Even while Rs 64,000 crore worth of investor money has been blocked in companies suspended from trading by stock exchanges, the Bombay Stock Exchange (BSE) has only made it difficult for retail investors to exit from more companies. BSE has suspended 49 companies from trading on its platform from next month. This is on top of more than 1,600 firms that were suspended over the years.
The move could send wrong signals to retail investors when Finance Minister Pranab Mukherjee announced the Rajiv Gandhi Equity Scheme to increase retail participation, say experts.
According to Dhirendra Kumar, chief executive officer of Value Research, the crux of the matter lies in mindless implementation of laws.
"While equity schemes are being launched to attract investors, ground realities are different. Company promoters should not be allowed to run away with investor money. But we have not heard a single case where such fly by night promoters are taken to task and thrown in jail. Suspending companies is easy. But why is it that such weak companies are allowed to list?" Kumar said.
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Also, a negative perception could be built around small and medium enterprises SME exchange, for the success of which both BSE and National Stock Exchange (NSE) are making sincere attempts. Only very small companies come to list on the SME exchange. Thus, moves by exchanges to suspend companies for non-compliance of listing agreement could derail the confidence of investors in SME exchanges, too. "It is a serious matter and requires urgent attention of regulator. On the one hand you talk of financial inclusion and introduce schemes like Rajiv Gandhi Equity Scheme to increase retail participation and on the other, you allow companies to defraud these investors," said Kishor Ostwal, managing director of Mumbai-based CNI Global Research.
According to stock brokers, this age-old policy of stock exchanges to suspend companies for non-compliance of listing agreement requires a review. Experts say, many company promoters are using this rule as a convenient de-listing method.
Companies are generally suspended for violation of listing agreement and procedural issues like not filing results and shareholding pattern, a must under Securities and Exchange Board of India (Sebi) Act.
"It is very convenient for any company not to file results or shareholding pattern and get away. They should be made accountable. Their assets should be attached if they do not comply with listing agreement for a year. This is the only way investors will get back their money. A mechanism should be built for this," said Ostwal.
Consider this: Nearly 200,000 retail investors will lose their money in a single company stock, of Cals Refinery. The stock of the company, owned by the
B K Modi Group, had recently come under the scanner of Sebi due to a massive stock trading scandal. B K Modi is a known group in the country, which owned Spice Mobile and later sold it to Idea Cellular.
Sebi had restricted Cals Refinery, with six other companies from altering their capital structure through the issue of equity or any other convertible instrument until further orders. Cals, which has so-called plans to set up a Rs 20,000-crore refinery in Haldia, was often the most traded counter on the BSE. However, the stock, with a face value of Rs 1, had crashed from Rs 5 to touch a low of Rs 0.20 in the past few years, as operators were seen exiting the counter.
Market experts say the investor protection fund that both BSE and NSE collect should be put to use to create a system to hold promoters of companies accountable. Instead, the BSE in 2006 had issued a public notice proposing to delist 650 companies from its official records, as trading in securities of these companies had been under suspension for a period of three years or more.
This move, however, was stalled by Prithvi Haldia, managing director, Prime Database, who argued this would reduce a company's accountability to a minimum. Small investors would be the chief sufferers in case the company was delisted, as there would be no exit window for them.