Govt to recover investors’ money from vanishing COs

Years after the investors lost thousands of crores in vanishing companies, the government has finally woken up and is now embarking on a pla...

Years after the investors lost thousands of crores in vanishing companies, the government has finally woken up and is now embarking on a plan to recover investors money stuck in such companies.

Minister of State for Company Affairs Prem Chand Gupta said the government was planning to come out with an action plan to recover money of small investors who have been defrauded by vanishing companies. ‘‘An action plan is underway to mitigate the agonies of the investors in fraudulent companies’’.

The action plan envisages acknowledging within 48 hours all complaints from the investors. ‘‘The defaulting companies would be persuaded to refund the investors’ deposits with interest.’’ It may be recalled that nearly 4,000 companies raised funds from the primary market in the 1994-98 period. ‘‘Most of these companies had shut or vanished with the investors money. The government and regulators have not done enough to recover investors money,’’ said a merchant banker.

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Moreover, out of 5,800 companies listed on the Bombay Stock Exchange, over 50 per cent are either suspended or delisted from the exchange. ‘‘Investors are unable to sell the stocks in these companies,’’ he said.

Gupta expressed the resolve to have strict penalty for vanishing companies who issued misleading prospectus and ran away with small investors’ money. ‘‘The penalty should be commensurate with the offence committed, while ensuring that stakeholders do not suffer’’.

The proposed new Companies Act aims at putting together the scattered provisions in the existing law and ensuring greater transparency, he said.

The committee will involve professional bodies like ICAI, ICSI, ICWAI, banks, FIs, chambers of commerce and Sebi.

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RBI wants loan valuation cells
MUMBAI: In order to curtail frauds, the Reserve Bank of India (RBI) has asked banks to consider setting up independent loan valuation cells. It also wants banks to evolve a process of check-listing to enable them to take note of any deficiency, while releasing funds to borrowers or monitoring their end-use. This is aimed at bringing down the frauds and non-performing assets (NPAs). Gross NPAs of banks and institutions are currently at Rs 1,20,000 crore. The need for independent valuation cells has arisen, as a major deficiency at the loan sanction stage was that credit proposals were not appraised with due diligence.