Financial = Express : More teeth for Sebi to trail funds

More teeth for Sebi to trail=20 funds
Ronojoy Banerjee
Posted = online:=20 2010-03-16 00:08:30+05:30

New DelhiMarket regulator Securities = and=20 Exchange Board of India (Sebi) could soon get more teeth to monitor the = end-use=20 of money raised through initial public offerings by companies. The = ministry of=20 corporate affairs (MCA), which currently performs this role through the=20 registrar of companies, wants Sebi to be roped in for this task, since = companies=20 divert funds through complex mechanisms that require expert hands to = track.=20

Sources said a proposal to this effect was mooted last Monday at a = meeting=20 convened by MCA secretary R Bandyopadhyay and attended by officials of = Sebi and=20 RBI, as members of the coordination and monitoring committee on = vanishing=20 companies.=20

=93We (MCA) feel that Sebi also should monitor if firms raising money = through=20 IPO are diverting it for purposes other than the company=92s stated = business=20 plans,=94 a ministry official said.=20

Sources said since a company at the time of listing has to strictly = adhere to=20 rules laid down by Sebi, it is in the best position to ally with the MCA = in=20 tracking the end use of IPO money.=20

At present, Sebi faces constraints in probing this diversion. Under = the law=20 only listed firms come under the regulation of Sebi, whereas in cases = where=20 funds are siphoned off, firms use a network of subsidiaries and holding = firms,=20 many of which are often not listed and hence outside Sebi=92s purview. = If Sebi is=20 to be roped in to track the end use of funds raised through IPOs, its = powers=20 need to be enlarged, sources said. But this might need a corresponding = amendment=20 of the Sebi Act of 1992 by Parliament.=20

=93They (Sebi) said that often listed companies route their money = through=20 non-listed subsidiaries of theirs. Since Sebi does not engage with = non-listed=20 firms, we are looking at the possibilities of amending the relevant acts = to=20 widen Sebi=92s powers,=94 the ministry official present at the meeting = told FE.=20

At present, the full scope of monitoring the end-use of IPO proceeds = is=20 unclear. Both MCA and Sebi share the responsibility, but they do it=20 individually.=20

The registrar of companies, for instance, mostly does it as part of = its=20 annual inspection of the audited balance sheet of companies and not as a = separate exercise.=20

Since the over Rs 8,000-crore Satyam scam broke out in January 2009, = the=20 ministry of corporate affairs has taken several initiatives towards = better=20 governance and to create more transparency. For instance, the government = released guidelines on corporate governance for over 8 lakh companies in = December last year. In September 2009 the government set up a = software-based=20 system to detect corporate frauds=96Early Warning System. Based on the = preliminary=20 findings of this system the government has already directed the = registrar of=20 companies to inspect the books of over 150 = firms.