<%@language=VBscript %> <% option explicit if request.cookies("login")<>"" then session("login")=request.cookies("login") end if %> Midas Touch Investors Association - Midas Campaign on SATYAM

 

Salient Points suggested by the participants in the discussion on “Companies Bill 2009:
Class Action Suits and Compensation”


  1. Investor protection interest comes at the tail end of any regulatory move.

  2. We need to separate if a person is approaching market directly or indirectly the risk of market volatility is his, but risk of fraud is not on his head.

  3. I would broad base the discussion by including all financial products --shares, mutual funds, insurance products, credit cards, deposits, fixed deposits--.which are aimed at the retail customers to look at a legal recourse through the class action suits because this is finally very powerful mechanism for investors to get together through a third party who is aggregator  and approach redressal.

  4. Why is it the investors not coming in as much as they should come into the markets. They are not coming in because simply these mechanisms of exit are not there.

  5. We can make good laws, file litigation, put incentives and make it simpler to file litigation. All the corporate mis-governance will be looked after.

  6. I prefer class action but we also tried to put this in consumer protection and it did not work due to interpretation of CPC rules by High Courts, whereby the decisions were applicable on the parties to the suit and not to the entire class.

  7. I would support Class action in its true sense of meaning. But what does it mean, what are necessary conditions?

  8. Class action or of fancies that have already made out and punishments are there to civil liabilities in terms of compensation. U do wrong , you pay for it what is that wrong can be classified within the 4 walls of  existing companies law, so you list the actionable offences for the class compensation, grant locus standi, it is  very important who has locus standi to a group of investors.

  9. Then you have to specify the forum where you can send the trial. So my suggestion is to create the jurisdiction.

  10. You have company law board set of specialists and that this is within your domain, it can be done and it would be legally and of course you can have appeals to High Court and Supreme Court. Specify the procedures of the grant, so you don’t have any interim applications of any sorts holding a final judgment and so on.

  11. You also need corporate whistle blowers. Because without these corporate whistle blowers much of what is happening will never come out. If there was a single conscientious whistle blower in Satyam, who had acknowledged and blown the whistle we might not face this and that is for every other major scam in this securities under the conflict.

  12. Why should an investor not have right to information about the company he is investing in. So I am suggesting a doctrine where the RTI is extended to the shareholders of the company. So if we have RTI about the government, so why not RTI about large companies, organization which are using large public fund created under the statute of parliament. Off course you might like to limit the domain to directors, senior officers to company secretaries and those who act on behalf of the company.
  13. You need to put in provision for whistle blowers, corporate whistle blowers, he is an employee, junior employee or manager provide protection in terms of security, not being sacked in form of not be intact provide security at least till the trial is over and some sort of protection that does not discourage people from blowing the whistle when something illegal is going on.

  14. I think one segment of the market which has consistently shortchanged is the investors and in some cases there has been punishments and the investor may be happy that some one gets finally punished and I think his happiness lies in compensation.

  15. Rs.71crore by SEBI consent orders through 56 entities consent orders over last one and half year. Not one penny of that has been given to the investor, so obviously in all those frauds investor has lost. In many of those frauds, malpractices, investors have lost how much of the money has gone to the CFI even attempt to look at which investor has lost how much money. One of the biggest scam in my domain, which is the primary capital market happen in 2006, The IPO scam, where it was found that single person has put in 45000 applications in particular IPO got allotment and sold those share & made tons of money. All those processes fortunately we have very good investigation and atleast single fraudster has been identified, it is very simple to identify who are the investors who lost money because­­­­­­­­­­ of the scam.

  16. We can bring household savings can come to market only with 3 things Better policy and regulations, quick enforcement and punishment, and compensation to investors.

  17. The mechanism which would prevent frauds and I think your initiative on early warning system is a very good move, if we are able to detect frauds in making and kill them in making it itself will be a great confidence booster for investors, that there is somebody who is now overseeing fraud in making and not have to perpetuate over 5-7-10 years over when money will be available and then you finally identify or there is some confession and then it take another 5-10 years to settle down the charge.

  18. So in limited time, I would only like to focus on compensation and unless we change the focus across the companies bill, securities act and the legal environment, I think we would not be able to build in the confidence of the small investors that you want the focus on.
        
  19. In India CA has gained a lot of acceptability and you mention about J J Irani Committee, a lot of people are sitting here who were involved. Industry is on board for the class action suit and I think this is a win-win situation for everybody.

  20. If we have this class action suit concept in place in the companies bill, this is going to substantially reduce the number of cases that the court will have to deal with and the legal remedy will be expeditious, when you have large number of cases there is a lot of pressure in the courts to dispose of those cases expeditiously and you get correct judgments and investors will be benefited of this instead of running around individually.

  21. So, I think it is a win- win situation and we need to really take the concept of class action suit forward in the company’s bill 2009.

  22. I just like to add In India company becomes sick, promoter never becomes sick, unless the focus shift towards the promoters, disgorgements of funds by promoters in management . Its not punishing the company, if we punish company we are punishing shareholders unless we create that kind of focus, where every fraud, every default is actually created by the promoter, a human being not the company because for an investor risk of market is itself impossible to manage. For managing risk of fraud is I think no one can manage risk of fraud.

  23. Actually, this whole issue is not only about giving rights to the investors to sue the company for damages, but also to facilitate such litigations. We all know that in India the cost of litigations are quite high and to win such a suit, you need very high quality of lawyers, good lawyers, who would charge quite a sum of money to fight your cases.

  24. This is one of the thing which came to my mind and how is under consumer protection law, filing a complaint is easier than filing a civil suit. Shouldn’t that be as simple as consumer protection law, if investors has to actually file in these cases.

  25. The most important issue today is how the compensation should be distributed among all the investors in case company is found guilty of any mismanagement, malpractices or frauds play.

  26. It is very difficult to find out why the tribunals whether there is any fraud claimed it has to go into details and has to be seen for that I would request, a provision has to be made whether an act itself or may be in rules laid down.

  27. There was a punishment, there was a punishment of maximum 10 years of imprisonment fine upto Rs.25 Crores but there is no provision for what is going to happen of Rs25 Crores. Whether it would be funded back to the company for the growth of company or it would be given back to the shareholders of the company those who are the greatest stakeholders in the company.

  28. And I don’t quiet agree with the statement put across because compensation and civil action follows the large number of provisions and off course section 212 to 216 or to 217 speaks of two kind of class action suits, derivative suits and CA suits and it is also fact that the this thing need to be elaborated a little further because this is there in very brief principal format.

  29. NCLT has civil jurisdiction but compensation will follow the criminal determination. Fraud is a criminal act.

  30. I believe personally, provisions are there that need to be looked again. sit together the law makers, the experts to fine tune to further more, because we have provisions, as we discussed provisions in consumer protection is there.

  31. I think all regulators, academics, professionals can sit and discuss and how best we can fine tune so that we can begin with the subject of class action in the meaningful way.

  32. If you look at the provisions and how well the provisions are being taken of and has given a liberal interpretation that any one on behalf of, any one person whether shareholder or creditor can go to the tribunal under mismanagement which is specially coming under Sec 212 to 217 which deals with oppression mismanagement situation which is totally and if you look at another provision which is going to be applicable , which states anyone taking benefit out of the fraud, being perpetuate of the issue and court finds, tribunal finds under the judgment that look he is the person, he is the officer, here is the CS, here is the 3rd party who is benefited of fraud. There is a provision for this in the Indian Companies Act. So there is a one part to begin with the concept. 

  33. That government thought that this framework could replace the trust between investor and the businessman or the promoter in an institutional way, unfortunately the scams, the frauds we have seen from time to time, they keep on shaking that trust which we have sought to build up by institutional mechanism. Now I think we have built an elaborate structure where provided a sufficient degree of trust and faith for the investors and provision of this class action suit would probably be the last element in that framework.

  34. So may be we should think about the having, adding this last rung on the institutional framework of providing possibility of class action suit and compensation which results ­­­­­­­­­­­­­there from.