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Investor protection: Panel's proposals get mixed response

Shaji Vikraman

PROF Mitra of the National Law School, who is the flavour of the season in the domestic financial sector, dislodging Mr Deepak Parekh from his pedestal in the process, is in for some disappointment.

This after the recent doubletake he did in submitting a report to the Finance Ministry on investor protection.

Last year, Prof Mitra was assigned the job by the Finance Ministry. His mandate was to advise the Government on whether a separate law was needed to protect the interests of investors in India's notorious wild west stock markets and also to look at the l aws relating to the securities market.

Shortly after he came up with an interim report, the stock scam broke out in March. Following instructions from the Government, the drafting of the final report was speeded up and the report then was passed on to the Finance Ministry and SEBI.

A key recommendation contained in Prof Mitra's report is the one which relates to a separate Investor Protection Act. After the vetting of the report by the Law Ministry, which did not share the Professor's view on a new legislation, it is the turn of th e Finance Ministry now to conclude that there is no need for a new omnibus legislation.

Given the way Parliament has functioned over the last eight months and the pilgrim's progress witnessed in the case of proposed legislations in the economic and financial sectors, the Finance Ministry reckons that it would be more prudent to amend the SE BI Act to achieve some of the objectives, rather than wait until a new legislation is enacted.

To that extent, Prof Mitra may feel disappointed. However, he can gain satisfaction from the fact that quite a few of his recommendations outlined in the report are set to be reflected in changes to the SEBI Act. This will include search and seizure powe rs to SEBI, widening of the Act to grant powers to the regulator to summon anyone dealing with securities including investors and to call for documents.

However, Prof Mitra's suggestion to empower consumer courts so that investors who are conned could get a faster and fair deal has not found favour with Government managers at the North Block and also at Shastri Bhavan which houses the Law Ministry. Anoth er of his recommendations in the report, on which the paper shredder may be put to liberal use by officials is that on making SEBI the policeman for the entire securities market.

In effect, this would mean dismantling the Department of Company Affairs (DCA), and sending home the dour babus there. Although this sounds like music to the ears of several corporates, the Government will not have any of this. Going by the original mand ate, SEBI will stick to regulating all listed companies, while the mandate for regulating unlisted firms will continue to be vested with the DCA.

Another suggestion relating to the setting up of an inter-disciplinary group consisting of representatives from SEBI, RBI, CBI and the DCA may not enthuse officials here. There is an institutional mechanism for this already - if the High Level Committee on Capital Markets (HLC) is anything to go by. The group represents the cream of the domestic financial sector -- the RBI Governor, the SEBI Chairman besides the Finance Secretary.

While the Government is in the process of firming up the proposed amendments to the SEBI Act, SEBI, which has been whining about its lack of teeth to bite, used the recent hearing of JPC to push Prof Mitra's report and also an old report of the Dhanuka C ommittee. These antics may not work as the Government's thinking on the report is clear.