The Securities and Exchange Board of India (SEBI) seems to have taken cue from the corporate fraud in Satyam Computer Services in setting the stage for lawsuits that could check cheating of investors by company managements.
The regulator’s proposal to finance suits by recognised investor groups to help them to bring to book the companies for violations which are outside SEBI's regulatory purview is a path-breaking one. SEBI has confirmed the move and is believed to have set apart Rs. 14 crore for this.
In the Satyam case, the only case filed against the company by a consumer body was the class action suit by two US law firms on behalf of Satyam shareholders. “With shareholder activism almost non-existent in India, the SEBI move is likely to improve confidence and awareness among investors,” said a brokerage executive on condition of anonymity.
In developed markets like the US, a class action suit is filed on behalf of affected people, such as shareholders, who have suffered as a result of wrongful actions of a company. Experts say in India, similar suits can be filed under Public Interest Litigation (PIL) provisions.
However, investor associations find these battles tough as funding the litigation is a key issue. They often end up lodging protests that lack teeth.
“By funding class action suits, SEBI could cover cases that are outside its regulatory purview,” said Deena Mehta, Managing Director of brokerage firm Asit C Mehta.