Frightening Ignorance about Basics of Financial Instruments, Security and Redress Options, Destroys Savings
I was tagged in a Twitter interaction last week, which had elements of tragedy, comedy, stupidity and ignorance—all rolled in one. The persons involved are not important; it is the responses that are worrying. The queries and comments need explaining, even if you want to see only humour in a live example of the blind leading the blind, or the clueless leading the helpless! So here goes…
Ms M’s Story
Ms M is our damsel in a dilemma. She lost her father to COVID during the pandemic and, while going through his papers, discovered a fixed deposit (FD) with a tech company that had not been redeemed. She hunted for details about the company and found its owner on Linked-in. She then did what most young people do these days—tweeted for help on recovering the money.
Ms M’s story is unusual only because her distress aroused more than the usual chivalry leading to a large number of responses; the fact that she is a good-looking model may have helped. What is of interest here are the reactions to her tweet.
Most replies were absurd, ignorant or hilarious; but let’s start with the good advice first. After a quick search, one tweep helpfully discovered that the company was under liquidation and had not filed its financials since 2013. Filing a claim was the only way to get her money back. Ms M’s father had done that already. Another advised her to seek a written reply, since it would be a helpful ‘weapon’ in court. It is probably nine years too late for either these actions to help now.
The late Dr KC Chakrabarty, former deputy governor of the Reserve Bank of India (RBI) and a trustee of Moneylife Foundation, used to tell us that once an Indian company is declared a defaulter, it is almost impossible to get money back. Why? Because banks don't act fast enough and, in large companies, they help to hide the problem by evergreening the loans. Only when all options are exhausted will some creditor will start liquidation proceedings. The promoter immediately works at gaming the judicial process, while also siphoning out (usually in collusion with the liquidator), until there is only an empty shell left.
The bankruptcy process was to fix this; but investors in DHFL, Yes Bank (AT-1 bonds) have realised that bankers, who form part of the committee of creditors (CoC, comprising secured lenders) take care of only their own interest. In the DHFL case, National Housing Bank (NHB), having failing as a regulator, got back 100% of the funds it lent to DHFL as refinancing. The few retail savers holding FDs and debentures, who put up a fight, were steamrollered and could do nothing about ensuring a better price or equitable distribution of the bidder’s money.
Coming back to Ms M’s issue, many tagged journalists or lawyers for help; some asked her to approach politicians, while others asked her to consult a lawyer and file litigation. Consumer courts are a viable option for retail savers, when applicable, but advice to file litigation usually comes from those are clueless about time, cost, expense, delay and futility of litigation, unless you have deep pockets and a large sum is involved. Class action would have worked, if our policy-makers had not made it so difficult.
Now, for some hilarious tips. A journalist, who was tagged, wanted to see the ‘terms and conditions’ of the investment. Well, all FDs are unsecured, putting the depositor right at the end of the money distribution chain; in a liquidation or bankruptcy process, only equity investors are behind them. While FD-holders of DHFL are furious at receiving just 23% of their investment, they are lucky to have got anything at all. A class action for compensation from dubious rating agencies or the failure of NHB would have stood a chance in other countries.
One confident tweep passed along the phone number of a ‘SEBI director’, quite certain that the Securities and Exchange Board of India (SEBI), could get her money back. Firstly, SEBI does not regulate FDs; secondly, for all its investigation and punitive powers, SEBI has rarely helped investors recover their money. Penalties imposed by SEBI remain with it or go to the government. Even when it is mandated to refund money (as in PACL and Sahara) under the supervision of a retired Supreme Court judge, the process is extremely slow.
Another bit of misguided advice was to file a first information report (FIR) and write a “complaint to the Enforcement Directorate, no need to chase the company.” Ms M took this crazy suggestion seriously and asked if she would need to come to Mumbai to do that. The wise guy said, “dont think so, I am sure they will have offices in your town.”
For those who don't get the silliness of this, the directorate of enforcement is an elite Central financial investigation agency under the finance ministry that primarily investigates foreign exchange and money laundering-related issues. It not your police station in every town or even the economic offences wing of the police (which also investigates crimes involving Rs10 crore or more in Mumbai).
Another smart-aleck had offered this reassurance. “If it (amount invested) is under Rs5 lakh, chances are you will get your money back.” This one confuses a corporate FD with bank deposits which carry a deposit insurance cover. Deposit insurance was enhanced to Rs5 lakh only a couple of months ago. Since 1992, it had remained at Rs1 lakh and is only available because banks pay for a deposit insurance cover.
Someone said, file a consumer complaint and another suggested the Centralised Public Grievance Redress and Monitoring System. Neither would realistically work in this case, if the company is being liquidated. The ministry of corporate affairs and its Serious Frauds Investigation Office does launch many investigations but has a poor record of successfully closing them.
Like Ms M, many notice the dud investments of their parents, while examining their inheritance, or when they get involved in managing their finances. This usually means that they ‘Google’ details but it is a long time before realisation dawns that redress, or getting your money back from dud companies is almost impossible in India and, sometimes, giving up on it is the only thing to do.
Losing one’s hard-earned savings is no laughing matter. Too many investors are lured by ‘investment advisers’ and distributors to promote risky investments, especially to senior citizens, because they offer higher returns. Worse still, investors do not track business news and miss all the red flags and media reports that allow smarter savers to exit before it is too late.
This was true of Helios & Matheson, DHFL, SREI, IL&FS and scores of others. If you follow the news, there is invariably some warning of dodgy business practices even if corporate ratings remain high. Investors are reluctant to act quickly and encouraged to ignore bad news.
This is evident from the anguish poured out by retail investors to the DHFL resolution.
The same story will probably be repeated in SREI, now that RBI has superseded the boards of its two companies. And, yet, ‘financial literacy’ has been the biggest buzzword for our five financial regulators over the past five years. Between them, they have almost Rs82,000 crore of unclaimed shares, insurance, mutual funds, bank deposits, provident fund (and all the financial benefits on these instruments). This money is being used to spread financial literacy and you can see the results in the helplessness of savers who have lost enormous sums of money to a variety of corporate and broker defaults in the past four years!

2 months ago
SEBI is the typical toothless tiger— they claim they receive scores of red signal alerts everyday, but how come they haven’t pulled up companies thru’ punitive action , other than imposing fines which companies are ever-ready to pay , considering the magnitude of gains they have already made. A typical case is allowing Templeton to launch new schemes . And SEBI is not alone in this regard— IRDA asks us to approach the nearest Insurance ombudsman in case of any problem— and they are blissfully unaware that the post of ombudsman is vacant in several cities ! So, it’s typically a case of cosmetic service because they have been mandated by law — wish these authorities imbibe the spirit/intent behind the law and act with more fiduciary responsibility !
2 months ago
I get mails from NSDL asking me to vote for resolutions for various companies. They never mention what resolutions are being passed or where to find them. If you do find these resolutions they are written in a language which is not possible to decode.
2 months ago
SEBI helping an investor?! Well, we have fat cat investors who made their billions on thinly-veiled insider information and now get to meet the PM!
2 months ago
SEBI, RBI AND IRDA can bring single riskometre for financial products, will help all investors
2 months ago
risk o meter Very High Risk tolerance for equity mutual funds, but no rating available for Individual Equity shares, Options, Future, AIF, debentures, etc. In India, one riskometre for all products from deposit, gold, equity, options, aif, .... could be the first step for investor education for all investors. Now riskometre available only for MFs
2 months ago
I think money Life should start credit rating system. Because retailers are often lured into fixed income which are equally risky just by good short term credit rating or ratings given to companies by taking fees.
2 months ago
Money makes people corrupt. Investor Grievance Cells of NSE and BSE are reluctant to part with Shares and Dividend surrendered to them by companies (if unclaimed for 5 years). The procedure set up is illogical, lengthy, costly and aimed at delaying the whole process. They sit on small and valid claims for years. There is NO INCENTIVE for them to work. Govt should lay down a RATE of Corruption. Say 10%. If I want my claim to be processed as per rules, I shall be required to pay 10% to the department doing the needful. I think that may work.
Ramesh Popat
2 months ago
i got full refund of DHFL NCDs.
2 months ago
Politicians chest thumb shouting from roof tops, we will become $5Trillion economy & be Atmanirbore, claiming "There is ease of business " here. Very true ease sure it is: We have lost rs.15lakh crore aprx. to NPA & nothing can be done. Some Banks suddenly put a huge lock on their operations, and common man lose their entire savings,. There was company called "MODERN SYNTEX, Rjasthan", which during 1993 went ballistic with their IPO, claiming they are to introduce fantastic synthetic cloth a 1st in the world, so people put in lot of money, some like me bought Debentures, when suddenly they purchased a lock, locked their operation & declared bankrupt through BIFR, running away with all money, then there was one "MODILUFT", which came into the country as something unique for the 1st time in this country, swallowed all money from the Germans & those who became franchise, putting in huge deposits, today that S.K.Mody must be enjoying his sun along with Ranka of ModernSyntex, on some carribean beach. " EASE OF DOING BUSINESS IN THE TRUE SENSE"! I suppose we do have elected govt. from the last 75 years, who are suppose to protect common man & their livelihood?
2 months ago
Sad. Old adage, which still holds good. = Empty pots, shallow streams, make the most noise =. New version - “Pose your questions to people and you will get countless useless answers.”
? Dejan Stojanovic, The Sun Watches the Sun
2 months ago
What can we do ? Story is same for helios, neesa, unitech, plethora, Tricom and so many else in country...
2 months ago
Srei case is different case. The company successfully managed to acquire Deccan Chronicle through Trust created by it through annonymous contributors under Insolvancy Act, itself being went under Insolvancy process. It diverted its funds to various Trusts, included Trust which acquired Deccan Chronicle by having its own Insolvancy professional appointed by NCLT, rather than by COC.
2 months ago
Previously the investor use to curse himself for GREED of high returns.But now this too is erased as any investment whether secured unsecured can be dud as no one is accountable here.Corrupt practices plays havoc, courts and other quasi judicial organisation are so deeply involved in corruption so no help.
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