Investor Protection In India – Current Status And Need Of A Dedicated Website For Grievance Redressal
Introduction
Investor protection is very important for the rapid growth of capital markets in India. It boosts investor’s confidence
and reassures them to safeguard their interest against malpractices and scams in the market and that they can have
solutions against these malpractices. There are stark issues in investor protection in the context of high-profile cases
that have shaken confidence of investors across the world. Over the long-term bearish market and global shutdown of
the economy, regulators must strike a soft balance between fair and robust practices and strict investor protection,
without affecting the market growth due to unduly rules and regulations.
Investor protection is widely regarded as protection of investors’ interest by imposing several measures in areas
associated with corporate governance of listed companies like disclosure, shareholders’ rights, and accountability,
trading, market regulation, and settlement reliably and efficiently, along with dealings with investors by financial
bodies.
Background
The “SEBI Complaints Redressal System (SCORES)” is an online platform where investors can lodge their complaints
in securities market. The portal receives complaints against SEBI registered businesses and listed companies. There are
certain matters that SCORES don’t consider like anonymous complaints (except from whistle-blower), fake
allegations, unspecific or incomplete complaints, complaints not in purview of SEBI, complaints against any
unregulated or unregistered activity, disputes due to private agreement with intermediaries and companies etc.
SCORES also don’t deal with complaints against delisted/unlisted companies, vanishing company, suspended firms or
firms under liquidation, etc. In addition, investor has to lodge a complaint within 3 years from the complaint’s date. If
they fail to do so, they should take the complaint to the court of law or with the concerned entity. Stock market is
constantly expanding with the introduction of new IPOs, new Demat accounts, and new listed companies every day
and capabilities of stock exchanges are getting limited to regulate this market. Infrastructure is fantastic, but proper
compliance of the circulars is not there and hence there are issues.
Inadequate implementation of regulations relating to protection to investor is another lacuna. Most of the stock brokers
who have defaulted the primary reason has been misuse of client funds and securities. They have unauthorisedly used
the Power of attorney and transferred the shares to the broker’s pool account, also known as Broker Beneficiary
account. Once transferred, Brokers have started doing proprietary trading in those shares by pledging it with clearing
member or banks. Defaulting stock brokers are very serious concern. Audit process at the time of appointment of
brokers as post their appointment is improper.
Current Process to be followed while making a complaint in the NICE Portal/SCORES in case of a normal complaint
or in case broker defaults
1) Investor has to send an email to the broker, give him sufficient time to revert.
2) Again, send a follow up email, if the broker does not revert, then make a complaint to NSE in the NICE portal or
if its BSE in its investor grievance portal.
3) Once the complaint is received the investor services cell contacts the broker and ask for a resolution. Suitable
action is taken if required. Generally, this process is very time consuming
4) Again, if the customer is not satisfied the customer can log in a complaint in the SCORES portal of SEBI. Again,
enquiry is conducted and it just states matter is referred to exchange.
5) Thus, the customer keeps on rotating between different agencies without a real resolution.
We have taken interviews of many investors, whose broker has defaulted they have said, all of them have complained
about the lethargy and inefficiency of the regulator which have made them suffer and lose their hard-earned savings.
they keep on shuffling between different complaint portals, without any resolution to their complaints. There is no
ownership of responsibility. The only option left to the investor is to approach the court. With so many pending cases,
it may take years for resolution of complaints.
Considering all these aspects, there is a need to have a dedicated website which can be in line with SEBI, CDSL and
NSDL, so that investors can complain at once and stay assured to get their grievance resolved within stipulated time.
There is a foundation provided by the regulatory framework. It is still important to find out how it is implemented and
how the investor protection process actually takes place. Varied investor awareness levels of securities and their rights
along with that of financial literacy affects both the intensity and nature of regulation required for protecting the
interest of investors. Investment education is important for investors to take care of their own interests and reduce the
dependence on regulators to determine each investment. Rather, awareness is paramount in “disclosure-based regimes”
as it is vital to empower customers to deal with disclosed details. Most of the countries have a system to address and
receive public grievances and reinforce public confidence (Hew & Ismail, 2003).
There are provisions made by “Securities and Exchange Board of India (SEBI)” to establish a committee with two key
objectives – “Regulation and Promotion Development of securities market” and protecting investors’ interest. It is
obvious that investors felt the impact of SEBI to watchdog the securities market and they somehow gained confidence
to complain to and suggest their problems and grievances. However, the SEBI Act was amended several times to meet
the evolving needs of the securities market for its development, such as in 1995, 1999 and 2002. SEBI is mainly aimed
to safeguard investors’ interest and promote healthy growth of financial markets of India.
It is also worth noting that regulators have a herculean task to avoid the scams and malpractices in the market as they
cannot monitor and regulate every aspect of financial markets and it is especially relatable to the Indian financial
market (Arya, 2018). The redressal of every complaint is very challenging for the regulators. Hence, this study was
conducted on the current status of financial education and the need for a dedicated website to protect investor’s interest
in India.
Literature Reviews
Takeovers are very important as a mechanism for external corporate governance for investor protection. Whether
corporate governance’s compliance with global standards can protect investors’ interest in developing countries has
been a matter of debate for decades. Dixit et al. (2021) analysed the evolution of SEBI’s “Substantial Acquisition of
Shares and Takeovers'' in India for investor protection. They also compared the provisions of takeovers in India, the
UK, the USA, Australia, and Singapore to determine the implications and convergence for investor protection. It is
found that some provisions like threshold for initial trigger for the offer as well as offer prices of takeover code in
India are complying with standards of common law economies.
The calculation of offer price on the basis of market rate may not show actual market value in India. Other provisions
like offer size and creeping acquisition don’t just diverge from global standards, but they are also inconsistent to
protect the interest of investors in India.
Investment decisions are very vital to achieve the strategic plan of the firm. Because of having a lot of money involved,
these decisions play the most important role for various stakeholders. Shahid & Abbas (2019) investigated the effect
of investor confidence and corporate governance on decisions related to corporate investment. They have taken the
sample of firms listed in Bombay Stock Exchange and Pakistan Stock Exchange from 2008 to 2017. The “Investor
Sentiment Index (ISI)” was used to measure the confidence of investors. There is a great impact of confidence of
investors on decisions related to corporate investment in both nations. The findings also suggest that the level of
investment is higher in companies with robust practices in corporate governance. It improves the effect of investor
confidence on decisions related to corporate investment. Solid corporate governance boosts the morale of board
members for monitoring and controlling the interests of shareholders moderately, so that firm managers can make wise
decisions. The effect of investor confidence is mitigated on corporate investment with strict measures on corporate
governance.
Altaf & Shah (2018) investigated the relation between firm performance and ownership concentration and evaluated
the moderating importance of quality of investor protection on the relationship between ownership performance and
concentration from a dynamic point of view. The findings suggested the “inverted U-shaped relationship” between
firm performance and ownership concentration along with significant positive impact of quality of investor protection
on firm performance. There is a significant moderating role of investor protection quality on the relationship between
performance and ownership concentration.
Kamarudin et al. (2021) investigated the significant influence of auditor tenure on quality of accounting and
moderating impact of investor protection on their tenure on quality of accounting. It is found that longer tenure of an
auditor is related to higher quality of accounting which supports the arguments on knowledge effect. Hence, the results
on the joint impact of auditor tenure and investor protection suggest substitutive impact of investor protection where
there is a weaker positive impact of tenure of auditor on accounting quality in an environment with high investor
protection.
Haider (2009) used objective “investor protection” measures in 170 countries and found that investor protection level
is important for the difference in GDP growth across the nation. With stronger investor protection, countries are
supposed to grow more rapidly than those having lack of investor protection.
Recent studies showed vast gaps between ownership concentration in firms which are publicly traded, in the depth and
breadth of capital markets, access to external finance, and in dividend policies. La Porta et al. (1999) suggested a
common element to explain differences, such as how well creditors and shareholders are secured by the law from
exploitation of controlling shareholders and managers of the companies. They explained the effectiveness of law
enforcement and their difference across the borders, discussed the potential origins of such changes, determined
potential strategies, and summarised the consequences. According to them, the legal approach is more important to
know corporate governance and the reform than the difference between market- based and bank-based financial
systems.
Analysis of Study
Need for Dedicated Website for Investor Protection in India
SEBI has introduced an online platform where investors can file their complaints associated with securities market
against SEBI-registered brokers and companies. They can view the status of complaint in SCORES website or use toll-
free number to know the status. Investors can seek clarification on complaints online with a unique registration number
given for tracking. Here are the detailed steps shared by SEBI to file complaints online (Figure 1) –
Figure 1 – Steps to lodge complaints in SCORES portal
SEBI has also explained the process of handling investor complaints, as of August 2018 (Figure 2)
Figure 2 – Investor Complaint Handling Process
Source – BSE India
According to SEBI data, SCORES has received over 3789 complaints through its grievance redressal mechanism
against listed bodies and intermediaries in 2021. In November 2021, there were 4159 complaints pending and 3056
were received, while there were only 26 complaints which remained pending for over 3 months (Economic Times,
2021). But we have conducted interviews and it was observed that there was no actual resolution of those
complaints. When it comes to check the status, it is mentioned that the complaint was forwarded to NSE and they
will look into it. At the end, complaints remain pending with NSE and BSE and there is no resolution.
Hence, there must be one person who will be responsible and who can give actual resolution instead of resolution
on paper. The lacunae is directional work in which responsibilities are just handed over to another and another
person handed over the complaint to the next person, and so on. There is no actual resolution because investor has
to complaint with NSE, BSE, SEBI, and other authorities. At the end, a common investor is confused as what they
should do and a lot of money, time and resources are wasted in this process. There are millions of DEMAT
accounts in India and more to open soon. In that case, investors have no idea where to go when any problem exists.
This way, we need one-stop mechanism to resolve those complaints.
India is ranked 13th on “protecting minority investors” according to the World Bank, which is an element of
surprise. Probably, the ranking is majorly based on legal intent as compared to true performance. Any victim of a
bank collapse like “PMC Cooperative Bank”, a Ponzi scheme like PACL, Sarada, etc., credit card frauds, or retail
investments in “Amravati Bonds” which were guaranteed to develop a new capital city by the State Government
but scrapped due to government change will admit one thing and held it responsible due to utter absence of proper
investment protection in India, contradicting the high rankings from the World Bank.
Investors who were duped because their savings have been wiped by such frauds still have lack of funds left to deal
with a prolonged battle. Lakhs of rupees are charged by top lawyers in Supreme Court per hearing, which is not
affordable for the victims but nothing for scammers who stole the money. The Indian judiciary system enables
constant delays and denies justice. The cooperative bank violated all norms by lending 75% of its funds to one
group in the notorious PMC Bank case. The RBI didn’t detect this, which was supposed to conduct audits of all
banks regularly. Depositors are the ones who suffered and lost all their deposits. The HDIL promoter has given the
statement at the Bombay High Court to rub salt that he could sell off his personal assets and pay back.
Even though he sells these assets, the authorities retain the money, as in the NSEL case, which would never be
given to the victims. A lot of speakers recommended lowering the interest rates but they missed the point that
various liquidity injections and cuts in interest rates haven’t caused either investment demand or consumption.
Rather, they have played a vital role in asset bubbles. They don’t see the consequences. In fact, lower interest rates
are not good for pension funds and savings. The developed world is going through a serious crisis, failing to serve
the obligations, especially due to lower interest rates.
The costs of interest are levied at a percentage of revenue, i.e., under 5%. If experts want lower services/product
prices, they must go to the Centre to control indirect taxes. The impact is higher because GST rates are even higher
than interest. Still, the government is seeking different ways to raise their collection from GST. India is also poor in
“Ease of Doing Business” rankings, i.e.,163 out of 190, under “Enforcing Contracts”. The judicial system is also
way too kind to scammers and fraudsters and too slow in delivering justice to the victims. There is a long way to go
for India to seriously improve its investor protection and “Ease of Doing Business” ranking, apart from providing
quick, strict punishment against any wrongdoings (Mulraj, 2019).
Results
In order to really protect investors’ interest, there is an urgent need for a website where investors can file their
complaints and track their complaint status. In this context, SEBI also urged depositories and stock exchanges to
bring a robust digital system for grievance redressal by the end of 2022 (The Economic Times, 2021). In addition,
this portal should be in line with SCORES, which was introduced by SEBI, the capital markets regulator for
investors to file their grievances in 2011. Complaints can be filed related to the securities market against SEBI-
listed intermediaries and companies. According to SEBI, the platform must be digital with 24x7 online access.
This website should enable investors to lodge their complaints anytime and anywhere online, which is the key
feature of this system. In addition, this website should generate an acknowledgement email upon receiving the
complaint and a unique complaint number must be allotted for further reference and complaint status tracking to
the immediate effect. In addition, the website must be able to link the complaint with SCORES to ensure proper
redressal of investors’
complaints. Stock exchanges and depositories were also asked by SEBI to keep up with both online and offline
modes to conduct arbitration and GRC.
Stock exchanges should conduct arbitration and GRC or “appellate arbitration hearings” online during the COVID-
19 for fast-track grievance redressal. A lot of expenses and time can be saved for parties involved with the online
process, which is good for investors. The online grievance redressal should be in public to a large scale by all
depositories and stock exchanges to alert the investors. In addition, the amount has been tweaked by the regulators
regarding the deposit from the investors while applying for arbitration.
According to SEBI, a client with a counter claim or claim up to 20 Lakh INR will be exempted from fee payments
with arbitration reference. Even if the amount of claim is equal to or less than Rs. 20 lakhs in the dispute, the
investor, respondent, or applicant is exempt from paying fees for arbitration cost and it will be borne by the
exchange on investor’s behalf (The Economic Times, 2021).
A dedicated website is required to provide solutions to investors by letting them lodge complaints against any
wrongdoings in the financial market, so that they can get immediate response from the authorities and quick action
against the fraudsters. It should be designed as per the standards and guidelines by SEBI and linked with it to
provide immediate solutions to the victims.
Conclusion
If we want to truly protect the interest of investors, one agency that is SEBI should be made liable to provide
complete resolution of complaints and they should have ownership of the entire grievance redressal system. Other
portals should all be clubbed together. It will not only simply the life of investors, but also make them believe in
the judicial system in India. Investor protection is very important in this country, so that future investors can be
assured that they would have someone to listen to their complaints if anything wrong happens. This way, a
dedicated website is needed to provide grievance redressal of investors.
