The Securities and Exchange Board of India has asked for the power to attach properties of companies misusing investor's funds.
In a draft Investor Protection Act sent to the government, Sebi has also sought the power to award compensation to investors suffering losses at the hands of companies and to hold back a company from accessing the markets under certain circumstances.
Sources said the government was moving fast on bringing comprehensive legislation to protect the interest of investors. It is learnt to be initiating discussions with various regulatory authorities on the issue.
Sebi's recommendations are aimed at ensuring that investors get back their money in the event of it being siphoned off by a company. At present, the regulator has powers to take action against the intermediary but this does not ensure that the investor gets the money back.
The draft has been prepared by Sebi's legal department, headed by executive director Dharmishta Raval.
Sebi officials were tightlipped on the recommendations made to the finance ministry. However, sources listed three specific provisions.
Sebi has sought the power to attach the property or assets of a company if it is found to have defaulted on paying investors their money on maturity of a deposit. The company may also be penalised if the principal itself has been siphoned off or misused.
In such cases, the regulator could temporarily attach the company's property and take steps to ensure that the investors get their money back even as other proceedings continue.
Another provision seeks to empower Sebi on the lines of the RBI Act to disallow a company from accessing the capital markets if it is found to have not acted in the interest of investors. The RBI Act allows the apex bank to disallow banks from tapping the markets under certain circumstances. Sebi can only insist on disclosures and cannot bar a company from tapping the market.
The issue of granting compensation to investors for losses caused to an investor due to certain acts of a company has also been dealt in a specific provision. It has been recommended that damages against a company could be awarded and investors could be compensated to the extent of the loss to an investor.
Sebi has said that the Securities Appellate Tribunal could grant the final orders for compensation and attachment of property as this would bring in a judicial process in implementing the provisions of the Act.
Sebi sources pointed out that the crackdown on vanishing companies had exposed the lack of powers with regulators in ensuring that investors get their money back. Although directors of such companies have been barred from participating in the markets, there have been no damages awarded against them nor has any compensation been awarded to investors, as Sebi has no powers to this effect.
Two years back, Prime Minister Atal Bihari Vajpayee had announced that the government would take action against companies and their promoters who had vanished after raising funds from the public. The government is now keen to push through with the legislation.
**
The Wishlist
The gegulator wants the power to:
* Award compensation to investors suffering losses at the hands of companies
* Hold back a company from accessing the markets under certain circumstances.
* Attach properties of companies misusing investor's funds
