Fearing manipulation and diversion of IPO money by companies for purposes undisclosed, the government has directed Registrar of Companies (RoCs) to inspect fund usage by corporates that have raised money from the equity markets since 2004.
Officials in the ministry of corporate affairs, headed by Prem Chand Gupta, told FE that the step was initiated keeping in mind interest of investors and also check any illegal activities by corporates with regard to usage of funds. ?We have given a direction to all RoCs to verify use of the IPO proceeds and find out whether it is as per the prospectus or not,? the officials said.
Over Rs 35,000 crore is estimated to have been raised by companies since 2004 with some of the big issues being that of Reliance Petroleum, TCS, Patni Computers, Biocon, NDTV, IndiaBulls, Jet Airways, Suzlon, Reliance Communication, Sun TV and DLF. The government?s seriousness on the matter can be seen by the fact that it recently ordered an inspection into the account books of wind power major Suzlon Energy to verify whether it used proceeds from its 2005 IPO for purposes disclosed in the prospectus or whether it was diverted illegally.
?The markets have been booming and there has been a lot of fresh investor investment and interest in the IPOs of various companies. Therefore, the government decided to take this step to ensure that there is no manipulation,? the official said. Terming it as a ?regular exercise?, the official said RoCs would look into the annual filings and records of companies to check any violation. ?The statements would be carefully scrutinised and if some discrepancy is found, the companies would be asked to provide further details,? the official said.
The official admitted that Suzlon may not be the only case that the Ministry is pursuing. ?There are some other companies that are also on the radar and we are actively looking into the IPO fund usage by them,? he said.
However, experts say it is not an easy task to establish such kind of fund diversion made by companies just on the basis of their filings. ?It is not very easy to establish such kind of activities as companies many-a-times make vague statements that ?funds have been utilised for purposes mentioned? or may camouflage it in legal jargon. Thus, a lot of investigation is required to detect such frauds,? a senior expert on regulatory matters said.
This is not the first step initiated by the ministry over fraudulent activities of companies. The ministry had cracked a whip against vanishing companies as part of its drive to safeguard interest of investors and had booked many of the fly-by-night operators.