RECOMMENDATION FOR ISSUE OF AN ORDINANCE FOR MOVING OF AN URGENT BILL TO CURB THE GROWING EVIL EMANATING FROM COLLECTIVE INVESTMENT SCHEMES
The Committee has gone through the press release dated 18/11/1997 issued by the Government of India in respect of the above-referred problem. The Government of India has clearly taken the view that the Collective Investment Schemes based on issuing instruments like Agro Bonds, Plantation Bonds, etc. are within the purview of SEBI Act,1992 and particularly the provisions of law contained in Section 11(2)(c) of the SEBI Act. The said sub-clause was incorporated in the Act by the Securities Laws (Amendment) Act,1995 with effect from 25/1/1995 for "Collective Investment Schemes". Section 11(1) of the Act provides that it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market by such measures as it deems fit. Section 11(2)(c) of the said Act provides that the generality from the provisions, the measure referred to therein may provide for restructuring and regulating the working of venture capital funds and collective investment schemes, including mutual funds. The SEBI is facing writ petitions in the Hon’ble Courts where content of one writ petition is that the plantation companies, etc. are not within the jurisdiction of SEBI inasmuch as such companies do not operate in the securities market and the bonds issued by such companies do not constitute securities.
The Committee is of the view that as a measure of the abundant caution, clarificatory provision should be made in the new legislation restructuring the definition of securities so as to specifically provide that Agro Bonds, Plantation Bonds, etc. are expressly included in definition of the expression securities. The existing definition of the expression "securities" contained in Section 2(h) of Securities Contracts ( Regulation ) Act,1956 is an inclusive definition and the same definition has been adopted in SEBI Act,1992 by Section 2(i) thereof. As a matter of tentative assessment of the situation, the Committee learns from its Member-Secretary who is an Executive Director of SEBI that the problem faced by the investors is genuine, some of the plantation companies have even disappeared and the investors are taken for a ride.
The clarificatory definition of the expression security should not indicate any change in law as such but should in terms clarify and provide that the collective investment schemes are within the range of the definition of the expression securities and whatever be the nature of document issued by these companies, these documents would constitute securities. The Committee has prepared draft of an extensive definition of the expression "security" for being included in the proposed Securities Act,1998. Above draft of a consolidated legislation is prepared by the Committee after holding about 22 meetings. In the draft-Bill of the securities, the definition of securities has been widened. The contents of the Report and clause 2 (1)(bb) of the draft-Securities Bill may be referred to. The said definition may be taken into consideration by the authorities concerned while drafting new legislation in the form of an Ordinance or the Bill as may be deemed fit. The Committee has decided to make a few suggestions / recommendations indicating the nature of powers, duties and obligations to be conferred on the regulatory body for giving better protection to investors whose interests are in jeopardy. A list of such provisions which may be considered is particularly indicated hereinafter.