Midas Touch Investors' Association (Midas), a well-known investor organisation, has suggested market regulator Securities and Exchange Board of India (SEBI) to provide monetary compensation to cheated investors for losses suffered, as a pre-requisite for investor protection.
Submitting its suggestions on the amendments in The Securities Contracts (Regulation) (Stock Exchanges And Clearing Corporations) Regulations, 2012, the investor organisation says, "One of the main thrust of our suggestions is to plug the gap of providing compensation in the regulations and incorporate a provision for giving compensation to cheated investors for the losses suffered by them."
In the past, there have been numerous instances where investors, particularly small investors, have suffered mammoth losses and been duped and cheated, through fraudulent and unfair trade practices and white collar crimes, but in the absence of the credible provisions, neither were investors’ interests protected nor the losses they suffered were compensated, it added.
According to Virendra Jain, Founder-Member and President of Midas Touch, there is not a single instance since the enactment of SEBI Act in 1992 wherein cheated investors have been given compensation or awarded damages for the losses suffered by them due to fraudulent and unfair acts. The only exception is the instance of money paid to applicants of IPOs who were deprived of the opportunity to get allotment in initial public offerings (IPOs), on the Justice Wadhwa committee’s recommendations.
Mr Jain was one of the members of the Justice Wadhwa committee.
Midas Touch Investors Association has been working for investors’ interest in the capital market since 1995. It has seen how investors in the capital market fail to get redressal after suffering losses. Here are some of the examples...
1. Out of about 5,200 companies listed at BSE and NSE, 2,000 were suspended for non- compliance with the listing agreement terms. A detailed Standard Operating Procedure (SOP) for monitoring by Stock Exchanges -- of compliance of listing agreement terms by Listed companies -- was formulated by SEBI in 2013. In spite of that, about 350 companies were delisted for not taking action specified under SOP, in 2016. Fair price has not been paid to shareholders by the promoters/company to date, as legally required. Midas Touch's PIL No. 3007 of 2012 for action against companies and their promoters for failure to comply with listing agreement terms with the Stock Exchange, is before the Delhi High Court.
2. There were 5,142 companies listed at Regional Stock Exchanges (RSEs). Of these. Only about 100 have been listed at national stock exchanges, after the de-recognition of RSEs by SEBI. Effectively, the rest of the companies were delisted post de-recognition of the RSEs as per the SEBI circular. As per our knowledge, none of the 5,000 companies have paid a fair price/exit price under delisting to its shareholders. We estimate that at least 2,000 companies have vanished. A Special Leave Petition on the issue filed by Midas Touch was not admitted by the Supreme Court. No money has been paid to shareholders to date.
3. Satyam Computers Ltd: In 2009, Shareholders of Satyam Computers Ltd were duped by the massive accounting fraud perpetuated by the company. The company was forced to pay damages to its US Shareholders as it was listed in US, but the Indian Investors did not get anything in the absence of legal provisions for damages. Ultimately, largely due to efforts by Midas Touch, provision for compensation was introduced in the Companies Act, 2013.
4. Vanishing companies: 229 companies were identified by CMC in the year 2000 as having vanished, subsequent to the Allahabad High Court order in the PIL filed by Midas Touch (Writ Petition No. 659 of 1998). However, to date no money has been paid to shareholders.
Midas Touch says, "To sum up, the investment of shareholders in 7,000 listed companies out of 11,000 companies have been wiped out completely. This underlines the institutional failure in monitoring listed companies by regulators (Stock Exchanges and SEBI). Instead of administering the law, they facilitated loot of investors, condoned white-collar crimes, thereby allowing predators to operate in the market, compromising its integrity. The regulators’ officials responsible are unfit to hold such responsible office and ought to be debarred for life for holding similar offices."
According to the investor association, the source for building a corpus and regular funding for compensation is to be deliberated upon and finalised, once an in-principle decision for its insertion in regulations is taken by SEBI. "We are, therefore, giving only broad contours for building a corpus and funding avenues. Similarly, processes and principles for Identification of investors who would qualify for compensation, to the extent feasible, would have to be deliberated and finalised," it said in its suggestions to SEBI.
Here are the suggestions submitted by Midas Touch to SEBI...
