The Joint Parliamentary Committees (JPC) suggestions on improving investor protection are bound to spark off another round of debate and acrimony among regulators and intermediaries. For instance, the JPC correctly says that there is a need for better coordination among regulators and a joint system to redress investor grievances. Also, it correctly identifies the Securities and Exchange Board of India (Sebi) as the appropriate body to co-ordinate this effort and recommends that the Investor Education and Protection Fund (IEPF) set up under Sec 205 C of the Companies Act should be transferred to Sebi to fund investor protection efforts. The Department of Company Affairs (DCA) may resent this suggestion, but cannot complain since it has barely managed to activate the fund in three years, while Sebi has always maintained far better coordination with investor groups in its decision-making process. The JPC also harps about creating a system for compensating aggrieved investors but is vague about the modality. On the one hand, it says that creating separate courts to handle investor complaints against the financial sector would be the real solution. On the other, it suggests that a Reserve Bank-style ombudsman should be extended to the capital market. There is also a vague mention about arbitration mechanisms at stock exchanges without any specific advice. This confused multiplicity of recommendations needs to be sorted out. Ideally, the setting up of special courts to try financial offences, including those against banks and insurance companies, would be excellent. Such courts should allow investors to represent themselves like the consumer courts. But does the government have the resources to fund an effective new system In fact, government would have access to a substantial chunk of money through the IEPF, if unpaid dividends from mutual funds and unpaid interest/principal by banks, insurance companies and cooperative banks were added to the corpus. These funds belong to investors and would be effectively employed in redressing their grievances with plenty of money left over for other investor protection activities.
The JPC also wants Sebi to work out industry-specific benchmarks for the pricing of initial public offerings, rather than permit unfettered free pricing of issues. On the face of it, this retrograde step gives the erstwhile Controller of Capital Issues a backdoor entry. But corporate scandals worldwide were driven by chief executive officers trying to show higher earnings to keep their stock options priced high. Hence, it may not be a bad idea to explore the feasibility of working out industry-related pricing benchmarks and to discard the idea if it is found unworkable. Finally, the JPC wants investor representation on the boards of Sebi and listed companies. The government needs to go easy on this one. India needs many more investor associations, with a broader representation of the investor population, before such a move can be contemplated. In fact, the government should ensure that those who represent the investors cause are fit and proper to do so and not tiny non-governmental organisations dominated by a single individual.