Confident that reforms in IPO market will improve ease of doing business in the country, Sebi chief U K Sinha has said the regulator is also determined to bring fraudsters to book and has attached assets worth Rs 2,000 crore to protect investors’ interest.
Sinha also said that the special court, set up here to hear cases filed by the regulator, would help fast-track the prosecution and recovery proceedings against the defaulters and get the investors their money back expeditiously.
A decision to set up special courts was taken following amendments to the Sebi Act last year, which also provided greater powers to the Securities and Exchange Board of India (Sebi) in delivering its mandate to protect the interest of the investors and regulate the capital markets.
“A special court has been set up in Mumbai. We have started filing cases there,” the Sebi Chairman said.
Sinha said that the new powers have been very helpful to Sebi in delivering its mandate and for bringing to book the defaulters including those defrauding the gullible investors with illicit money-pooling schemes promising huge returns.
“The good thing has been that on collective investment schemes, there is a clarity that anything more than Rs 100 crore is a CIS. Earlier this was not clear.
“This is one major thing that has happened. Our power of recovery has also helped us. We have already attached more than Rs 2,000 crore worth of assets. Thirdly, a special court has been set up,” Sinha told PTI in an interview here.
As per the available data, Sebi has initiated more than 2,100 attachment proceedings in over 700 cases so far under the new powers.
These proceedings include attachment of bank and demat accounts, attachment of movable and immovable properties, appointment of receivers for management of attached properties and arrest and detention of defaulters.
Sebi can now pass attachment orders and launch recovery proceedings against fraudsters and market manipulators, including those running illegal deposit schemes.
While Sebi was established more than 25 years ago, it has got direct recovery powers recently to act against those refusing to pay penalties and other dues.
Earlier, Sebi had to follow a time-consuming process of filing prosecution against defaulters and fraudsters, and the number of defaulters refusing to pay the dues had crossed 1,300 last year.
On ease of doing business, where India is ranked very poorly, and steps that Sebi is taking to make things better, Sinha said the country already ranks much better globally when it comes the regulatory framework and steps required to protect minority investors.
The the Ease of Doing Business index of the World Bank, India was ranked 7th last year on these parameters, while its overall rank was much lower at 140th.
Sinha said there was a wrong perception that greater regulatory compliance makes it difficult to do business in a country. On the contrary, a country is placed better in terms of ease of doing business if there are enough protections available for the minority investors.
On the other hand, Sinha said, Sebi has taken a number of steps to improve ease of doing business and develop the markets.
“On the developmental part, some of the important measures taken by Sebi are with regard to IPO processes,” he said, while listing out steps like halving the time period of listing after IPO to six days, new norms for listing of start- ups and making the entire IPO process cheque-free.
Sinha said a series of initiatives has been taken to reduce the listing time from 12 days to six days, along with a number of investor friendly measures.
“One is that we have insisted upon that there will be a compulsory ASBA. The important thing here is that if you apply for an IPO and issue a cheque, your account gets debited.
“Once the account gets debited, and lets assume you have applied for Rs 1 lakh, but you eventually get allotted only Rs 40,000, then you are eligible for a refund of Rs 60,000. But that refund used to take lot of time.
“So, first you lose interest on that Rs 1 lakh from day one, and it was not certain by when you would get your Rs 60,000 refund,” Sebi’s U K Sinha said.
He further said Sebi has a very detailed mechanism to ensure that your complaint as an IPO investor is addressed.
“We also have a mechanism to ensure that we keep 1 per cent of the money raised in an escrow account, so that in case of an investor grievance not being addressed, we will not release this money to the company,” he added.
Sinha said that Sebi has taken these steps to ensure that the investor does not lose on the interest amount and this has also helped remove the necessity of issuing a cheque, while making the entire process much simpler.
“What you need to do now is that in the same application, you give your account number and tick the option that you allow the amount to be blocked in your bank account.
“All that will happen after that is that you would not be able to withdraw that amount, till the time it remains blocked, but you would not lose any interest amount and you also would not suffer the uncertainty of the refund payment. That is one major change that we have done.”
In the IPO process, earlier the situation was that paper applications all over the country used to get collected.
Sinha said that people often complained that they could not get the application or failed to submit it in time. “Often people would complain they missed out on a good IPO and he or she could not get the application in time. But now we have made everything electronically available for everyone.”
He said it is also possible that the IPO applications can be filed just with a click if the investor already has a demat account.
“This is the digital India. Earlier, the applications could be filed only at a few selected places. You could file the applications with only the syndicated brokers for an IPO, but now you can submit the application with any broker.
“On top of it, your money remains in your account till the time of the final allotment and the listing will happen in just six days. These are some major decisions we have taken for IPOs. In a way, this is a major shakeup.
“The second major area where we have improved the ease of investing and doing business is fast-tracking of fund raising activities,” Sinha said.
“If there is a company which is already listed, its track record is good, it is not in violation of exchange or Sebi rules, then the earlier rule was that unless the size was Rs 12,000 crore (market cap), you can not tap the fast-track route. Now we have reduced this cap to Rs 4,000 crore.
“This will make hundreds of companies eligible to take this route. Here what happens you do not need to file any prospectus. Since you are listed, you do not file any prospectus, you can simply go and raise money, just by making an announcement,” he added.
“The third most important thing we have done is with regard to the new technology companies, or start-ups. For them we have a new system where only institutional investors, or people having at least Rs 10 lakh can invest,” Sinha said, while adding that the compliance and disclosure requirements for these companies would be much easier.