Prime minister makes minor ministerial changes

Dr Manmohan Singh this morning submitted a list of changes in his Cabinet to the president. The swearing in ceremony will be held this evening. 

Prime minister Manmohan Singh has written to the President Pratibha Patil, recommending that the following may be appointed as members of the Union Council of Ministers and has requested that the oath of office and secrecy be administered at 5pm today, according to an official statement issued this morning.

Cabinet ministers (with the portfolios recommended by the prime minister)

V Kishore Chandra Deo : Tribal Affairs and Panchayati Raj
Beni Prasad Verma : Steel
Dinesh Trivedi : Railways
Jairam Ramesh : Rural Development
Ministers of state (with independent charge)
Srikant Jena : Statistics and Programme Implementation and Minister of State in the Ministry of Chemicals and Fertilisers
Jayanthi Natarajan : Environment and Forests
Paban Singh Ghatowar : Development of North Eastern Region
Gurudas Kamat : Drinking Water and Sanitation
Ministers of state (with the portfolios recommended by the prime minister)
Sudip Bandopadhyaya : Health and Family Welfare
Charan Das Mahant : Agriculture and Food Processing Industries
Jitendra Singh : Home Affairs
Milind Deora : Communications and Information Technology
Rajiv Shukla : Parliamentary Affairs

The prime minister also recommended that the portfolios of the following ministers may be changed.
Cabinet ministers
Vilasrao Deshmukh : Science and Technology and Earth Sciences
M Veerappa Moily : Corporate Affairs
Anand Sharma : Commerce and Industry; and additional charge of Textiles
Pawan Kumar Bansal : Parliamentary Affairs and additional charge of Water Resources
Salman Khursheed : Law and Justice and additional charge of Minority Affairs
Ministers of state  

E Ahamed : External Affairs and Human Resource Development
V Narayanasamy : Personnel, Public Grievances and Pensions; and Prime Minister's Office
Harish Rawat : Agriculture and Food Processing Industries; and Parliamentary Affairs
Mukul Roy : Shipping
Ashwani Kumar : Planning; Science and Technology and Earth Sciences
The prime minister has also forwarded the resignation letters of the following ministers in the Union Council of Ministers with the recommendation that they may be accepted.

Dayanidhi Maran
Murli Deora
BK Handique
Dr MS Gill
Kanti Lal Bhuria
A Sai Prathap
Arun S Yadav




5 years ago

With all due respects, too little and too late, and with no real benefit to the people of India.

Collective Investment Schemes: How gullible investors continue to lose money

The legal haze and the muddle of regulations have ensured that it is not clear which regulator will supervise Collective Investment Schemes. Deposits come under the RBI’s purview, and CIS is under SEBI’s purview. The investor has to bear the brunt

At one point of time, it was plantation companies raising money from investors for teak trees in some unseen, remote place of Madhya Pradesh. Then there were all kinds of Ponzi schemes pretending to purchase and sell assets, but were essentially giving investors 'money for money'.

Of late, several property companies, mainly from the NCR (National Capital Region), have been widely advertising and offering, "guaranteed returns" to investors for investment in properties. SEBI (the Securities and Exchange Board of India) has reportedly sprung into action against one of these, but that is only one such company. Daily newspapers from Delhi are full with ads of property companies offering 'secured & guaranteed' returns on properties. In fact, one of the leading property companies, promising to "build another Connaught Place", has advertised in newspapers all over India, inviting contributions from investors to invest in properties. This has brought into focus the seldom-noticed provisions about a 'Collective Investment Scheme' (CIS).

The lure of easy money has always been strong enough, and surprisingly, well-reasoned people are very easily taken in by promises of making a decent return backed by secured investments. It is not that regulators have not warned investors enough; and that investors have not suffered in the past. In fact, the operators of these schemes know that these offerings are short-lived; investors also know that these  are risky investments—but somehow, interest has such an intoxicating impact on people that every now and then, one such scheme succeeds in attracting investors.

And if a person succeeds, it is then the 'demonstration' effect—if the next-door neighbour has invested money and earned 18%, then why not take the plunge? Or, if Bobbyji has raised crores of money—out of nothing-and is leading a lavish life, why wouldn't I do it?

The modus operandi is simple—a property company or a property developer will invite people to invest money in land/plots/flats or simple 'to-be-constructed' properties. Sometimes, the land/plots/flats are for real; sometimes, they are not.

Assuming they are for real, an 'investor' is allotted the plot or land, with an agreement to execute conveyance—whereby at some time in the future, the plot or the property will be transferred to the investor. Actually, however, the investor never intends to buy the plot or property in question—he simply intends to invest money.

So, after a fixed term, say a year, the investor surrenders his right to get the property, and gets back money with a promised rate of return.

Let us examine the legalities of such schemes:

Regulations on collective investment schemes:

A CIS is regulated by Section 11(AA) of the SEBI Act, according to which a scheme or arrangement where contributions, or payments made by the investors are pooled and utilised with a view to receive profits, income, produce or property, and are managed by a manager on behalf of the investors, is a CIS. Investors do not have day-to-day control over the management and operations of such schemes or arrangement. The law states several exceptions to the definition of CIS, such as NBFC (non-banking financial company) deposits, public deposits under Section 58(A) of the Companies Act, chit funds, nidhis, etc. Notably, mutual funds are also excluded from the definition. Also note that a portfolio management scheme is not covered by the section as there is no pooling of money.

The key words in the definition are "pooling of investors' money" and distancing of ownership and management of the funds. In other words, if the money raised from investors for sharing of profits or returns is commingled, it is a CIS. The investors are passive investors; they are not managing their own money. So, the three critical features of a CIS are:

(a) Pooling of money;
(b) Entrustment of money to someone such that the investors are not the ones who are managing their own money; and
(c) Sharing of returns from a specified investment.

Such a CIS needs to be registered with SEBI. A copy of the offer document of the scheme has to be filed with SEBI—same as in the case of IPOs (initial public offerings) and FPOs (follow-on public offers). The scheme also needs rating. Besides, there are several very stringent requirements—someone who is in a hurry to collect public money will surely not have the patience to comply with the regulations. {break}
Regulatory history of collective investment schemes:

The CIS Regulations were made after plantation schemes had robbed a good amount of public money and the government came under severe criticism. SEBI appointed this committee under the chairmanship of Dr SA Dave. The Dave Committee submitted its report in December 1998 and the CIS regulations by way of notification by SEBI came in October 1999.

There are several rulings on the issue of registration of the existing such collective investment schemes floated by many companies. There are hundreds of companies that had not applied for registration under the Regulations and had not wound up their CIS to repay investors in accordance with the Regulations and have hence been barred by SEBI from operating in the capital market for a few years (in many cases for 5 years). SEBI has requested the respective State governments to initiate civil/criminal proceedings against the entities for apparent offences of fraud, cheating, criminal breach of trust and misappropriation of public funds. It has also requested the DCA (Department of Company Affairs) to initiate winding up of the entity under Section (433) of the Indian Companies Act, to repay investors and has launched prosecution against these entities and directors under Sections (24) and (27) of the SEBI Act, 1992. As on 31 March 2011, there are 552 companies against which prosecution cases were launched for violation of CIS Regulations.

In case of Suman Motels Ltd vs SEBI on 13 January, 2003 (2003 42 SCL 433 SAT), it was held by the Securities Appellate Tribunal (SAT) that the order of SEBI directing the Appellant to refund the money to the investors was in no way faulty. The Appellant Company cannot claim that it is not required to comply with the requirements of the Regulation and the Respondent (SEBI) entrusted with the duty of enforcing the Regulation should not enforce the same.

On 23 January 1998, SEBI decided to undertake a special audit of those CIS which had mobilised an amount of more than Rs5 crores from the public, which included M/s Paramount Bio-Tech Industries Ltd. It was informed that a sizeable portion of the amount mobilised has been paid for commission expenses and the agencies were of the opinion that these companies were deploying the funds received from the public for NBFCs, real estate etc. The Allahabad High Court, in the case of M/S Paramount Bio-Tech Industries Ltd vs UOI on 25 November, 2003 (Civil Misc Writ Petition No 51911 of 1999) dismissed the petition when the petitioner company questioned the framing of the regulation by SEBI, by stating that the facts of the case reveal that the respondent (SEBI) is only regulating the investments to protect the interest of the investors who invest in various securities/bonds in the nature of collective investment schemes. In their opinion, Parliament and SEBI have the legislative competence to frame the Act and Regulations.

The Punjab & Haryana High Court in the case of PGF Ltd. vs Union of India on 30 July, 2004 (2005 124 CompCas 201 P H, (2004) 4 CompLJ 288 P, H), held that in this case, a transaction for purchase of agricultural land in the name of several investors was found to be a CIS, but then the facts of that case clearly indicate that the entire transaction of purchase of land was running as a sham. It was not proved whether land was actually bought at all, or registered in the name of the so-called investors. Hence, that case is not of precedent value for the Scheme. It was decided that the transaction that was alleged as a CIS as though in the guise of purchase of agricultural land, was actually a pure money-circulation scheme and it was a sham.

Deposit schemes or collective investment scheme:

If, in the garb of so-called investment schemes, what is being raised is a pure deposit, then RBI (Reserve Bank of India) regulations are applicable. The definition of a 'deposit' is provided under Section 45I (bb) of the Reserve Bank of India Act, 1934, that includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form. Hence, amounts for money transactions are deposits—that is, if against money, the entity offering a CIS offers repayment in form of money, that is, a deposit. Acceptance of deposits is regulated under Sec 58 (A) of the Companies Act, and in case of NBFCs, by Section 45I (C) of the RBI Act. Further, as per Section 45 (S) of the RBI Act, no individual or a firm or an unincorporated association of individuals shall accept any deposit.

By combined reading of the above provisions, it is clear that a company accepting deposits would have to comply with the provisions of the RBI guidelines issued in this behalf.

Muddle of regulations

The unfortunate part is—it is not clear who will regulate such schemes. First of all, deposits come under the RBI's purview, and CIS is under SEBI's purview.

Sometimes, money is raised by instruments like preference shares or debentures—which, arguably, are not deposits at all—hence, in comes the MCA (Ministry of Corporate Affairs). There is no reason why there should have been distinct regulators, but given that there are, at the first stage, no one is sure as to who is to take action against a scheme whereby gullible investors' money is being siphoned off. In this unclear role, regulators keep waiting for years before they jump into action. By this time, the problem would have already reached a crisis.

Another curious hole in the regulatory scheme is LLPs (Limited Liability Partnerships). No one knows why LLPs were needed in the country at all, but as they stand, LLPs are neither covered by the RBI Act, nor by the Companies Act, nor by the SEBI Act. So, technically, an LLP may keep raising deposits or investments, and still be outside any of the relevant laws. This is a major gap in the regulatory structure, but we would, as we always do, keep waiting for years before regulators jump into action.


Indian stocks to see gap-down opening: Tuesday Market Preview

IIP for May and Infosys results will be the key focus today

Indian stock are likely to witness a gap-down opening as the debt crisis sweeping Europe is now likely to pull in Italy into its hold. Also, the impasse over the US budget deficit with president Obama and Republican leaders disagreeing on ways to raise the debt ceiling weighed on investors there with the key US indices closing 1.2% to 2% lower in overnight trade. Markets in Asia resumed trade on a soft note on Tuesday on speculations that debt issues across the world, coupled with its own regional problems, will dent the recovery process. The SGX Nifty was trading 64.50 points down at 5,556 compared to its previous close of 5,620.50.

Back home, the government will announce the industrial output numbers for May later today. The fall in growth in the auto and textiles sectors is likely to result in a fall in the data. IIP (Index of Industrial Production) for April stood at 6.3%. Also, IT bellwether Infosys will announce its earnings for the first quarter of the current fiscal, which is expected to give direction to the market.

Weak global cues, nervousness ahead of the earnings season and an institutional sell-off were seen as the major reasons for the market decline yesterday, the second consecutive day that it has declined.  Earlier, a slowdown in jobs growth in the US and a steep rise in Chinese inflation to 6.4% for the month of June pulled markets across Asia lower on Monday. The Nifty opened 13 points lower at 5,648 and the Sensex fell by 35 points from its previous close to resume at 18,828. Sectors like metals, banking, auto and realty were under selling pressure in early trade.

Trading in negative terrain, the indices touched their day's highs in the initial session with the Nifty rising to 5,653 and the Sensex up at 18,844. The market continued to move sideways as caution ahead of the quarterly earnings season prevailed.

A half-hearted recovery attempt in noon trade was met by resistance from sellers, which pushed the market to its intra-day low in the last half hour. At the day's low, the Nifty fell 59 points to 5,602 and the Sensex erased 179 points at 18,679. However, the market finished above the day's low. The Nifty ended down 45 points at 5,616 and the Sensex closed trade at 18,721, down 137 points from its previous close.

Yesterday the market washed out all the gains made on 7th July, when the market touched a two-month high. But the Nifty's intra-day high was above the level of first resistance of 5,600.

US stocks settled sharply lower on Monday on fears of the European debt crisis now pulling in Italy in its hold. Besides, US’ own debt issues also continue to weigh on investors. While investors consider it unlikely there will be no deal on the debt, the lack of resolution at a time of growing international concerns weighed on sentiment.

Metals manufacturer Alcoa announced its second quarter results after the US markets closed for the day. The company’s revenue jumped 27% to $6.59 billion from $5.19 billion a year ago on higher metal prices. Net income for the quarter was $322 million, or 28 cents a share. Alcoa shares fell more than 2% in regular trading.

Overall, the Dow tanked 151.44 points (1.20%) at 12,505.76. The S&P 500 fell 24.31 points (1.81%) at 1,319.49 and the Nasdaq Composite Index .IXIC declined 57.19 points (2%) at 2,802.62.

Debt issues around the world pushed markets in Asia lower in early trade on Tuesday. Banking stocks—HSBC Holdings and Mitsubishi UFJ—fell nearly 2% each and electronics major Sony Corporation fell nearly 3% in Tokyo.

The Shanghai Composite tanked 1.24%, the Hang Seng tumbled 2.06%, the Jakarta Composite declined 0.90%, the KLSE Composite fell 0.42%, the Nikkei 225 skidded 1.53%, the Straits Times declined 0.98%, the Seoul Composite fell 1.94% and the Taiwan Weighted was down 1.51% in early trade.

Back home, capital market watchdog Securities and Exchange Board of India (SEBI) on Monday directed Bajaj Consultants and its group entities to ‘cease and desist from bidding in an objectionable manner’ while scrutinising its role in the Vaswani industries share case.

The order directed Bajaj Consultants and its group entities, along with two individuals Rajkamal Ramniwas Bajaj and Vinodkumar Ramniwas Bajaj, to cease and desist from bidding in an objectionable manner till further directions.


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