The Securities and Exchange Board of India has ordered inspection of 479 brokers of different exchanges including Bombay Stock Exchange and National Stock Exchange to verify that their fees from investors are in tune with their turnover in different capital markets.

This was stated by the finance ministry in its progress on the Action Taken Report on the stocks scam of 2001. The progress report tabled in Parliament by finance minister Jaswant Singh this week, also says that the investigations against Zee Telefilms by the Enforcement Directorate on possible violations of foreign exchange rules are at a very advanced stage. Investigative agencies have also moved against Shonkh Technologies, Padmini Polymers and Ranbaxy Laboratories in various fora.

The Sebi Saga: Complete Coverage

The JPC had asked the government to come before Parliament after every six months, to report on the progress made on the observations made by the Committee in its report on the stock scam of 2001.

The report says the inspections of brokers are part of the enhanced programme of inspecting brokers in the various exchanges undertaken by Sebi from this financial year. It says while 259 brokers were inspected in the first phase, 220 were selected from BSE and NSE in the next phase to verify that the brokerage charged by them was in consonance with their turnover in equity, derivative and debt markets.

The report adds that it differs from the recommendations of the committee to make vigilance officer of banks independent of the Chief Executive Officers. The Central Vigilance Commission has advised the Centre that making the Chief Vigilance Officers of banks independent to keep a vigilant eye on frauds will not be desirable.

The JPC was perturbed that every stock scam was fuelled by funds from the banks and therefore a strong vigilance network was essential to prevent their recurrence.

The finance ministry had accordingly referred the issue to the CVC this year. In his report the CVC has said such a step will have wide ramifications. Instead the current system has worked well and should not be altered.

The report says the cabinet has advised the department of company affairs in the ministry of finance to bring a new legislation to replace the Companies Act of 1956, instead of moving amendments to the Act.

The proposed legislation will cover the phenomena of multiple investment companies floated by the same corporates, and preferential allotment rules among others.