FINANCIAL MARKET OPERATIONS

(UNIT-5)
INVESTORS PROTECTION
(PART-1)
1. INTRODUCTION
Hello viewers! Welcome to the lecture series of financial market
operations. Today we shall take up unit 5th and under unit 5th we are
going to discuss in detail about investor’s protection. When we are
discussing about investor’s protection then the picture comes in mind
id how the interest of the investor is being safeguarded. It will be
safeguarded when its grievances has been resolved. So the objective of
today’s lecture is to understand the grievances concerned with the
stock exchange in relation to the protection of interest of the investor,
dealing and their removals, that how these grievances are being dealt
with and how they are removed, what are the remedies available to
the investor under different provisions of the act and grievances cell in
the stock exchange which are working to deal with various sort if
grievances, whether they are related to companies or depository
systems or any other grievances. So, particular cells have been made
to deal with the particular grievances, which come in front of them, to
safeguard the interest of the investor. Now, before having discussion
about investor’s protection, let us have a clear picture about who we
are saying the investor is?

2. INVESTOR
Investor is the person who balances in the feature income and the risk
to earn profit. Risk involves, financial person who invests to earn profit
in future by investing in different type of securities. The securities can
be like shares, mutual funds and debentures so any person who is
transforming his income or future’s income to earn profits is
considered as investor. An investor enjoys investing if he knows how to

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invest, he has full knowledge of the market, the market is safe and
there is no miscreant and there are arrangements to redress the
grievances. So if all the parameters are being fulfilled there can be
enjoyable investment. Because if there is lack of knowledge about the
product in which the investment is going to be made, the investor is
going to suffer. Or if there is fraudulent information or lesser
information which effects the decision of going into investment or not,
in that case also there will be chances that investment is not going to
be fruitful. So, if these parameters are being fulfilled there will be
protection of the investors.

Securities Exchange Board of India, reffered as SEBI, has been

established with the prime mandate to protect the interest of investors
in security. So the regulating body which is working on the investor’s
protection is SEBI, as it is the regulating body for monitoring the
working of stock exchange. It is also mandatory to promote the
development of and to regulate securities market. Now what are the
SEBI’s measures to ensure investor’s protection as it is the regulating
body of the stock exchange, what measures it takes so that the
investor’s interest can be safeguarded.

1) Stock brokers are required to display rights and obligation of the

investor. So with every product they are dealing with or every
script or stock they are going to put their money into, at that
point the stock brokers need to display all the rights and the
obligations associated with the investment to the investor.
2) Mutual fund business has been opened to private sector
3) Depository participants are required to get their internal auditor
4) Companies are required to undergo secretarial audits so that
they can comply with the requirements of the minutes and all
other forms they need to file to the ROC. So there can be better
compliance in terms of the companies and investors can be
protected against any malafide activity if it is there.
5) PAN has been mandatory in all the capital market transactions.

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 3. INVESTORS GRIEVANCES AND THEIR REDRESSAL
Now the next topic of discussion is investor’s grievances and their
redressal. When we make an investment other than the securities
market that is where a normal contract about buying and selling is
made, sales of good act comes into picture and under sales of goods
act we have learnt one very important principle that is Cavient
Ampton. It says that buyers be aware. So in case of sales of goods act,
it is the responsibility of the buyer to have all the precautions before
entering into the contract, so that he may not be deceived, or he
should protect himself before entering into transaction. But the
scenario is different in the case of securities market. So let us highlight
what is the principle under investor’s protection and in other laws. The
dictum Cavient Apmton is the maxim from the law of sales of goods act
which means that when buying anything the buyer must protect his
own interest and in case he fails to exercise reasonable care and
caution, he cannot complain later for any loss caused to him due to his
failure or negligence. Say for example, a person has gone to buy
certain piece of cloth, it is the duty of the person to look carefully
about the piece of cloth that there should not be any loop hole or torn
in the cloth. It should be of the right quality as he has desired. Then
only he should go for the purchasing of the cloth. And later he cannot
complain that the default or fault in the cloth was on account of the
seller. However, the securities market does not work on the principle
of Cavient Emptor, and thus investors are provided due protection. So
there are in a much better position in the securities market as Cavient
Emptor rule is not applicable here and the regulating body are being
bestowed upon the responsibility of protecting the interest of investor.

Now, following kind of grievances can be there of an investor.

1) It can be against the company in which he is making the

investment. In that case the investment will be in the mode of
purchasing of the shares of the company or investment in the
debt instruments. In that case there can be delay in transfer of
shares to the investors.
2) “Not paying dividend” that means the dividend in proportion to
the share holding might not be paid on time, delay in the

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 payment of dividend or it is not altogether being paid or not
issuing the original share.
These can be the grievances against a company of an investor.
Against broker there can be grievances like not issuing the
agreement notes, taking high payments at the time of sale and
purchase, taking high price at the time of purchasing of shares.
So in that case again there can be grievances of investors against
broker that higher charges are being taken or undue amount is
charged in form of commission or loading charges, whatever the
case may be. So there can be the grievances against brokers.
3) Against depository participants: in that case it can be against the
debiting the DEMAT account with charges which are not required,
not sending the account description by the account holder. The
depository participant basically works like a bank in case of the
securities and all the transactions of buying and selling of the
shares are not in the physical form but are via DEMAT accounts.
So in that case, these can be issued that DEMAT account can be
debited or the description about the account information is not
sent.
4) There can be other grievances. The previous grievances which we
have learnt is against certain person, either it can be company,
broker or depository system. In addition to this, there is a list of
grievances which can be redressed by the appropriate cells of the
stock exchange. Dealing in transfer of shares, non receipt of
shares, dividends, rights or bonus shares, delay or non issue in
the case of duplicate shares, delay or non receipt of annual
reports, delay or non receipt of redemption amount of
debentures, delay or non receipt of interest on debentures, delay
or non credit of shares in the account by the broker, delay or non
payment of shares in the account by the broker, delay or non
payment of sales process by the broker, manipulations in the
account statements, unauthorised trade and unauthorised
movement of shares and funds from the client’s account, double
trading or crunching, etc in the client’s account, delay or non
updating of client’s information in records. So this is the list of
certain other grievances, which needs to be taken care by the
stock exchange and this is not the exhaustive list and there can

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 be further grievances, which needs to be dealt by appropriate
cells.

4. MATTERS NOT CONSIDERED AS COMPLAINTS BY SEBI

Now coming to the next important topic of the discussion that is what
are the matters which are not considered as complaints by SEBI.
Because for all the complaints the redressal committees cannot accept
them, so there are certain criteria and certain complaints are being
listed that they cannot be entertained by the redressal cell. These
complaints can be:

a) Complaints that are incomplete or are not specific

b) A general complain about the working cannot be the base of
complain or there are incomplete complain that is the dates, the
transaction details are not given. There can be instances that the
particulars as required so that the complaint can be fully
informative for taking up any action is not there, in that case it
cannot be entertained.
c) Allegations without supporting documents: allegations against
any person or institution, without any supporting document. That
means there should be certain prejudicial act against the
investor or the investor’s interest is not being taken care of,
under that case only the complaints would be lodged, otherwise
they wouldn’t be.
d) Offering suggestions or seeking guidance or explanation cannot
amount to complaint and they will not be entertained by SEBI.
Seeking explanation for non-trading of shares or illiquidity of the
shares. Sometimes an investment is being made, then on later
stage it becomes illiquid that it cannot be transformed into
money by selling, as might be the company is not be working or
there can be the other procedural aspects, so in that case
seeking of explanation regarding the non working of the shares
or illiquidity of shares cannot be complaints.
e) Not satisfied with the trading price of the share of the company,
again, is not a complaint.

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f) Non listing of shares of private offer, disputes arising out of
private agreement with companies or intermediaries. There can
be personal contracts and they cannot be considered as
complaints. Now the question is, if there is a complaint with
which complaints can be lodged, who are the authorities under
which these complaints would be lodged. They can be registrar of
the companies, Ministry of the companies Affairs , Stock
Exchange, SEBI , company law board in case of remedies and
reliefs which are being available to the investor under different
sections of the their relevant acts. Investor grievances Centre set
up at each stock exchange and in case of suits and other issues
other avenues besides already discussed are Consumer Redressel
Forms. Sometimes the consumer protection act can be invoked
and consumer redressal forum can be used to lodge a complaint.
Then there can be suits in codes, if the hierarchy is there and the
complainant is not satisfied with the decision of the below
authority, he can go to the higher court and get files suits even.
Now one of the important tools to protect the interest of the
investor is investor’s education. So here what happens is that
how a investor’s interest can be protected when he is fully
educated about his rights, obligations, the product and
investment, so there is a system being given that how an investor
can be educated. Investor’s education forms an important part of
SEBI’s efforts to protect the interest of the investor in securities
market. Publications issued from time to time, indicating rights
of investors, the responsibilities and the details of grievances
redressal machinery available to them in respect to grievances or
remedies or reliefs to be obtained from different agencies. We
have right now discussed the list of agencies so against them the
investor who is being not protected against his interest can seek
the remedies of relief from those different agencies and it must
be aware that certain grievances redressal committees are
working in the stock exchange where he can file his complaint
and get justice and publications are being issued in the form of
newsletters, journals and latest updates regarding stock
exchange can be updated, there can be holding a seminar where

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 he can be educated regarding the investment proposals and
avenues.

5. SEBI MEASURES TO ENSURE PROTECTION

SEBI’s measure to ensure investor’s protection:

Accordingly SEBI investor’s protection strategy has four elements.

1) Investor’s education and awareness: we have right now discussed

this first parameter of this SEBI’s measure.
2) Disclosure of the information in public domain based on
regulatory regime: this disclosure of information can be regarding
the details of the investments, the related strategy which a
investor can form on the basis of this information that how this
working of the company in which he is investing, what is the
price running ratios or the present annual position of the
company.
3) Ensures that the market has systems and practices which make
transactions safe that is safety of the market.
4) Comprehensive mechanism to facilitate redressal of investor’s
grievances.

First tool we have already discussed in the light of the SEBI’s

parameter we are again going to discuss that how investor’s education
is being channelized or being given or imparted by the SEBI. Investor’s
associations registered with SEBI stock exchange and the professional
body also conduct investor education programme to appraise the
investor of change in laws and regulations. The methods of protecting
themselves against the malpractices and delays cropping up in the
market , journals, newspapers and magazines in the field of corporate
investments, highlights the new emerging problems and pitfalls in the
methods to protect the investors.

Now coming to the remedies available to investors, under Companies

Act 1956, let us discuss it. A new section 58A has been introduced in
the companies act 2000, which provides to the small investors and also
punish them while not performing the rules and more efforts are

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required are also made in this view. Small depositor means a
depositor, who has deposited in a financial year, a sum not exceeding
Rs 20000 in the company. So section 58 of the companies act provides
protection to small investors. Small investors have been defined and
are based on the amount of the investment they are making and it
provides the protection to them. Also there are some panel provisions
in case if these small investors, so punishments are also there if they
don’t abide by the rules and in that case they are going to make more
efforts for a secure investment

6. REDRESSAL OF INVESTORS GRIEVANCES

Redressal of investor’s grievances:

The Office of Investor’s Assistance and Education, that is, OIAE, acts as
a single window interface, interacting with investors seeking assistance
of SEBI. So in a way they are a tool or device, which is helpful in doing
the interaction of the investors with SEBI. Investors can submit
grievances, either by post or by hand delivery, at any of the SEBI office
or by electronic mode that is via e-mail. All grievances received by
SEBI, excluding those which refer or pertain to investigation, are
individually acknowledged with unique number to facilitate tracking.
There is a procedure by which the online submission of the grievance
can be done and a unique number is generated by which we can track
our grievance that how it is being dealt with by the SEBI.

Grievances against listed companies:

The grievances lodged by the investors are taken up by the respective

listed companies and are continuously monitored. We have already
discussed that what sort of grievances can be there with the listed
companies. They can be in relation to transfer of shares or delay in the
payment of dividends or not paying of the dividends. So such
grievances which are being lodged by the investors are taken up with
the respective listed company. So that particular company against
which there is grievance, they themselves take up the cause and
continuously monitor the grievance. The company is required to
response in a prescribed format in the form of action taken report,
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that is, what action has been taken by the alleged company for the
grievances; they need to give the report in the form called ATR. Upon
the receipt of ATR, the status of the grievance is updated, where the
response of the company is in-sufficient and in-adequate, follow up of
the action is initiated.

Grievances against stock brokers and depository participants:

We have learnt about stock broker’s grievances that they can be

related to the overcharging of the prices or undue price charge by
them in the form of commission or the loading or any other charges. In
the case of depository participants, there can be debiting of the
DEMAT account or not giving the account information on time as
required or there are certain changes in the accounts information in
the DEMAT account by the depository participants. Those grievances
can now be dealt with appropriate cells. Let us understand that how
they are being handled. Grievances pertaining to stock brokers and
depository participants are taken up with concerned stock exchange
and depository for redressal and monitored by the concerned
department through periodic report obtained from them. So, stock
broker’s complaint would be taken by stock exchange as stock brokers
are the members of the stock exchange and in the case of depository
participants the grievances are handled by the depository systems for
redressal and monitoring and periodical report are being given that
how the grievances are being taken care of.

Grievances against other intermediary:

Grievances pertaining to other intermediary are taken up by them

directly for redressal and continuously monitored by related
departments of SEBI.

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 7. INVESTOR EDUCATION AND PROTECTION FUND
Now one more important concept is there that is Investment Education
and Protection Fund, which is commonly known as IEPF. So, IEPF was
setup under section 205C of the Companies Act of 1956, and the
central government for promotion of investor’s awareness and
protection of the interest of the investor. So it is also one of the aids
in assisting investor’s education. There is a committee being set up
over here which is known as IEPF which is going to look after the
programmes to be taken care of for imparting education to the
investors so that there awareness can be enhanced and there can be
better understanding of the stock market by them. Investors education
and protection fund awareness and protection of investors rule 2001,
stipulates the activities related to investor’s education, awareness and
protection for which the financial sanction can be provided under IEPF.
So those organisations with whom the IEPF, or in association with other
organisations, IEPF can provide investors awareness and programme
and they can give the monitory aid to those educational institutions or
bodies for imparting this education. Following are the activities
stipulated under the IEPF rules:

1) Education programmes through media

2) Organising seminars and symposiums
3) Proposal for registration of voluntary associations or institutions
or other organisations engaged in investor education and
protection activities

Now the last topic in our discussion of the investor’s protection is

ombudsman. In its literal sense, ombudsman is an independent person
appointed to hear and act upon citizen’s complaints about
government’s services. SEBI has issued SEBI ombudsman regulation
2003. So it is an independent body who is going to take up the
grievances of the citizens against the complaints of government
services. So we can understand that it is an independent person who is
going to hear the grievances against the government services. These
government services can be of banking transactions, electricity or any
PSU. So we can see there is a counter in every government providing
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service organisation and we can give our grievances to this particular
independent person.

8. SUMMARY
Now students we are going to summarise our lecture on the investor’s
protection. Under investors protection we have learnt that an investor
can be protected against various grievances. It can be against
company, broker, depository system or any other intermediary by
taking the help of suitable grievance cell at stock exchange or with
SEBI or with other agencies such as Ministry of Corporate Affairs,
registrar of companies or even in the case of consumers protection
consumer protection redressal forums or in the course also he can go.
The investor protection and education fund is being established to
impart education about the awareness and education of the investor
and there are independent persons who take care of the grievances of
the citizen’s rights. We have learnt about how investor’s interest can
be protected in different ways by the appropriate grievances cell
working in the stock exchange. With this we are ending up our
discussion on the investor’s protection.

Thank You

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