The standing committee on finance in Parliament has recommended a probe into all initial public offers (IPOs) that hit the capital market since 1999. While the Securities and Exchange Board of India (SEBI) has observed irregularities in 21 IPOs between 2003 and 2005, the panel said there was enough scope for further investigation.
In its report on the efficacy of reform process in reference to the recent IPO-demat scam, the panel, chaired by BJP's B C Khanduri, said irregularities might have been continuing in a clandestine manner for a long time.
Between 1999-00 and 2002-03, there were as many as 182 IPOs. While there were 51 IPOs for a total of Rs2,587 crore in 1999-2000, there were 109 IPOs for Rs2,375 crore in 2000-01. In the following two years, there were a dozen listings followed by 19 IPOs in 2003-04, 23 in 2004-05 and 76 in 2005-06.
The committee also blamed the finance ministry for not furnishing information about IPOs where irregularities were noticed.
Though SEBI and the finance ministry have taken actions to detect fraud in the system, the committee said the regulators must play a more proactive role to monitor the functioning of the depositories. "Guidelines and standing operating procedures should be prepared and codified by SEBI to minimise the grey areas in the process of monitoring," in every three months, the committee said.
While the panel has criticised the way the various regulatory bodies have handled the scam, it has endorsed a SEBI proposal to revamp the management of the two depositories, NSDL and CDSL.
Referring to the SEBI observation that there was a recurrence of the same errors by the depository participants every year, the committee pointed out that the two depositories "have fared poorly in conducting their inspections of depository participants registered with them."
The committee has sought a review of the role of the 'integrated intermediaries' with a view to see that those operating in multiple capacities like Karvy were not able to manipulate the system.
While currently, multiple applications from the same person in a public offer, only runs the risk of being rejected, the report suggested that multiple applications for public offers may be made punishable under the Companies Act while fictitious applications should be made punishable with five years imprisonment.
"The Companies Act must be amended to make the submission of multiple applications, an offence," the report said adding that the government should speed up the pace of market reforms "to deal with such scams in future."
The committee also suggested scrutiny of tax returns of all the entities involved in the scam by the Central Board of Direct Taxes.