The 30 million investors of the former Unit Trust of India deserve better. The finance ministry's recent decision to refer 19 cases of UTI's big-ticket investments scrutinised by a committee headed by former Reserve Bank of India Deputy Governor S S Tarapore to the Securities and Exchange Board of India is shocking.

Yes, the government did repeal the UTI Act and split the institution into two. It has promised to take care of all the liabilities of UTI-I or the specified undertaking. It had little choice given the fact that UTI had launched a series of schemes that assured returns to its investors.

The UTI Crisis: Complete Coverage

And UTI, being a creature of Parliament, and with most of these schemes being outside Sebi's purview, the government could not have chosen to ignore UTI's earlier commitments.

Yes, it also handed over the management of the other part, UTI-II, to four public sector sponsors Life Insurance Corporation, State Bank of India, Bank of Baroda and Punjab National Bank. This was again to ensure that the UTI did not knock on the Centre's doors for another bailout in the future.

But the government has so far done little to book the culprits of the financial crime perpetrated on the mutual fund behemoth.

The questionable investment worth thousands of crores of rupees in high-profile companies by the former UTI remain just that: questionable. The verdict on the correctness of these investment decisions by successive UTI chairmen, from S A Dave to P S Subrahmanyam, will continue to elude investors.

The Tarapore committee, set up by former Finance Minister Yashwant Sinha, had picked up 19 companies in which UTI had invested during the 1990s to scrutinise whether the decisions were commercial and prudent.

The committee had submitted its report by October 2001 and had noted that all the 19 decisions were imprudent. While 18 of them turned out to be wrong, one though imprudent, turned out to be right in terms of returns.

The 19 cases included investment by UTI in Reliance Industries Ltd, Reliance Petroleum Ltd, Essar Steel, SSI Ltd, Himachal Futuristics, Pentamedia Graphics, Satyam Computer, Zee Telefilms, Global Telesystems, Jindal Vijaynagar Steel and DSQ Software, among others.

UTI had made significant investment in all these companies. For instance, in the Reliance Group alone, UTI's investment topped Rs 2,000 crore (Rs 20 billion).

Tarapore, who submitted the report to then Finance Secretary Ajit Kumar, said that the finance ministry should get 18 investment cases of UTI audited independently. He had noted that if the transactions were undertaken for reasons other than commercial and on extraneous considerations, then the cases should be handed over to a pre-investigative body.

The pre-investigative body could be the Advisory Board for Banking, Commercial and Financial Frauds under the Central Vigilance Commission. In the case of Reliance Industries, however, the committee noted it could be directly handed over to the pre-investigative body without an audit.

The UTI board then appointed independent auditors to study the 18 cases. The board, upon receiving the audits, forwarded them to the finance ministry, which passed it on to the Central Vigilance Commission and the advisory board for further action. The advisory board, after consulting then Central Vigilance Commissioner N Vittal, recommended that some of the cases could be referred to the Central Bureau of Investigation.

The present CVC, P Shankar, also subsequently wrote to former Finance Secretary S Narayan stating that enough pre-investigation was done on the cases studied by the Tarapore committee and that they may be referred to the CBI now.

But the finance ministry has chosen to refer these 19 cases along with 70 other cases to the capital market regulator.

Sebi, it may be noted, is not the best equipped body to handle financial and commercial frauds. It is true that as a capital market regulator it monitors primary and secondary markets and does what needs to be done to tackle and prevent stock market scams.

But asking it to investigate the past investments of the UTI (many of whose schemes including US-64 were not even Sebi-compliant) is an inappropriate decision.

The investors of US-64 and several other schemes of the erstwhile UTI are well within their rights to demand a CBI investigation into what Tarapore, in his report, clearly says were imprudent investment decisions.

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