'Local' hurdles to Sebi's CIS crackdown

West Bengal, Madhya Pradesh and Odisha top list in illegal mobilisation of funds

The Securities and Exchange Board of India (Sebi), equipped with the additional power of taking action in illegal mobilisation of funds through collective investment schemes (CIS), is yet to overcome the hurdle of local constraints, sources say.

According to people familiar with the matter, the markets regulator has adopted a pro-active approach to look into complaints of probable cases of CIS and taking action, but any such action leads only to half a crackdown.

“For a full curb on the menace, we need support of local agencies and authorities but that is yet to be forthcoming,” says a source.

Recently, Sebi chairman U K Sinha said the regulator had sought a joint task force of local authorities and the Registrar of Companies (ROC) to keep such companies in check.

According to Sebi’s recent report on illegal fund mobilisation, the regulator has so far taken action in about 190 cases. As many as 104 funds are getting mobilised from West Bengal, where the multi-crore Saradha scam broke out and the probe in the matter by Central Bureau of Investigation (CBI) is still underway.

The cases in West Bengal are followed by Madhya Pradesh and Odisha, with 27 and 14 cases, respectively.

Last week, Sebi had warned people not to invest in companies that raise money illegally by issuing deemed public issues (DPIs) through the private placement route. These companies usually collect money by selling shares and debentures illegally to a large number of gullible investors.

“Investors are cautioned not to subscribe to such issues. Investors are advised to see whether any such entity has filed offer document or filed application with a stock exchange for listing,” the release noted.

The access to the remote areas and good commission (up to 30 per cent) offered by local agents also don’t help the case for the regulator to prevent such cases from being kept in check.

Notwithstanding the local constraints, the regulator, with its new powers, has initiated as many as 2,100 attachment proceedings in about 700 cases so far.

Now, there is clarity that anything more than Rs 100 crore is a CIS. Earlier, this was not the case.

“This is one major thing that has happened. Our power of recovery has also helped us. We’ve already attached more than Rs 2,000-crore worth of assets. Thirdly, a special court has been set up,” Sinha said in an interview.
LACKING SUPPORT

• Local authorities not cooperating
• Sebi has suggested a joint task force to deal with the issue
• Entities with 60%-plus share can’t merge in any case
• It will include Registrar of Companies and local authorities
• Nearly 200 CIS orders passed
• West Bengal sees largest number of orders passed