Market sources said that Sebi is not empowered under the Sebi Act or the SCRA to look into the end use of funds by a company. It is empowered to regulate the issue process and this does not give it the powers to regulate the end-use of funds.

The regulator has already written to the government outlining its ineffectiveness in taking action against such errant companies and their promoters. According to Sebi sources, such companies can be brought to book only by the Department ofCompany Affairs. Interestingly, however, the DCA is not under the finance ministry and this has led to some confusion about whether the reference was to Sebi.

Sebi had on its part, recently conducted an analysis through stock exchanges to determine how many companies had actually disappeared. This analysis had been done by asking stock exchanges to provide the regulator with a list of those companies which had not furnished their results and other such details as required under the listing agreement.

Sources said that this list comprised of about 17 companies which has since been forwarded to DCA.

"Companies which have not made any disclosures to the stock exchanges for a period of time have obviously disappeared but apart from finding out details such as these there is little that Sebi can do in this matter", said a source.

"The case of vanishing companies is similar to someone siphoning off funds and this is not something which is under the purview of the regulator", the source added. In fact, theissue of vanishing companies is already before the Lucknow high court, where an investor has dragged the government, including Sebi, to court on failure to check the malice of promoters scooting after raising money from investors.

INSIGHT

The end use of funds should be monitored by term-lending institutions in case debt has been taken for funding the project. Instead of empowering Sebi and witnessing a clash between Sebi and DCA, the concept of a safety net could be explored. It could be made obligatory for the merchant banker to ensure that price does not dip below the offer price for a period of one year after the listing and if it does, shares should be acquired by merchant banker at the issue price. This will prevent overpricing of the issue and institutional monitoring will, to a large extent, prevent siphoning off of funds. All this will boost investor morale.