A permanent bureaucracy to blow up investors’ money

Sucheta Dalal

The Investor Education & Protection Fund (IEPF) is set up under the ministry of corporate affairs (MCA) into which go dividends, matured deposits, bonds and application money to IPOs, etc, that remain unclaimed for seven years. At Rs1,050 crore, this enormous pool of investors’ money has gone into the Consolidated Fund of India. Meanwhile, the IEPF, which was to use the money to benefit investors, has remained completely ineffectual and has been hijacked by industry associations and, institutes of chartered accountants, company secretaries and cost accountants, while investor associations have been ousted. Its annual budget of Rs2 crore to Rs5 crore is squandered on pointless seminars mainly conducted by these institutes (and attended by their bored students because it is mandatory) or on advertisements. Of the NGOs that received funds for seminars, few have any knowledge about investor issues. Since IEPF has chosen to eliminate all investor representatives from its committee, it has no direct interaction with savers and, in every year since 2007-08, it has failed to use its budgetary allocation fully because of “lack of quality proposals from NGOs.” The standing committee of parliament has pulled up the MCA for not managing the IEPF with ‘due seriousness’, thus defeating its very purpose. It called for “widening the scope for (grievance) redressal.” Instead, the IEPF has shut down the NGO-run www.investorhelpline.in and is also disdainful about www.watchoutinvestors.com, an excellent resource for corporate information that is far better than websites run by other regulators.

MCA now has a new idea about how to spend the money. It has obtained a suggestion to set up a permanent secretariat of the IEPF. This will effectively ensure that unclaimed investors’ funds are squandered on salaries, administrative costs and travel expenses of a set of bureaucrats and government officials. Worse, it will create a permanent disincentive for any serious attempt to trace investors whose funds remain unclaimed because of wrong addresses on corporate records, or due to death, litigation/delays in share transfers. Investor groups have long argued that when dividends or deposits are unclaimed due to litigation (that drags on for decades), such investors must be paid from the IEPF whenever there is a valid judgement. This too will not happen if investors’ money goes into funding a permanent secretariat of the IEPF. All one can say is “watch out investors, your money may soon disappear.”