Investor Protection

Introduction
Investor protection is a very popular phrase which everyone concerned with
regulation of the capital markets uses these days, be they the Securities and
Exchange Board of India, Stock Exchanges, Investors associations or for that
matter of fact the companies themselves. The term Investor Protection is a wide
term encompassing various measures designed to protect the investors from
malpractices of companies, merchant bankers, depository participants and other
intermediaries. Investor Beware should be the watchword of all programmes for
mobilization of savings for investment. As all investment has some risk
element, this risk factor should be borne in mind by the investors and they
should take all precautions to protect their interest in the first place. If caution is
thrown to the winds and they invest in any venture without a prior assessment of
the risk, they have only to blame themselves. Investors are a heterogeneous
group, they are large or small, rich or poor, expert or lay and not all investors
need equal degree of protection for their invested amount from the corporate
securities.
Meaning
The term ‘investor protection’ means a process or a mechanism by which the
interest of an investor is protected in the security market. Basically, it denotes
the acts done with object to bring and also maintain transparency in procedural
aspect while dealing with investor through some regulatory bodies by means of
some suitable legislation. In order to protect the interest of the investors, various
investors protection mechanisms have been established in India. There are
mainly three means i.e. mechanisms to protect the interest of investors in the
security market regulatory bodies like SEBI, various Acts and Judiciaries.
Investor Protection According to the SEBI Act, 1992 Investor protection is
‘protecting the interest of the investors in securities and promoting the
development of and to regulate the securities market and for matters connected
therewith or incidental thereto.’ Generally, investor protection is known as
legislation to protect the small investors from unscrupulous investment brokers
and advisers.
Thus, the term ‘investor protection’ means those steps and measures which are
required to protect the interest of the investors by enacting suitable legislation,
establishing regulatory bodies or by passing of regulations or guidelines for
protecting the interest of the investors in the capital market.

By Vinay Babbar
Investor Protection Measures by SEBI
Investor protection legislation is implemented under the Section 11(2) of the
SEBI Act. The measures are as follows:
 Formulation of Stock Exchange and other securities market business
regulations.
 Registering and regulating the intermediaries of the business like brokers,
transfer agents, bankers, trustees, registrars, portfolio managers,
investment consultants, merchant bankers, etc.
 Recording and monitoring the work of custodians, depositors,
participants, foreign investors, credit rating agencies, etc.
 Registering investment schemes like Mutual fund & venture capital
funds, and regulating their functioning.
 Promotion and controlling of self-regulatory companies.
 Keeping a check on frauds and unfair trading methods related to the
securities market.
 Observing and regulating major transactions and take-over of the
companies.
 Carry out investor awareness and education programme.
 Train the intermediaries of the business.
 Inspecting and auditing the security exchanges (SEs) and intermediaries.
 Assessment of fees and other charges.
The Role of SEBI in Investor Protection
SEBI has given out various methods and measures to ensure the investor
protection from time to time. It has published various directives, driven many
investor awareness programmes, set up investor protection Fund (IPF) to
compensate the investors. Some of are:
1) Issue of guidelines: SEBI has issued guidelines to companies (bringing
new issues in the market) mutual funds, portfolio managers, merchant
bankers, underwriters, lead managers, etc. These guidelines are for
bringing transparency in their operations and also for avoiding
exploitation of investors by one way or the other. SEBI has introduced a
code of advertisement for public issues for ensuring fair and truthful
disclosures. In order to reduce the cost of issue, the underwriting is made
optional on certain terms. These steps are also for the protection of
investors. SEBI keeps watch on all intermediaries and see that they
follow the guidelines in the right spirit. It also takes panel actions when
the guidelines are not followed. These steps give protection to investors.
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2) Public interest advertisements: SEBI issues public interest
advertisements to enlighten investors on the basic features of various
instruments and minimum precautions they should take before choosing
an investment. The SEBI desires to create awareness among investors
about their rights and about remedies if problem arise. It has published
some booklets for the information and guidance of investors.
3) Dealing with complaints of investors: The investors can make
complaints to SEBI if they face problems relating to their investment in
industrial securities and financial assets. SEBI receives thousands of
complaints relating to non-receipt of refund orders, allotment letters, non-
receipt of dividend or interest and delays in the transfer of shares and
debentures. SEBI is making efforts to solve such complaints through
appropriate measures.
4) Investor education: SEBI is aware that investor education is important
for his protection. It encourages the formation of investor associations
that disseminate information through news letters. SEBI is bringing out
two monthly publications for the investors.
These are:
(a) SEBI- Market Review, (b) SEBI News-letter. These publications are
for the education, guidance and protection of investors.
5) Investor surveys: SEBI has also conducted surveys in respect of
investment and opportunities for the benefit of small investors. The
findings of the surveys are given wide publicity so as to provide proper
guidance to investors regarding their investment decisions.
6) Introduction to stockinvest: SEBI has introduced stockinvest as a new
instrument useful while submitting application for shares. This new
instrument introduced through the co-operation of banks gives protection
to investors as they get interest on the application money till the allotment
of shares.
7) Disclosures by companies: SEBI has introduced norms for disclosure of
half yearly unaudited results of companies. It has also revised the format
of prospectus to provide more information to investors. It also insists that
every share application form is accompanied by an abridged prospectus.
The provisions relating to disclosures are for the information and
protection of small/average investors.

By Vinay Babbar
Investor Education and Protection Fund
To protect the interests of investors in securities and to promote the
development of, and to regulate the securities market and for matters
connected therewith or incidental thereto, the central government (GOI) has
established a fund to be called Investor Education and Protection Fund
[IEPF].

Objectives of Investor Education and Protection Fund (IEPF)

 Educating investors about how the market operates.
 Making investors educated enough so that they can analyse and take
informed decisions.
 Educating investors about the volatility of the markets.
 Making investors realise their rights and various laws about Investing.
 Promoting research and surveys to spread knowledge among the
investors.
Funding of IEPF
Following amounts shall be part of IEPF, if they remain unpaid for a
period of seven years from the date of declaration except point (f) and (g):
a. Amounts in the unpaid dividend accounts of companies;
b. The application moneys received by companies for allotment of
any securities and due for refund;
c. Matured deposits with companies;
d. Matured debentures with companies;
e. The interest accrued on the amounts referred to in clauses (a) to
(d).
f. Grants and donations given to the Fund by the Central
Government, State Governments, companies or any other
institutions for the purposes of the Fund; and
g. The interest or other income received out of the investments made
from the Fund.

Utilisation of Fund

The Companies Act, 2013 (the Act) provides in itself the purposes for which
the Fund shall be utilised in accordance with the Rules. They are:

 To refund in respect of unclaimed dividends, matured deposits,

matured debentures, the application money due for refund and interest
thereon;
 Promotion of investors’ education, awareness and protection;
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  Distribution of any disgorged amount among eligible and identifiable
applicants for shares or debentures, shareholders, debenture-holders or
depositors who have suffered losses due to wrong actions by any
person, in accordance with the orders made by the Court which has
ordered disgorgement;
 Reimbursement of legal expenses incurred in pursuing class action
suits under section 37 and 245 by members, debenture-holders or
depositors as may be sanctioned by the Tribunal; and
 Any other purpose incidental thereto.

Investor Grievance Redressal Mechanism of SEBI

Investor Grievances

An investor may have a 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.

Entities against which complaints are handled by SEBI

i. Listed companies ii. Stock Brokers/Sub-brokers iii. Stock Exchanges iv.

Depository v. Depository Participants vi. Registrars to an Issue / Share
Transfer Agent vii. Mutual Funds viii. Portfolio Managers ix. Bankers to an
Issue x. Collective Investment Schemes xi. Credit Rating Agencies xii.
Custodians of Securities xiii. Debenture Trustees xiv. Merchant Bankers xv.
Underwriters.

Types of Investor Grievances

S. No. Nature of Grievance

1 Delay in transfer of shares.
2 Non-receipt of shares/dividends/rights/bonus shares.
3 Delay/ Non-receipts in issue of duplicate shares.
4 Delay/ Non-receipt of annual reports.
5 Delay/ Non-receipt of redemption amount of debentures.
6 Delay/ Non-receipt of interest on debentures.
7 Delay/ Non-credit of shares in the account by the broker.
8 Delay/ Non-payment of sale proceeds by the broker etc.
9 Manipulation in the accounts statements.
10 Unauthorized trades and unauthorized movements of shares

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 and funds from the clients’ accounts.
11 Delay/ Non-updating of clients’ information in records.

HOW INVESTOR COMPLAINTS ARE HANDLED IN SEBI?

SEBI has a dedicated department viz., Office of Investor Assistance and

Education (OIAE) to receive investor grievances and to provide assistance to
investors by way of education. Investors who are not satisfied with the
response to their grievances received from the Stock Exchanges/Depositories
can lodge their grievances with SEBI. Grievances pertaining to stock brokers
and depository participants are taken up with respective stock exchange and
depository for redressal and monitored by SEBI through periodic reports
obtained from them. Grievances pertaining to other intermediaries are taken
up with them directly for redressal and are continuously monitored by SEBI.
Grievances against listed company are taken up with the respective listed
company and are continuously monitored. The company is required to
respond in prescribed format in the form of Action Taken Report (ATR).
Upon the receipt of ATR, the status of grievances is updated. Where the
response of the company is insufficient / inadequate, follow up action is
initiated. If the progress of redressal of investor grievances by an entity, is
not satisfactory, appropriate enforcement actions (adjudication, direction,
prosecution etc.) are initiated against such entity.

SCORES (SEBI Complaints Redress System)

SCORES is a web based centralized grievance redress system of SEBI.

SCORES enables investors to lodge and follow up their complaints 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 from investors, redress such complaints and
report redressal online. All the activities starting from lodging of a complaint
till its closure by SEBI would be online in an automated environment and the
complainant can view the status of his complaint online. An investor, who is
not familiar with SCORES or does not have access to SCORES, can lodge
complaints in physical form at any of the offices of SEBI. Such complaints
would be scanned and also uploaded in SCORES for processing.

The salient features of SCORES are:

 SCORES is web enabled and provides online access 24 x 7; ‘

 Complaints and reminders thereon can be lodged online at the above
website at anytime from anywhere; ‘

By Vinay Babbar
 An email is generated instantaneously acknowledging the receipt of
complaint and allotting a unique complaint registration number to the
complainant for future reference and tracking;
 The complaint forwarded online to the entity concerned for its
redressal; ‘
 The entity concerned uploads an Action Taken Report (ATR) on the
complaint; ‘
 SEBI peruses the ATR and closes the complaint if it is satisfied that
the complaint has been redressed adequately; ‘
 The concerned investor can view the status of the complaint online
from the above website by logging in the unique complaint registration
number; ‘
 The entity concerned and the concerned investor can seek and provide
clarification on his complaint online to each other; ‘
 Every complaint has an audit trail and ‘
 All the complaints are saved in a central database which generates
relevant MIS reports to enable SEBI to take appropriate policy
decisions and or remedial actions, if any.

By Vinay Babbar