Test of regulatory resolve

Just A day after Rajat Gupta was sentenced in a US district court, the Indian market regulator was forced to hire investigating agencies to implement a Supreme Court order against two Sahara Group firms.

The case has scored many firsts for India. The scale of the refund ordered by the Supreme Court at Rs 17,000 crore and even more that a Ponzi scheme has been successfully prosecuted by an Indian regulator. The stalling of the refunds and the submission of all papers (by September 10, 2012), could create another dubious first.

All these would pale if it knocks the government to realise the havoc unregulated savings schemes are playing in India and allow a huge budget increase for Sebi to marshal countrywide staff and invest it with concomitant powers to prosecute them ruthlessly.

An example is the sharp dive in collections of state provident funds (most fund switch happens here). In August 2012 the sum collected is a paltry Rs 486 crore, a third of last year. Sahara is not alone in this space but the difficulties that Sebi is facing show the marauding impact of the combination of political support and regulatory gaps.

Sebi's unprecedented tender for hiring professional agencies is an euphemism to get the people to go round the villages and towns where Sahara India Real Estate Corporation and Sahara Housing Investment Corporation have sold their schemes — the optionally fully convertible debentures — to track and educate the investors.

And why does this need to be done? Because as another ad put out by the Sebi on Saturday "Don't be Forced, Don't be Fooled" says no investors of these bonds should be duped to transfer their investments into a fresh scheme by the companies concerned.

The advertisement issued in most national newspapers, demonstrates the extent of misinformation that is sought to be practiced by the two Sahara Group companies. The Supreme Court order of August 31 is clear, the money cannot be repaid in any form except through the Sebi. But significantly in none of the cases has the business group sought any extension of time to comply with the court orders.

... contd.

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