Sebi wants 500 violators blacklisted

Capital market regulator Sebi has decided to share with the Ministry of Corporate Affairs the names of about 500 companies that allegedly garnered money from investors in violation of its Collective Investment Scheme (CIS) rules.

Sebi (the Securities and Exchange Board of India) would also give the names of the directors of such entities to the ministry so that necessary action can be taken to prevent these companies and persons from associating with any new company, a senior official says.

The Collective Investment Schemes, where an entity pools in money from investors for certain pre-specified purposes and later distributes the profits or income, come under Sebi’s ambit.

In some recent crackdowns, Sebi had barred companies including Rose Valley Real Estate, Sun-Plant Agro and Pearl Green Forest from raising public money and from launching any new schemes.

Many of these entities and their operators and directors tend to restart similar business under a new name and numerous investors are taken for a ride before they come under the Sebi scanner, the official says.

Sebi has requested the ministry to circulate the names of defaulter CIS entities and their directors among all the Registrars of Companies (RoCs) in the country to prevent them from being associated with any new company. Sebi is also of the view that an overhaul of the current CIS regulations is needed, as loopholes in the existing rules allow investors to be taken for a ride.

Sebi will take up the issue of these regulatory gaps at a meeting of the Financial Stability and Development Council chaired by the Finance Minister. The council includes top financial sector regulators such as the RBI Governor and the Sebi Chairman.

While hundreds of companies have engaged in CIS activities in the country, just one such entity is registered with Sebi to undertake such business. According to Sebi data, more than 100,000 investor complaints are pending with it in connection with such schemes, and the matters have been sub-judice for long in most cases.

While Sebi is the regulatory authority for such schemes, a number of other government agencies and departments also govern similar investment products and a lack of clarity in this regard comes in the way of bringing the guilty to book.