Meanwhile, investors who had invested in the late 1990s continue to struggle to get their money back, especially in cases of defunct firms. Alpic Finance Ltd, whose festival bonds matured in 2001, has been a defaulter for several years, although investors believe that the proceeds of the bonds were invested in realty around the country. In early 2006, Ms Devlaliwala, who was inquiring about her 86-year old mothers investment, was told that she could at best hope to get 20% of the investment back. All along, investors have been pointing to specific properties owned by Alpic around the country, while it defaulted on bond redemption. Some investors were told by Alpic to discharge the bond certificates and send them to the company for redemption and have still failed to get their money back.
Bank of Baroda (BoB) was the bonds DT, and its experience in getting justice for investors suggests that debenture regulations remain cumbersome, and the problem is compounded by investors ignorance.
As trustees, says PKR Iyer, BoBs assistant general manager (legal), we can initiate legal action only when 75% of the bondholders (in value) authorise us and provide funds to pursue legal action. Debenture holders have been calling the bank from as long back as 2002 to recover their dues, but they apparently do not know about the authorisation process. BoB later decided not to wait for 75% consent and initiated proactive action by filing a suit at the Bombay High Court. Alpics representatives apparently claimed in court that 75% of the bondholders have already been repaid and sought dismissal of the suit. Shockingly, the company produced as evidence the discharged bond that investors had been lured to submit, rather than proof of payment. Yet, the bank demanded verification of the claims and obtained the courts permission, but the company refused to show proof of payment on the grounds that the court order had not specified it. It also took the astounding stand that once a cheque is issued, the trustee has no role to play even if it has been dishonoured for lack of funds.
If the government is serious about investor protection, it will have to examine each issue in depth and frame clear-cut rules. Otherwise, the large mass of investors will continue to shun the capital market
The Alpic festive bond case is an amazing example of how a powerful DT can also be stymied by a crooked company. It is also proof of how much investors have begun to distrust all market intermediaries. While BoB was battling to get investors their dues, some investors wrote to me voicing suspicion that it was deliberately going slow. Since most investor protection activity these days depends on the proactive approach or zeal of specific officials, such distrust and suspicion demoralises those who wants to fight the investors cause. In the Alpic case, the problem will not end with the sale of its Mumbai assets; it will only lead to another problem. BoB as the trustee will only be able to pay those bondholders who can submit an original certificate. The bank itself is unclear what to do about the investors who submitted discharged certificates to the company, which were being brandished by it in court. Some investors, who have taken the trouble to understand the issue, have actually managed to get back their original certificates and have submitted them to BoB. Some of them have even written letters of appreciation to officers handling the issue.
If the government is serious about investor protection, it will have to examine each issue in depth and frame clear-cut rules. Otherwise, we will have to reconcile ourselves to the large mass of investors continuing to shun the capital market.