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Besahara Investor

SEBI chairman, UK Sinha, talks of the regulatory issues pertaining several investor-interest products and schemes...

In the concluding part of this interview, U K Sinha, chairman, Sebi converses about the perils of Emu farming and guaranteed return schemes that go against investor interest

Plantations, Emu farming, deposits, real estate with 18 per cent guaranteed returns. How did such large scale violation go undetected?
This problem is very complex and without getting into one aspect of one company, I would like to say that a law has now been set by the Supreme Court. The doubts on the correct legal interpretation have been settled. If anybody issues securities to 50 or more people, then that person will have to follow a due process and come to Sebi and get it vetted. It is clear that it will be Sebi and not the Ministry of Corporate Affairs, which will address this. You will remember, in the case of plantation companies in the mid-90s; it resulted in the Collective Investment Schemes Regulations made by Sebi.
Today the situation is complex. Certain things are governed by the state governments, there are certain Acts and within the government there are various agencies like the Ministry of Corporate Affairs or the Ministry of Finance. With the Ministry of Finance, there are two departments; Economic Affairs and Financial Services. And then there are regulators. There is Sebi and also the RBI. Some of the entities claim that they are raising deposit money as an NBFC. The RBI has come out with certain prescriptions about who can raise deposits as an NBFC and who cannot, which imposes certain restrictions on them.
I have two levels of responses for the problem. The first part is growth or the spread of the banking sector. Currently, there is a gap which should be filled by allowing some avenues to raise money for genuine activity. But, it is this gap which is fitting into all this activity where people are doing some unscrupulous action. The second part is the multiplicity of agencies responsible to check such actions. Sebi has taken it up with the government that it should be the single agency which should regulate all sorts of residuary money raised from large number of investors. This number can be fixed, so that we come into play only beyond a number. I believe the government is looking into this aspect and I would like to spell it aloud that this decision needs to be taken very fast.
For those in the business of buying and selling meat in Tamil Nadu, Emu farming is good. Perhaps, Emu meat is good and it is a viable business. But, if promises are made on how over the next one or two years, Emus will grow leading to availability of several kilogram of Emu meat, a lot of money gets invested and that is when you lose money. I am aware of certain developments which are taking place in West Bengal and we are struggling with it. There are companies who refuse to get registered under the Collective Investment Schemes Regulations, when according to us, they are CIS. When we place advertisements in newspapers warning that these are CIS, they place counter advertisements. They have been raising thousands of crores. We have gone to the Supreme Court in one case while there are several cases pending in various other courts.
These are not part of the residuary non-banking entities. And, they claim they are into housing finance. Under the Sebi Act, an action of Sebi can be challenged either in the Securities Appellate Tribunal (SAT) or in the Supreme Court. However, it is surprising when district courts are issuing injunctions and not one but multiple district courts. So, we are finding it very difficult to go and stop people from raising money because various district courts have passed orders and we are fighting those cases. But, so far it has been a losing battle for Sebi. I agree with you that the dimension is very large. We do not know the others who are raising money and you know examples of multi-level marketing. I think it is important that the legal position is clarified and if necessary, a new law has to be made and a single agency has to be put in charge.


To read Part 1 of this interview click here
To read Part 2 of this interview click here