Brokers must maintain accounts of firms' funds

NEW DELHI: The Companies (Amendment) Bill proposes to introduce certain provisions, which will plug the loophole that allows companies to rig their share prices.
This practice was brought to light during investigations into the stock market scam of ‘01, when several companies had given funds to Ketan Parikh to prop up their share prices.
The broker had purchased shares of the companies concerned. However, the department of company affairs could not establish violation of the Company Law provision against companies buying their own shares as there was no way of ascertaining whether the broker purchased the shares of company A with money given by company A or with money given by company B or C.
After the Companies Act amendment now proposed, this would not matter. If the broker does not maintain separate accounts for deployment of the money given by a company, his purchase of shares of that company would be treated as purchases on behalf of the company, regardless of the actual source of funds. In other words, fungibility of funds cannot come to the rescue of companies that seek to manipulate their own share prices.
Companies that are found to have violated the provision would be penalised, along with the officers in default, with a fine that would be three times the aggregate value of its securities purchased or the face value of the shares, whichever is higher. In addition, every officer of the company in default would be punishable with imprisonment terms of a minimum of three months and a maximum of two years.