Investor Protection CS PANKAJ KUMAR

Investor Protection
Investor protection means to protect the investors from being cheated, deceived or being
put to loss by the companies.

In India, investor protection is the major responsibilities of SEBI. Moreover, SEBI was
constituted for purpose of investor protection. In the preamble to the SEBI Act, 1992 two
objectives are mentioned. The first objective is protecting the interest of the investors in
securities and the second is to promote the development of and to regulate the securities
market and for matters connected therewith or incidental thereto. Thus priority is accorded
to investor protection in the SEBI Act.

LEGAL FRAMEWORK FOR INVESTOR PROTECTION IN INDIA

In order to afford adequate protection to the investors, provisions have been incorporated
in different legislations such as the Companies Act, Securities Contracts (Regulation) Act,
Consumer Protection Act, Depositories Act, and Listing Agreement of the Stock Exchanges
supplemented by many guidelines, circulars and press notes issued by the Ministry of
Finance, Ministry of Company Affairs and SEBI from time to time. The legislations as well as
the rules and regulations notified there under specify disclosure requirements to be
complied with by the companies and also punishments and remedies for failure of
compliance.

RIGHTS OF SHAREHOLDERS

Since the shareholders furnish the funds and bear the risk, they have been given certain
rights, both in their individual capacity and as a group. It is as a group, when attending
general meetings of the company, that shareholders enjoy the privilege of exercising control
over the policy in relation to the working of the company.

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INDIVIDUAL RIGHTS: GROUP RIGHTS:-

The individual rights of a shareholder The law requires that the following things
include the right to:- to be done only with the consent of the
shareholders in a meeting:-
(i) Receive notice of general meetings of
the company and to attend those (a) Commencement of any new business
meetings and vote at Them either in (as stated in the memorandum under
person or by proxy; `other objects’).
(b) sale, lease or disposal of the whole,
(ii) Receive dividends, when declared;
or substantially the whole of the
• Transfer his shares, subject to undertaking of the company;
restrictions, if any, imposed by (c) remission of, or granting time for,
the articles; the repayment of any debt due by a
• Inspect registers and records of director;
the company and obtain extracts; (d) investment of any compensation
• Apply to the Court to have any received by the company for the
variation or abrogation of his compulsory acquisition of its
rights set aside by the Court; undertaking (such consent is not
• Share in the assets of the required if the investment is made in
company on its dissolution. trust securities);
(e) borrowing of moneys in excess of
the aggregate paid-up capital and its
free reserves;
(f) appointment of sole selling agents by
the Board;
(g) issue of bonus shares;
(h) reorganisation of the capital;
(i) amendment of the memorandum
and articles;
(j) Voluntary winding up of the
company.
RESPONSIBILITIES OF AN INVESTOR AS A RIGHTS OF AN INVESTER AS A DEBENTURE
SECURITY HOLDER HOLDERS

(a) To be specific - To receive interest on redemption of

(b) To remain informed debentures in due time.
(c) To be vigilant - To receive a copy of the trust deed on
(d) To participate and vote in general request.
meetings - To apply for winding up of the company
(e) To exercise your rights on your own if the company fails to pay its debt.
or as a group. - To approach the Debenture Trustee with
you grievance.

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COMMON GRIEVANCES OF INVESTORS

The general grievances the investors have against companies can be listed as under:-

(a) Furnishing inadequate information or making misrepresentation in prospectus,

application forms, advertisements and rights offer documents.
(b) Delay/non-receipt of refund orders, allotment letters and share certificates/
debenture certificates/bonds.
(c) Delay/non-receipt of share certificates/debenture certificates.
(d) Delay in listing of securities with stock exchanges.
(e) Delay/non-receipt of bonus shares/right shares.
(f) Delay/non-receipt of notices for meetings/annual reports.
(g) Delay/non-receipt of interest warrants and dividend warrants.
(h) Obtaining undue benefits by company insiders.
(i) Delay/default in payment of interest and repayment of deposits.

In respect of each of the above grievances complaints can be lodged with the Registrar of
Companies, stock exchanges or SEBI as the case may be and in certain cases, they can be
pursued with the Company Law Board also to obtain remedies and relief.

REDRESSAL OF INVESTOR GRIEVANCES

The following table indicates nature of investors’ grievances and the authorities to be
approached:-

Nature of grievance Can be taken up with

1.In case of any public issue

Non-receipt of:_
- SEBI
- Refund order
- Ministry of Company Affairs
- Interest on delayed refund-
- Stock Exchange
- Allotment advice
- Registrars to the Issue
- Share certificates -
- Registrars to the Issue
- Duplicates for all of the above
- Registrars to the Issue
- Revalidations

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2.In case of a listed security - SEBI

- SEBI
Non-receipt of the certificates after:
- SEBI
- transfer
- Ministry of Company Affairs
- transmission
- Stock Exchange
- conversion
- Stock Exchange
- endorsement
- Stock Exchange
- consolidation
- splitting
- duplicates of securities Regarding
listed- SEBI
3. Debentures, non-receipt of - SEBI
- Ministry of Company Affairs
- interest due
- The Debenture Trustees/ Stock
- redemption proceeds
Exchange
- interest on delayed payment

4.Other cases
- Bad delivery cell of the stock
- Regarding bad delivery of shares
exchange
- Regarding shares or debentures in
unlisted companies - Ministry of Company Affairs
- Deposits in collective investment
schemes like plantations, etc. - SEBI
- Units of Mutual Funds - SEBI
- Fixed Deposits in Banks and Finance - Reserve Bank of India
Companies.
- Fixed Deposits in manufacturing
- Ministry of Company Affairs
companies.

Investor Information Centres have been set up in every recognised stock exchange which
takes up all complaints regarding the trades affected in the exchange and the relevant
member of the exchange.

Moreover two other avenues are always available to the investors to seek redressal of
their complaints:

(a) Complaints with Consumers Disputes Redressal Forum.

(b) Suits in the Court of Law.

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Investor Protection CS PANKAJ KUMAR

INVESTOR EDUCATION

Investor education forms an important part of SEBI’s efforts

• to protect the interest of the investors in securities markets.

A series of information brochures and pamphlets have been issued in the past for the
benefit of the investors.

These publications indicate the various risks associated with

• capital market investment

• the rights of the investors,
• the responsibilities and
• details of the grievance redressal machinery available to them and
• the remedy/relief to be obtained from different agencies like SEBI, Ministry of
Company Affairs, Stock Exchanges etc.,
• apart from seeking relief through Consumers Disputes Redressal Forums, Company
Law Board and Court of Law.

The investors associations must registered

• with SEBI, the stock exchanges and professional bodies

• also conduct investor education programmes
• from time to time
• to appraise the investors of the changes in the law and regulations and
• the methods of protecting themselves
• against malpractices and
• delays cropping up in the market.

Ministry of Corporate Affairs has taken various initiatives to educate investors, particularly,
since 2001, the Investor Education and Protection Fund (IEPF) has been working for
educating the investors and for creating greater awareness about investments in the
corporate sector.

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Investor Protection CS PANKAJ KUMAR

OMBUDSMAN

Ombudsman in its literal sense is an independent person appointed to hear and act upon
citizen’s complaint about government services.

Eligibility Criteria for Appointment of a Ombudsman

In order to be appointed as an However a person is not qualified to hold

Ombudsman, a person is required to be— the office of the Ombudsman if—
(a) a citizen of India;
(b) of high moral integrity;
(c) not below the age of forty five years; and (a) he is an un-discharged insolvent;
(d) either a retired District Judge or qualified (b) he has been convicted of an offence
to be appointed a District Judge, or involving moral turpitude;
having at least ten yearsexperience of (c) he has been found to be of unsound
service in any regulatory body, or having mind and stands so declared by a
special knowledge and experience in competent court;
law, finance, corporate matters, (d) he has been charge sheeted for any
economics, management or offence including economic offences;
administration for a period of not less (e) He has been a whole-time director in
than ten years, or an office bearer of the office of an intermediary or a
investors’ association recognised by the listed company and a period of at
Board having experience in dealing with least 3 years has not elapsed.
matters relating to investor protection
for a period of not less than 10 years.

Tenure

A person appointed as an Ombudsman will hold office for a term of three years and shall be
eligible for reappointment for another period of two years. No person can hold the office of
Ombudsman after attaining the age of sixty-five years.

POWERS AND FUNCTIONS OF OMBUDSMAN9

The Ombudsman has the following powers and functions:-

(a) to receive complaints against any intermediary or a listed company or both;

(b) to consider such complaints and facilitate resolution thereof by amicable settlement;
(c) to approve a friendly or amicable settlement of the dispute between the parties;
(d) To adjudicate such complaints in the event of failure of settlement thereof by
friendly or amicable settlement.

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Investor Protection CS PANKAJ KUMAR

SEBI (INVESTOR PROTECTION AND EDUCATION FUND) REGULATIONS, 2009

SEBI in exercise of the powers conferred by section 30 of SEBI Act, 1992, SEBI made the SEBI
(Investor Protection and Education Fund) Regulations, 2009.

Regulation 3 of the Act lays down the establishment of the fund which shall be called the
Investor Protection and Education Fund.

Regulation 4 provides for the amounts to be credited to the Fund. The following amounts
shall be credited to the Fund:

(a) Contribution as may be made by SEBI to the Fund;

(b) Grants and donations given to the Fund by the Central Government, State
Government or any other entity approved by SEBI for this purpose;
(c) Security deposits in respect of public issues and rights issues, in the event of de-
recognition of such stock exchanges;
(d) Amounts in the Investor Protection Fund and Investor Services Fund of a stock
exchange, in the event of de-recognition of such stock exchange;
(e) Interest or other income received out of any investments made from the Fund;
(f) Such other amount as SEBI may specify in the interest of investors.

Utilization of Fund Condition for Aid

The fund shall be utilized for the purpose of The aid shall be given by SEBI to investors’
protection of investors and promotion of associations, in accordance with the
investor education and awareness in guidelines made by it and subject to the
accordance with these regulations. following conditions:

(a) Educational activities including seminars, (a) That the aid shall not exceed seventy
training, research and publications, aimed five per cent. Of the total
at investors; expenditure on legal proceedings;
(b) Awareness programmes including through (b) Such aid shall not be considered for
media- print, electronic, aimed at more than one legal proceeding in a
investors; particular matter;
(c) Funding investor education and (c) If more than on investors’ association
awareness activities of Investors’ applies for seeking legal aid, the
Associations recognized by SEBI investors’ association whose
(d) Salary, allowances and other expense of application is received first, shall be
office of Ombudsman; and considered for such aid.
(e) Such other purposes as may be specified
by SEBI;

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Investor Protection CS PANKAJ KUMAR

Financial literacy-cum-counseling center

RBI has set up financial literacy-cum-counseling center for investor education in few districts
on pilot basis to help individuals find realistic solutions to their problems and solution for
repayments that thee achievable. Centre provides financial education and credit counseling.
Financial Literacy includes providing familiarity with an understanding of financial market
products, their rewards as well as risks, to enable individuals to make informed choices and
to take effective action to improve overall well-being and avoid distress in financial matters.
Credit Counseling include educating the debtor about credit, budgeting financial
management and imparting negotiating skill with creditors to work out a repayment plan.

INITIATIVES TAKEN SO FAR ON FINANCIAL LITERACY IN INDIA

• Reserve Bank of India has undertaken a project titled “Project Financial Literacy”.
• Securities Exchange Board of India has launched a comprehensive securities market
awareness campaign for educating investors through workshop, audio visual ,
distribution of booklets etc.
• The Institute of company Secretaries of India is organizing Investor Awareness
Programmes under IEPF since 2005 and has organized more than 1700 Investor
Awareness Programmes.
• MCA has a dedicated approach for empowering investors through education and
awareness building. MCA has taken various initiatives to educate investors,
particularly, since 2001, the Investor Education and Protection Fund (IFPF) has been
working for educating the investors and for creating greater awareness about
investments in the corporate sector.
• The Pension Fund Regulatory and Development Authority, India’s youngest
regulator has been engaged in spreading social security messages to the public.
PFRDA has developed FAQ on pension related topics on its web, and has been
associated with various non government organizations in India in taking the pension
services to the disadvantaged community

INVESTOR GRIEVNACE REDRESSAL MECHANISM AT SEBI INVESTOR GREIVANCE

There will be occasions when an investor has complaint against, a listed company or an
intermediary registered with SEBI.

In the event of such complaint, the investor should first approach the concerned company/
intermediary against whom there is a complaint. Sometimes the response received may not
be satisfactory. Therefore, investors should know as to which authority they should
approach, to get their complaints redressed.

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SCORES (SEBI • SCORES is a web based centralized grievance redress system of

COMPLAINTS SEBI (http:// scores/ gov./in).
REDRESS • SCORES enables investors to lodge and follow up their complaints
SYSTEM) and track the status of redressal of such complaints online from
the above website from anywhere.
• This enables the market intermediaries and listed companies to
receive the complaints online form investors, redress such
complaints and report redressal online.

Which are the • Complaints that are incomplete or not specific

matters that are • Allegations without supporting documents
not considered • Offering suggestions or seeking guidance/ explanation
as complaints by • Seeking explanation for non-trading of shares or illiquidity of
SEBI? shares
• Not satisfied with trading price of the shares of the companies
• Non-listing of shares of private offer
• Disputes arise out of private agreement with companies /
intermediaries.

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