Ministry of Corporate Affairs allows spending of unclaimed investors’ funds to be decided by bureaucrats, industry bodies

Sucheta Dalal

In one of the most brazen moves in recent times, the ministry of corporate affairs (MCA) has allowed the spending of a fat pool of unclaimed investors’ funds that will be decided by a set of bureaucrats and industry associations. Here is how it has happened. When the Companies Act was amended in 2000, TS Krishnamurthy, then secretary, MCA, and later India’s chief election commissioner, felt that unclaimed dividends and interest, lying with companies was investors’ money and must be used for them.

The Investor Education and Protection Fund (IEPF) was created by an amendment (Section 205 C) to the Act and companies were directed to transfer to this Fund dividend and interest that remained unclaimed for seven years. There is more than Rs400 crore in the Fund to be used for investor education/protection. IEPF framed guidelines for accreditation of NGOs to fund them. Immediately after IEPF was created, Confederation of Indian Industry (CII), Institute of Chartered Accountants of India (ICAI), the Institute of Company Secretaries of India (ICSI) and others, began to lobby for the money. In the initial years, while this writer was on the IEPF administration board, such requests were rejected. We argued that investors’ problems arose out of issues with companies and their paid accountants and intermediaries. It would be a travesty to allow the same dubious bunch access to investors’ money for investor education.

More importantly, these organisations could very easily seek corporate funding to sponsor investor education, instead of attempting to grab unclaimed investor funds. IEPF also had a strict NGO accreditation policy requiring a proven record of investor-related activities.

However, in the past four years, hundreds of NGOs who have no truck with investor issues have received IEPF funds. Things worsened in February 2009. The IEPF board, which is supposed to have five independent members, now has NSE’s managing director Ravi Narain and representatives of ICAI, ICSI, ICWAI, FICCI and CII; Sajjan Jindal personally represents FICCI. There isn’t even a token presence of an investor representative.

Naturally, they are unlikely to support public interest litigation (PIL) (as planned and cleared), or investor protection initiatives such as independently funded grading of initial public offerings (rejected without explanation). Instead, industry associations and a few NGOs got funds to conduct 3,000 investor education seminars! Further, financial support to IEPF’s projects such as www.watchoutinvestors.com and www.investorhelpline.in has been terminated from 30th June this year. In effect, corporate India has finally captured funds supposed to be meant for investor!