Giving investors their due interest

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: Securities and Exchange board of India (Sebi) is in the mood to make IPO transactions more transparent and investor-friendly. In their attempt to achieve this much-needed market boost, they are planning to re-launch the 1992 Stockinvest system. However, now with modern technologies at their disposal, the regulatory body will make this system electronic. Also, having seen the previous drawbacks, this time round, the system should be far more viable and hassle-free. Based on investor reactions and acceptability, this new system will find its place in the market.

Going back in time

The Companies Act 1956, section 69, sub-section 1 states that the share application money can be paid either in cash or by cheque or by any other instrument. Keeping this in mind, Sebi decide to introduce the Stockinvest scheme. This system, created by the State Bank of India, provided for the investor to indicate the name of the issuer along with the number and amount of shares and debentures applied for. A space for the authorised signatory of the company to indicate the entitlement to shares and debentures applied for and a statement from the bank expressing that it is guaranteed for payment at par on all branches also formed a part of this instrument.

The issuing bank gave the Stockinvests duly signed and also marked the date to the investor. Simultaneously, the bank would mark a lien on the investors account to the extent of the Stockinvests issued.

The investor, while applying for public issues, will enclose the Stockinvest forms duly filled in along with the application forms and send them to the collecting bank as he normally does in the case of cash, cheques, and drafts under the then existing system. Once the basis of allotment is decided, the company would encash the Stockinvest instrument in respect of those applicants who are successful allotted and partially of those who are partially successful. The unsuccessful applicant’s Stockinvest instruments would be returned to the investor without enchasing them. The successful or partially successful applicant’s instruments would, after enchasing, be deposited in a separate bank account, where the cash and other monies received from other investors are deposited.