Securities and Exchange Board of India (Sebi) chairman UK Sinha on Wednesday reiterated the need for a single, separate regulator to monitor collective investment schemes (CIS), saying his organisation would continue to work, within its limitations, to ensure that small investors’ savings were not put to risk by Ponzi schemes. According to the watchdog’s estimates, promoters of such schemes have raised more than R10,000 crore by promising investors quick, massive returns.
?Ideally, there should be one single regulator for all collective investment schemes, nidhi funds and chit funds. This regulator will have a very serious task at hand,? Sinha said, adding the government was seriously looking to strengthen laws to regulate all types of CIS. He was speaking on the sidelines of a meeting of the Asia-Pacific Regional Committee of IOSCO, a global body of securities market regulators from across the world.
Last month, the capital market watchdog ordered Kolkata-based Saradha Realty India to close all its collective schemes and refund the money collected from investors within three months. The capital market watchdog also barred the firm?s managing director Sudipta Sen from the securities markets till the time it wound up all its CIS and refunds the entire money.
The Sebi chairman further said the regulator has also sought the help of state governments for tackling these issues as the latter have many rights and jurisdictions on such entities. Citing an example, he said that seven district courts in West Bengal had passed injunctions against Sebi though the regulator managed to get them vacated.
Interestingly, while section 11(a)(a) was introduced in the Sebi Act in 1998-99 to empower the capital regulator to regulate CIS, the provision includes exceptions for nidhi schemes, chit funds and co-operatives, making the job difficult for the watchdog.
?More than Rs 10,000 crore has been raised by these so-called money circulation schemes or by people who in our opinion are running collective investment schemes but they are refusing to be under any sort of regulation… We have started prosecution action against a dozen such companies,? Sinha had observed while speaking at a seminar organised by the Indian Merchants’ Chamber on April 3.
Meanwhile, in the interim, the capital market regulator has suggested some amendments to certain sections of the Sebi Act. ?…whenever we impose penalties… we find it extremely difficult to collect (those penalties) because the collection mechanism under the Sebi Act is vastly different and inferior from the mechanism, for example, given under I-T Act or CCI Act,? he said.