The R-ADA group company would invest Rs100 in its joint venture with Chinese Ming Yang to co-develop a large portfolio of clean energy projects in India
Reliance-Anil Dhirubhai Ambani group (R-ADAG) said its unit Reliance Capital will invest Rs100 crore in its wind energy joint venture with China’s Ming Yang Wind Power Group.
“Our agreement with Ming Yang Power from China is in place. We believe that it will be closed shortly and investment of over Rs100 crore will come through the joint venture,” Anil Ambani, chairman, R-ADAG, said while replying to shareholders’ queries at Reliance Capital’s annual general meeting in Mumbai.
Last year, Ming Yang entered into an agreement with Reliance Capital to set up joint venture by subscribing to a significant stake in the share capital of Global Wind Power Ltd (GWPL), a leading wind power solutions provider in India.
Giving an update on this partnership, Anil Ambani, said the agreement would be closed soon and an investment of Rs100 crore would be made.
Ming Yang announced this agreement with Reliance Capital and other entities of the Ambani-led Reliance Group on 2 July 2012, but no financial details were provided at that time.
Ming Yang had also signed a memorandum of understanding (MoU) with Reliance Power to co-develop a large portfolio of clean energy projects in India.
The Chinese company produces advanced wind turbines with high-energy output and provides customers with comprehensive post-sales services. It was one of the top ten wind turbine manufacturers worldwide and the largest non-State owned wind turbine manufacturer in China in 2011.
Reliance Capital shares ended Tuesday 4.8% down at Rs299.8 on the BSE, while the 30-share Sensex closed 3.2% down at 17,968.
In the Harshad Mehta scam bankers were issuing fake bankers receipts or BRs, representing government securities. But while BRs were accepted on the basis of trust, NSEL created the illusion of a 'trade guarantee fund' which has mysteriously vanished
History never repeats itself, but it rhymes, said Mark Twain. Some 21 years after the Harshad Mehta scam shook the market, the same saga seems to have been repeated in the scam involving National Spot Exchange Ltd (NSEL). In 1992, the country woke up to the fact that Harshad Mehta, who was pumping up stocks to frenzied heights, was systematically taking advantage of a poorly regulated government securities market, which had no proper checks and balances. And he was not alone - a cabal of top bankers and brokers were found to have issued fake bankers receipts (BRs) which were supposed to represent gilt edged government securities and bonds. The truth spilled out only when the Reserve Bank of India (RBI) appointed a high-level multi-disciplinary committee to investigate. The story of NSEL is fast representing a similar situation. The exchange has sacked its chief executive Anjani Sinha, accusing him of having hushed up the fact that warehousing receipts (WRs) are not backed by physical stock of commodities. What is this other than the fake BR scenario of the Harshad Mehta scam? While cases related to the Harshad Mehta case continue to drag on in our courts, the government does not seem to have learnt any lessons about effective regulation and accountability.
According to a report from Business Standard, one crucial difference that everybody overlooked (in NSEL saga) was that these (forward) contracts should have been backed up by the goods in the warehouses. Nobody seemed to verify whether the goods actually existed or not. Brokers started giving out contract notes to hundreds of investors backed against just one warehouse receipt (you can't split a receipt). The warehouse receipt acted as title to the stock. The broker was taking a risk on the warehouse receipt, the report said.
"Nobody verified the warehouse receipt or whether goods were actually at the warehouse. Some warehouse receipts are said to be authentic as some genuine producers wanted to finance their working capital till their goods were sold. But as nobody verified the warehouse receipts more commodity traders started producing warehouse receipts against which they received easy funding. Some may have used this money for financing their business, but the rest is anybody's guess," the report added.
Now let's see, what were the loopholes exploited by Harshad Mehta and other brokers during the 1992 scam? According to 'The Scam', the book written by Debashis Basu and Sucheta Dalal, this is how the infrastructure of money markets and stock markets was creaking:
"The Public Debt Office (PDO) was supposed to record the transaction details of various government securities for each bank on the basis of subsidiary general ledger notes. The PDO did the recording manually in ancient ledgers, often falling behind by more than ten days. The subsidiary general ledger (SGLs) entered in the ledgers often carried no reference to transactions. For instance, if three SGLs of the Bank of America reached PDO on the same day and two bounced because of insufficient balance, it would be impossible to say which of the three had bounced. And most amazingly, in a system where the daily trade ran into hundreds of transactions, the banks were informed of the bounced SGLs by post.
Brokers and bankers quickly learnt to take advantage of PDO's sloppiness. They created delays and deliberately had the SGLs bounced to show an artificially higher balance and then traded on that. Bounced SGL intimation notes were made to disappear and their loss blamed on postal delays. SGL bouncing was a genuine problem too. Often, banks issued SGLs without realising that they had no balance in the PDO to support the sale. To counter this came another instrument: BRs. A selling bank would issue a BR instead of securities. The technique was especially useful in the case of buyback deals (ready forward) for short periods where there was no need to exchange physical securities. But it gave further room for manipulation.
Banks and other financial institutions would issue BRs without holding securities, or issue BRs against BRs. This way, the original BR of a weak bank was quickly exchanged for that of a more "respectable" bank. This technique was used by foreign banks to cover their tracks. They used Andhra Bank, Syndicate Bank, State Bank of Saurashtra and Canara Bank. Some banks like Metropolitan Co-operative Bank also got into the name-lending business, issuing BRs for free. Citibank even had the gall to issue bounced SGLs, which is akin to issuing a bounced and cancelled cheque. To meet his inexhaustible appetite for cash, Harshad pressed ahead with the ultimate subversion: securing straight credit from the National Housing Bank (NHB) against no transactions or securities and BRs.
Public sector companies, which raised money through bonds, took almost a year to allot them, since printing the bonds was not allowed until a mortgage was created. So, letters of allotment were traded as security. One public sector unit (PSU) had not printed bond certificates even four years after raising money. There was no method of credit rating the bond and prices depended on the traders' perception of the issuer. This could be highly biased. Even when bond certificates were available, trading volumes were so large that it was difficult to effect deliveries. Once a broker needed 240 signatures to transfer 680,000 bonds. Obviously bankers were reluctant to take deliveries and instead relied on their makeshift stock depository certificate - the BRs. The same story occurred in the equity markets. Share certificates belonging to SBI Caps were piled up in the corridors of State Bank of India (SBI).
The quality of regulation failed to keep pace with the volumes -most glaringly in stock markets. There were no penalties and little disclosures of transactions."
You can buy the book, The Scam, the only definitive account of the Harshad Mehta and the Ketan Parekh scam here
A similar regulatory vacuum was allowed to build up in the commodity markets. This was clearly deliberate, because it is not as if this was not noticed or written about. In 2004, Sucheta Dalal had this to say in the Indian Express about four new national commodities exchanges that were cleared to trade a slew of commodities futures India. "The four exchanges- National Multi Commodity Exchange of India Ltd, (NMCE), National Commodity & Derivatives Exchange (NCDEX), National Board of Trade (NBOT) and Multi Commodity Exchange (MCX) are involved in an intense struggle for supremacy by trying to build volumes and capturing niche markets in specific commodities. But badly regulated commodities trading can be a dangerous business, as was recognised by Prime Minister AB Vajpayee himself at the launch of NMCE when he said: "I would like the regulatory system for commodities exchanges to be strengthened to create confidence among all stakeholders". However, it did not happen.
Such regulation, she wrote, "…would logically entail a high level of automation, strict surveillance, dynamic regulation, investor protection, efficient clearing and settlement, preferably a trade guarantee mechanism plus warehousing facilities, logistics management, quality control and effective handling of warehousing receipts. Unfortunately, much of this has not happened. As is often the case, traders managed to persuade the government to allow trading to commence without ironing out many glitches and shortcomings.
The problem is lack of foresight in preparing for an automated national trading system before clearing several bourses to start operation. For instance, the Central Warehousing Corporation (CWC) would have a key role to play in the development of the commodities trading business and should ideally have played the same role as the National Share Depository Ltd. Instead, it has allowed itself to be roped in as a promoter of one of the national bourses, forcing other exchanges to search for potential in state warehousing companies to play the role.
The FMC should still rectify the situation by persuading and helping the CWC to exit its role as promoter of an individual exchange and instead take on the larger and more significant job of providing independent warehousing facilities to all the four national commodities exchanges. If the CWC is modernised and allowed to link up with state warehousing corporations, it would revitalise them and help create nationwide infrastructure for commodity trading."
Instead, a half-baked system without proper oversight and regulatory inspections was allowed to operate under the sleepy disinterest of the Ministry of Consumer Affairs (MConA). What is different this time is that those involved created an illusion of having all the bells and whistles of a modern exchange in place. There was automated trading, there was a trade-guarantee fund and there was apparent oversight by the commodities regulator. In fact, none of it is true. The government, which rushed off to empower the Securities & Exchange Board of India (SEBI) with draconian powers of search and seizure, has been sleeping over empowering the FMC. Thanks to political compulsions of a coalition government, the plan to bring the Forward Markets Commission (FMC) under SEBI was also dropped, that too after creating a third post of Whole Time Director at SEBI to take on the additional work pressure. It should be no surprise that the plan to merge FMC with SEBI was dropped under pressure from Sharad Pawar, Union Minister for Agriculture, who then held the portfolio of MConA as well.
What is shocking is that there is still no attempt to conduct a detailed investigation along the lines of the Janakiraman Committee of 1992 or any attempt to pin accountability for the failure to regulate by the MConA and the mischief by the NSEL. Instead, a government that is struggling to cope with an economic slowdown and sinking currency, seems determined to be in denial about what is going on at the NSEL.
Meanwhile, the NSEL Investors Forum has organised demonstrations outside the office of Jignesh Sha, the main promoter of the Spot Exchange. "NSEL has reportedly only Rs100.5 crore against commitment of over Rs350 crore, there are concerns that funds have been siphoned off. The matter appears to be another Harshad Mehta and Ketan Parekh scam combined. The government response to this scam is disheartening," the Forum said in a release.
Operators of illegal money-pooling or MLM schemes will soon face penalties of up to three times the profit made by them as against the current provision of a fine of Rs1 crore
Market regulator Securities and Exchange Board of India (SEBI) has decided to increase the monetary penalty for those running unauthorised collective investment schemes (CIS), as the existing mechanism has not proved to be sufficient to deter such illegal mobilisation of money.
Operators of illegal money-pooling or multi-level marketing (MLM) schemes will soon face penalties of up to three times the profit made by them, as against the current provision of a meagre fine of Rs1 crore
A proposal to this effect has been approved by SEBI and the same would be notified soon, a senior official told PTI.
As per a SEBI memorandum in this regard, illegal mobilisation of funds within the existing legal framework falls within a provision wherein a maximum penalty of Rs1 crore may be imposed.
SEBI is of the view that this penalty “is very meagre compared to the money mobilised by unregistered CIS, especially considering that in certain cases the money mobilised is in multiples of thousand crore.
“Hence, adjudication under the existing mechanism may not be sufficient to deter such illegal mobilisation of money.”
Accordingly, SEBI has decided to amend the relevant regulations to provide for “a penalty of Rs25 crore or three times the amount of profits made, whichever is higher”.
To tackle the growing menace of investors being duped of their hard-earned money through various illegal investment pools, many of which are in the nature of ‘ponzi’ schemes, SEBI has been given the mandate to take action against all such money collection activities involving Rs100 crore and more.
A typical ‘ponzi’ scheme involves the operator collecting a large amount of money from investors and paying them returns from their own money or the money collected from subsequent investors, rather than from profit earned by the person or entity operating such a scheme.
Such activities came to be known as ‘ponzi’ schemes after Charles Ponzi, who became notorious in the US in 1920s for deploying this technique while promising 50% return on investments in 45 days and 100% within 90 days.
A large number of such schemes have come to the fore in India as well, while many of them have faced regulatory actions by SEBI in recent months.
However, SEBI in most of the cases has only asked the operators of such schemes to refund the money to investors and stop such unauthorised activities. The schemes that have faced action include those promising huge returns based on investments on potatoes, goat rearing, cattle and butter schemes, Emu farming, real estate and holiday memberships.
Tightening the noose on perpetrators of such investment pools, SEBI in its board meeting earlier this month decided that all unauthorised CIS activities be declared as ‘fraudulent and unfair trade practices’ and dealt with accordingly