A LEGAL ARTICLE ON

“Measures of Investor Protection in India ”

SUBMITTED BY:
VISHAL ANAND MISHRA (57)
SHYEEM MEHMOOD KHAN (32)

COURSE – BBA LL. B (H) 9th Semester

SUBJECT – Financial Market Regulation (LAW 463)
BATCH (2019-2024)

AMITY LAW SCHOOL,

AMITY UNIVERSITY, KOLKATA
Introduction

The Primary and Secondary Financial Markets are based on investors. They put their money into
the stock market in order to support economic growth and market expansion, which will result in
higher profits. The basic goal of investor protection is to ensure that investors are properly
informed about their purchases, transactions, and corporate activities. The investors control the
degree of activity. The Securities and Exchange Board of India (SEBI) was founded with the
primary goal of defending the interests of securities investors. Promoting the growth and
regulation of the stock market is one of SEBI’s goals. We will dive into great detail
about Investor Protection Measures of SEBI in this article.

Before we move on to discuss about the Investor Protection Measures of SEBI, let’s first
discuss about who is Investor? So that we could have better understanding of the measures
provided by SEBI.

Meaning of an Investor

An investor is someone who contributes money to a project or business but does not actively
manage or participate in its day-to-day operations. They can be either an individual or a legal
entity. He is a person who makes investments in securities like shares, mutual funds, debentures,
etc. to make money.

The significance of protecting Investors

The securities market depends heavily on investors. An investor is someone who invests money
in the hope of making a profit. For the financial markets to develop well, there must be strong
investor protection. It is crucial to safeguard investors’ interests, and doing so has a big impact
on how an economy’s financial system is set up. Investor protection includes a variety of policies
put in place to safeguard investors’ interests from fraud in the stock market, mutual funds, and
other areas.
Meaning of Investor Protection

A sign of assurance is the investor insurance money. Investor protection, to put it simply, means
that, up to a certain extent, you will get your money back if the dealer declares bankruptcy or
bows to extortion. When opening a trading account or a record with an internet dealer, it is an
important factor to take into account. You typically receive financial backing security when you
open an exchange account with a brokerage.

“Investor Protection,” as defined by the SEBI Act, 1992, includes “protecting the interest of the
investors in securities and promoting the development of and regulating the securities market, as
well as for matters connected therewith or incidental thereto.”

What is SEBI and how SEBI Protects Investor Right?

On April 12, 1992, the Securities and Exchange Board of India was established as a legally
binding administrative organization.

The primary goal of SEBI is to manage and control the Indian commodity and securities markets
while developing policies and regulations. SEBI’s headquarters are located at Mumbai’s Bandra
Kurla Complex. The corporate structure of SEBI consists of various divisions, each of which is
headed by an office head.

There are more than twenty divisions. These offices include those for company accounts,
financial and strategy investigations, obligation and mixture protections, authorization, human
resources, executive rumor, product subsidiaries market guidance, legal concerns, etc.

The primary purpose of SEBI is to protect the financial backers’ interests in the protections
market are as follows:

 It manages the business while advancing the market for protections.

  Stockbrokers, sub-dealers, Portfolio managers, speculators, experts in the stock
market, brokers, trader financiers, trustees of trust deeds, recorders, guarantors, and
other connected people can apply for and manage work through SEBI.
 It regulates the actions of safes, members, guardians of safeguards, unidentified
portfolio financial backers, and FICO rating agencies.
 It prevents internal trade securities, such as fraudulent and absurd business
practices in the insurance industry.
 It guards against internal exchanges that are fake or unjustified, as determined by
the market.
 It ensures that financial backers are informed about the protection’s markets’
intermediaries.
 It monitors significant company acquisitions and takeovers.
 In order to ensure that the protections market is continually competent, SEBI
engages in new efforts.
A wide range of market participants are covered by SEBI’s regulatory framework, including
listed companies, stock exchanges, brokers, and investment advisers. In order to guarantee
accountability, fairness, and openness in the securities market, SEBI has adopted a number of
regulations. These rules address topics including insider trading, transparency obligations, and
market manipulation, among others.

To enhance investor protection in India, SEBI has also implemented a number of initiatives.
Enhancing disclosure requirements is one of these measures’ most crucial components.
Companies must promptly and completely educate investors about their financial performance,
corporate governance policies, and other pertinent information. In order to guarantee that they
carry out their responsibilities with integrity and professionally, SEBI has also implemented
stiffer rules for auditors and credit rating organizations.

Along with these steps, SEBI has regulated mutual funds and portfolio managers to guarantee
that investors have access to a variety of investment options and that these options are managed
by qualified and professional organizations. Additionally, SEBI has launched a number of efforts
to enlighten investors of their rights and obligations and to motivate them to make wise
investment choices.
Investor Protection Measures of SEBI

To periodically ensure investor protection, SEBI has issued a number of procedures and
measures. It has issued numerous directives, led numerous investor awareness campaigns, and
established the Investor Protection Fund (IPF) to provide investors with compensation. We shall
examine the SEBI’s efforts for protecting investors in detail.

Section 11(2) of the SEBI Act, 1992 outlines the options SEBI has to carry out the law’s
mandate for investor protection. It contains:

 Preventing unfair and deceptive trade practices in the securities the market.
 Regulating significant share acquisitions and corporate takeovers.
 Fostering and policing self-governing organizations.
 Governing activity on stock exchanges and other securities markets.
 Encouraging the education of investors and the training of securities market
intermediaries.
 Registering them and governing their operation, including that of mutual funds
and collective investment plans.
Simplifying the process for Transferring and Allocating Shares

A committee headed by Shri R Chandrasekaran, Managing Director of the Stock Holding

Corporation of India Limited, was appointed by SEBI to recommend a process for hastening and
streamlining share transfer and issuance. The committee distributed its draught report to a
number of market intermediaries for their feedback. The report will be finalized and the required
steps will be made to put the recommendations into practice based on the feedback we’ve gotten.
It is anticipated that putting the committee’s suggestions into practice will greatly lessen the
difficulties investors are currently experiencing as a result of excessive share transfer delays and
subpar delivery.
 Unique Order Code Number: Every stock exchange has to make sure that a
system is in place where each transaction is given a special-order code number, which
is communicated to the client by the broker. This number must be printed on the
contract note following the execution of the order.
 Time Stamping of Contracts: Stock brokers are expected to keep track of the
time the customer made the order and include that information in the contract note
along with the time the order was executed. This will make sure that the broker
executes the client’s order with proper consideration and charges the correct price to the
client, not profiting from any intraday price fluctuations.
 Function of Sub-brokers: In the past, brokers have operated through a network
of sub-brokers that serve as an essential link between them and investors. Only 1,798
sub-brokers have registered with SEBI, despite the fact that the SEBI (Stock Brokers
and Sub-Brokers) Regulations, 1992 require sub-brokers to be registered. The
following steps have been taken in an effort to protect investors’ interests and put sub-
brokers under the regulatory control of SEBI and the stock exchanges:
 Under the regulations and bylaws of the stock exchanges, efforts have
been undertaken to reestablish the institution of remisier. A remisier, who is
registered with the stock exchange, acts as a broker’s agent. He is not,
however, authorized to issue a contract or confirmation letter to his investor;
rather, the broker does so, and as a result, the broker is fully responsible for
that transaction. In this manner, the investor’s interests in relation to the
remisier or broker are safeguarded.
 For all transfer deeds dated June 1, 1997 and later, stock exchanges would
treat as bad delivery any transfer deeds bearing rubber stamps on the reverse
that are not those of clearing members of stock exchanges, clearing houses,
clearing corporations, SEBI registered sub-brokers, and remisiers registered
with the stock exchanges.
 If a sub-broker is not registered with SEBI, a stock broker may not
conduct business with him. If a client is not registered with SEBI as a sub-
broker or is not accepted as a remisier by the stock market, the broker is
responsible for making sure they are not functioning in that role.
  Fund for Investor Protection: The amount of compensation available for a
single investor claim stemming from a member broker’s breach of duty has already
been raised to Rs. 1 lakh for major stock exchanges, Rs. 25,000 for smaller stock
exchanges, including Gauhati, Bhubaneshwar, Magadh, and Madhya Pradesh, and Rs.
50,000 for all other stock exchanges.
 Programme for Investor Awareness: The Securities Market Awareness
Campaign was introduced by SEBI in 2003. These programmes are now regularly
organized by SEBI to inform and raise investor awareness. The training covers
important topics such investor protection funds, mutual funds, tax laws, portfolio
management, and the SEBI grievance redressal system. Additionally, it offers
workshops on derivatives, Sensex trading, and stock exchanges. In more than 500 cities
across the nation, SEBI has now held similar workshops using a variety of media
channels, including radio, television, print, and the internet.
 Investor Education and Protection Fund (IEPF) : The Government of India
established a fund called the Investor Education and Protection Fund (IEPF) under the
Companies Act, 1956 as part of SEBI’s investor safety initiatives. The act mandates
that a corporation that has been in operation for seven years must transfer all unclaimed
fund dividends, matured deposits and debt securities, share application funds, etc. to the
government through IEPF.
 Additional Measures: To protect the interests of investors in securities, SEBI has
implemented a number of measures including a screen-based trading system, the
dematerialization of securities, T+2 rolling settlement, and numerous regulations to
control intermediaries’ issuance and trading of securities, corporate restructuring, etc.
Procedure for Resolving Investor Complaints

Investors’ Services Cell (ISC) has been authorized by BSE to address investor complaints. By
resolving investors’ complaints against listed businesses or BSE members, the ISC has
significantly contributed to increasing and preserving investors’ trust and confidence.

Investors can file complaints in the Complaint specified format with the relevant Regional
Arbitration Centre of BSE. The complaint process will be swiftly concluded if the appropriate
complaint is filed at the relevant Regional Arbitration Centre.
Important Point of consideration for Investors

These are the following important point of Consideration for Investors:

 Investors should only work with stock exchanges or intermediaries that have
registered with SEBI.
 All investment-related documents, including application forms, contract notes,
and acknowledgment slips, should always be kept on file.
 The copies of the documents that investors give to companies should always be
kept on hand.
 Important documents must be sent via registered mail or another trustworthy
method to ensure delivery.
 Before selling, they must confirm that they are in possession of securities.
 They must make sure to provide trading members or agents with instructions that
are clear and understandable.
 They ought to use trading or investment methods that don’t involve taking on
much risk.
Challenges faced by SEBI regarding Investor Protection Measures of SEBI

There are still several issues that the Indian securities sector must address. The necessity to
balance the interests of various stakeholders, including investors, issuers, and intermediaries, is
one of the most pressing concerns. SEBI must make sure that its policies and rules safeguard the
interests of investors and other stakeholders while also fostering the growth of the securities
market.

Another problem that SEBI faces is the necessity for greater cooperation among regulatory
agencies. SEBI needs to work closely with other regulatory authorities, including the Reserve
Bank of India and the Ministry of Corporate Affairs, to ensure that its policies and rules are
consistent with the country’s broader regulatory structure.

Conclusion
To summarize, despite the challenges faced, SEBI’s role in encouraging investor safety and
market development in India cannot be emphasized. The Indian securities market has expanded
tremendously over the years, and SEBI has played an important role in this expansion. SEBI can
help establish a more transparent, efficient, and resilient securities market in India by continuing
to strengthen its regulatory framework and promote investor education.