Once Again, Anti-Investor Move, To Revive Investor Sentiment!
How did the capital market regulator react to one of the worst years for the primary market? By scrapping mandatory IPO (initial public offerings) grading and making it voluntary! Chairman UK Sinha’s public speeches are about restoring investor confidence but he clearly does not know how to do it. So, powerful companies and market intermediaries, once again, used a depressed primary market to successfully lobby for a dilution of investor protection measures. IPO grading was advocated by investor activists and associations around 2003 and was reluctantly mandated by the Securities and Exchange Board of India (SEBI) in 2007, only to be dropped six years on.
SEBI’s excuse for scrapping mandatory grading is the reported findings of ‘various studies’ that a large number of investors are ‘not influenced by grades’; that plenty of low-grade IPOs received a big response from retail and institutional investors and, thirdly, that IPOs with high grades yielded more losses. In a clear contradiction of these claims, media reports also say that SEBI’s action was ‘a move to uplift the dormant primary market’. It is also unclear how SEBI rejected yet another study which shows that, over time, IPOs with higher grades yielded better price multiples.
Indian institutions have scant regard for history, so SEBI did not bother to consult investor associations who had fought long and hard for IPO grading. Nor did it bother to examine whether the grading process could be made more meaningful or adequately publicised. Thanks to pressure from powerful corporate lobbies, the IPO grading process was hobbled at the very inception. Investor groups wanted IPO grading to be independent and rating agencies to be paid from the large pool of badly utilised investor protection funds with stock exchanges and the ministry of corporate affairs. This did not happen. Companies were paying for their own rating—leading to charges about shoddy ratings—especially when India’s top rating agency, CRISIL gave Reliance Power a 5-star grade at the peak of the bull run of January 2008.
However, the grading did protect genuine investors, who had no time, or ability, to wade through bulky offer documents to find out what the companies wanted to hide. The simple 5-point grade, based on an expert evaluation of fundamentals by a rating agency, at least, acted as a fact check, even if it did not cover price risk.
By making it voluntary, SEBI has effectively killed IPO grading. But, instead of celebrating their victory, companies and market intermediaries should be really worried at the complete absence of protest. It shows that the investor simply doesn’t care and that is the real reason why only three companies made a public offering in 2013.
How the powerful threaten our basic freedom
It is the Polyester Prince story all over again. In the 1990s, Reliance Industries used the courts to bully a meek publisher and stopped the India release of a book that dissected Dhirubhai Ambani’s path to fabulous riches. In the days before social media or online book distribution options, the stay by a lower court was enough to stop it from getting into shop shelves. Nearly 15 years later, Indian industrialists, especially those in politics or with great political clout, are using the same bullying tactics.
In January, Praful Patel, the powerful minister from the Nationalist Congress Party (NCP) pressured Bloomsbury India to withdraw The Descent of Air India—a tell-all book that exposed how India’s national airline was systematically looted and pushed into the red. Naturally, Mr Patel’s stellar role, as aviation minister, in giving a huge push to the airline’s collapse through venal senior management and reckless purchase of aircrafts is described in detail. When Mr Patel filed a case with the metropolitan magistrate in Mumbai, the author Jitendra Bhargava (for decades, the public face of Air India) decided to fight back, while the publisher, Bloomsbury, chose to issue a public apology and destroy the remaining stock of the book. Mr Bhargava says on his facebook page that this was a unilateral decision without any discussion with him; he has also told the judge that he can substantiate everything he has said in the book. Mr Bhargava will soon self-publish it as an e-book.
In the very same week, the Sahara parivar decided to take the Ambani route. It filed a Rs200-crore defamation suit against journalist Tamal Bandopadhyay for a book that has not even been published and managed to obtain an interim stay against its publication from a Kolkata court. While Sahara claims that the book is defamatory, it has been the subject of innumerable adverse news reports ever since August 2012 when a landmark judgement of the Supreme Court (SC) ordered it to refund a whopping Rs24,000 crore raised through two group companies. In the subsequent months, the group patriarch, Subrata Roy, has been restrained by the SC from going abroad. The group has been rebuked by the apex court for trying to ‘fool’ it and has a contempt petition filed against it by SEBI for calling the market regulator a ‘sarkari gunda’. It will be interesting to see whether Jaico, the publisher of Sahara: The Untold Story also caves in or fights back.
Meanwhile, both Bloomsbury and Jaico would do well to look at what happened with The Polyester Prince. While the publisher chickened out of a fight, photocopies of the book were in great demand and author, Hamish MacDonald, grew in stature. A decade latter, when Anil and Mukesh went to war over the division of the family business, the dirty reputation that they washed in public began to make the revelations in Mr MacDonald’s book seem mild by comparison. More interestingly, Dhirubhai Ambani’s story, warts and all, became a popular Bollywood movie with the blessings of his son. Hopefully, the judiciary will take this into account while deciding on how much credence they should give to the claims of controversial corporates and politicians who want to use their financial muscle to gag whistleblowers and publishers.
Several people who have linked their Aadhaar with LPG distribution are either not receiving subsidy on time or not receiving the SMS. On the other hand, some people are receiving multiple SMS with different customer IDs about LPG refill and subsidy not related with them
The Supreme Court on 23 September 2013, in an interim order, directed that “no person should suffer for not getting the Aadhaar card in spite of the fact that some authority had issued a circular making it mandatory.”
However, despite this clear ruling, state-run oil marketing companies (OMC), like the Hindustan Petroleum Corp Ltd (HPCL), Bharat Petroleum Corp Ltd (BPCL) and Indian Oil Corp (IOC) are enforcing citizens to compel with the UID/Aadhaar requirement. This is not only causing troubles to citizens but lakhs of them are facing hardship due to the forceful implementation of Aadhaar for cooking gas (LPG).
And this is not limited to people who have not submitted their Aadhaar. Several consumers, who have enrolled and submitted their Aadhaar to the LPG distributor, are either not receiving the subsidy on time or not receiving any SMS. On the other hand, several people are receiving SMS about the LPG refill booking, cash memo and delivery, for a consumer number that is not theirs.
For example, I have neither enrolled for the Aadhaar nor I have linked my bank account with any UID number. Yet, I continue to receive SMS from my OMC giving details, about subsidy being deposited into a bank account that does not belong to me. Despite complaining to the OMC and LPG distributor, there is no action to delink my mobile number from the other consumer.
One of the readers of Moneylife, has been receiving SMS from OMC for three-four different consumer numbers. That too, when he has not received his own subsidy for the LPG refill in his own bank account. See the image below, the reader received SMS about booking of a LPG refill. Next message says ‘cash memo no165409 prepared on 27.12.2013 for Rs1044.50’ and his refill will be delivered shortly. The very next message (for the same booking number) says ‘subsidized cash memo 167664 dt 03.01.14 for Rs1273.5 prepared and the refill will be delivered shortly’. Then suddenly on 18th January, he received an SMS stating that his ‘booking no265829 is cancelled!’ (see the image below)
There are two things wrong in these messages. One, the consumer number does not belong to the reader and second, he is still waiting for his rightful delivery of LPG refill since more than 20 days. Interestingly, he still has to get the subsidy for his last refill and the distributor had told him that he would receive it in next 10-12 days.
Several readers of Moneylife have complained about threats being received from their LPG distributors for submitting the UID/Aadhaar number. All the distributors are using the one line threat, "You will not get any subsidy, if you do not provide your Aadhaar and link it to your bank account."
Even the social media is full of people who are having a tough time due to Aadhaar linkage with LPG refill and subsidy. Here is one such tweet that shows the mess of Aadhaar, LPG refill booking and direct benefit transfer (DBTL) scheme. The person has received subsidy through DBTL in his bank account without him booking the LPG refill!
Meanwhile, the OMC continue to send SMS asking people to submit their Aadhaar number to LPG distributor and link it with their bank account.
This is not only illegal but also can be construed as contempt of court. Under Article 141 of the Constitution of India, "the law declared by the Supreme Court shall be binding on all Courts within the territory of India." To declare means to announce opinion. Thus the law declared by the Supreme Court is the law of the land. It is a precedent for itself and for all Courts, Tribunals and authorities in India (Rupa Ashok Hurra vs. Ashok Hurra (2002) 4 SCC 388).
Following the interim order from the apex court, the Ministry of Petroleum and Natural Gas (MoP&NG) filed an ‘Application for clarification/ modification of order dated 23 September 2013. The Supreme Court, however, simply refused to do so. On 26th November, the Supreme Court said, its 23rd September order remains unmodified. Yet, HPCL, BPCL and IOC and their distributors continue to harass customers under the name of Aadhaar.
This is despite, the Nandan Nilekani-led Unique Identification Authority of India (UIDAI), maintaining its UID or Aadhaar is 'free and voluntary' and is meant for 'residents'.
The Supreme Court is likely to hear the matter on 28 January 2014 and take these ‘welfare agencies’ and the concerned ministries to task.
(This is the first part of two part series. The second part describes steps needed to be taken by customers harassed by the OMCs for LPG refill and subsidy)
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