to believe that newspaper advertisements will fix the problem.