RIGHTS OF INVESTOR UNDER SEBI ACT- A

DESCRIPTIVE STUDY
(Project Report)

SUBMITTED TO:

Dr PAPA RAO
(Faculty in Corporate Law)

SUBMITTED BY:

SADHU SAMBA KAILASH

B.A. LL.B. (Hons.) Program
Section – ‗A‘ Semester Xth, Roll no 132

Hidayatullah National Law University

Uparwara post, Nava Raipur Atal Nagar, Chhattisgarh - 492002
 Rights of Investor under SEBI Act- A descriptive Study

DECLARATION

I hereby declare that this research work titled “Rights of Investor under SEBI Act- A
descriptive Study” is my own work and represents my own ideas or words have been
included. I have adequately cited and referenced the original sources. I also declare that I
have adhered to all principles of academic honesty and integrity and have not misrepresented
or fabricated or falsified any idea, data, fact or source in my submission.

Sadhu Samba Kailash

B.A.LL.B. (Hons.), Semester-X
Section-A, Roll No-132

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 Rights of Investor under SEBI Act- A descriptive Study

ACKNOWLEDGEMENTS

I feel highly elated to work on the topic- ―Rights of Investor under SEBI Act- A descriptive
Study‖.

The practical realization of this project has obligated the assistance of many persons. I
express my deepest regard and gratitude for Dr. Papa Rao. His consistent supervision,
constant inspiration and invaluable guidance have been of immense help in understanding
and carrying out the nuances of the project report.

I would like to thank my family and friends without whose support and encouragement, this
project would not have been a reality.

I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the Library and through Internet. I would be grateful to
receive comments and suggestions to further improve this project report.

Sadhu Samba Kailash

B.A.LL.B. (Hons.), Semester-X
Section-A, Roll No-132

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 Rights of Investor under SEBI Act- A descriptive Study

TABLE OF CONTENTS
1. DECLARATION .....................................................................................................ii

2. ACKNOWLEDGEMENTS ..................................................................................... iii

3. INTRODUCTION................................................................................................... 1

 Investor protection............................................................................................... 1

 SEBI ................................................................................................................... 1

4. RIGHTS OF INVESTORS ...................................................................................... 2

 Investor Education and Protection Fund ............................................................... 2

 Investor Awareness Program................................................................................ 3

 Investor Grievance Redressal Mechanism............................................................. 3

5. OTHER PROTECTIVE MEASURES BY SEBI ...................................................... 4

6. CONCLUSION....................................................................................................... 5

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 Rights of Investor under SEBI Act- A descriptive Study

INTRODUCTION

Investor protection
Investors are the only constituents that keep the securities market alive. A healthy community
of investors is very important for keeping the economy afloat. But assurance cannot be taken
from investors regarding their knowledge of the market, i.e., they can be fooled very easily.
The trust with the investment community is built and maintained and is rather indispensable
for the proper functioning of the market because being an investor they generally sign up for
a lot of unforeseen risk even when everyone plays by the rules. These problems are
aggravated by how less investors know even about their own rights and how to actually
utilise them. They can use all the credibility and transparency that can be given to them. But
this investor community that we keep talking about is very often broken down into multiple
kinds and types of investors and is considered an extremely dynamic bunch that varies from
place to place, i.e., the investor community in India cannot be equated to that of the
community in India because the Indian investment market often constitutes of a lot of small
investors who often come and go investing their small savings with the market. Because of
lack of sufficient literacy many consider it to be extremely risky and too many rules and
considerations with nowhere to turn to if they lose their money due to irregularities in the law
and order.

SEBI
The main purpose for which SEBI has been established under the act of 1992 aside from
regulation turns out to be investor protection. In fact, even the role of the regulator is in
indirect benefit for the sake of investors. The birth of SEBI took place in a view to reduce the
malpractices such as price rigging, violation of listing rules and regulations etc and to
increase the faith and confidence of investors in the stock market. Since SEBI came into
existence it also now concentrates on the welfare of investment community by indulging in
activities such as Investor Education Campaign and resolving their problems through Investor
Grievance Redressal System. There are also provisions where the investors can form and
register investment groups or more properly known as investor association. It gets serious
with the establishment of a dedicated office just for the purpose of Investors i.e., ‗Office of
Investor Assistance and Education‘. To be very precise with the function and responsibility of
SEBI towards the investors is to be able to provide them with they money that they lose in the

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 Rights of Investor under SEBI Act- A descriptive Study

stock market not because of the market fluctuations but because of various scams or certain
companies flouting the rules. Two important things that must be done are to make the rules
and loopholes stringent so that such a scam is not repeated again and the second being the
redressal of the scam by being able to trace out every person who lost his money because of it
and being able to compensate even the smallest of investors so they can retain the confidence
in the proper functioning of the market through the instrument of SEBI.

RIGHTS OF INVESTORS

Rights of the investors are

1. To have a fair valuation of the stock to get the best price possible.
2. A valid receipt regarding the charge of brokerage provided
3. The shares or the requisite money given on promised times or within reasonable
period of time.
4. Ensure proper delivery of shares that are purchased through auction
5. And if there is any default in such delivery make sure that the money is given back
6. Statement of Accounts from trading member

But these rights are not limited to the above mentioned because investors can also be broken
down to be shareholders, debenture holders i.e., security holder or as being a member of a
group that provides you with certain rights within the investment market.

In essence an average investor also enjoys many rights such as receiving copies of the Annual
reports, voting in the general meetings, right to receive dividends, to receive other benefits
such as a shareholder, to inspect books containing minutes of meeting, to proceed against the
company with in the court of law, to apply for winding up etc.

Investor Education and Protection Fund

This fund has been constituted under section 205C of the Companies Act 1956. When a
company is dissolved or is wound up then whatever is left of the company is generally
distributed to the shareholders and at times these funds remain unclaimed so the current
provisions establishing the said body of Investor Education and Protection Fund mandate a
company to hand over all of such unclaimed fund dividends or any other of funds left up in
similar manner if left unclaimed for an entire duration of 7 years. Not only that but all the
trading members also contribute at the rate of 1 paise for a gross turnover of 1 lakh rupees

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 Rights of Investor under SEBI Act- A descriptive Study

and also the stock exchanges provide or contribute 2.5% of the listing fees collected by it
These funds are inturn used for the sake of investors in the form of compensation when an
investor makes a claim against a registered broker either with NSE or BSE. There are also
various limits imposed upon the amount that can be awarded as compensation which vary in
between the stock markets, the highest being offered by the BSE a total of nor more than ―15
lakhs against approved claims of investor against approved claims of any investor against the
defaulter trading members of the exchange.‖

Investor Awareness Program

―SEBI launched a comprehensive education campaign aimed at creating awareness among
investors about securities market, which has been christened — "Securities Market
Awareness Campaign" (SMAC). The motto of the campaign is — 'An Educated Investor is a
Protected Investor.‖ These programmes create awareness about not only the rights of the
investors but also various major aspects such as tax provisions, mutual funds as well as
portfolio management. These are generally conducted through various forms of mass media.
SEBI not only conducts a lot of workshops for the sake of educating the investors about risk
management along with their rights and responsibilities but also many other means such as
advertisements not only in English language but also in various local and regional languages
both in the television in the form of 40 second films as well as that of the newspapers. SEBI
is also known to circulate informative and educative materials not only for the purposes of
the workshop but also through its official website through its internet-based response system
which also allows you to file your complaint online. Along with these the BSE also has a
training institute which organises various programs that help in increasing the basic and most
required knowledge over stock market.

Investor Grievance Redressal Mechanism

In the case of a complaint against a listed company the investor must first approach the
company and seek a redressal in the absence of which he can approach the Investor
Grievance Redressal Mechanism. The investor enjoys a right for redressal against not only
fraudulent or unfair brokerage but also delays in any receipt of money or shares and
especially against companies which are not investor friendly. If a complaint exists against an
authorised stock broker then the complaint is to be sent to the nearest office of the stock
exchange which are advised to take up and solve the dispute within a duration of 2 weeks
through an Investor Services Cell. Here comes in the IGRC i.e., Investor Grievance Redressal

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 Rights of Investor under SEBI Act- A descriptive Study

Committee which after evaluating the complaint for a certain sum of money blocks the same
amount in the Investor Protection Fund which has been discussed about above. Here an
option of redressal through Arbitration is provided to the investor. Also an advanced feature
recently introduced by the SEBI is the SEBI Complaints Redressal System also known as
SCORES which is a 24/7 online complain redressal system which not only provides you with
an acknowledgement of the receipt of the complaint but also gives us real time updates along
with providing every complaint with a unique identification number that enables the
complainant to check the status of his complaint.

OTHER PROTECTIVE MEASURES BY SEBI

―Sec 11(2) of the SEBI Act contains measures available with SEBI to implement the
legislated desire of investor protection. It includes

 Regulating the business in Stock Exchanges (SEs) and any other securities market.
 Registering and regulating the working of intermediaries like stock brokers, sub
brokers, share transfer agent, bankers to an issue, trustees of trust deed, registrars of
an issue, merchant bankers, underwriters, portfolio managers, investment advisors etc
associated with securities market
 Registering and regulating the working of the depositories, participants, custodians of
securities, foreign institutional investors, credit rating agencies and other
intermediaries.
 Registering and regulating the working of venture capital funds and collective
investment schemes including mutual funds.
 Promoting and regulating self – regulatory organizations.
 Prohibiting fraudulent and unfair trade practices relating to securities market.
*Prohibiting insider trading in securities.
 Regulating substantial acquisition of shares and takeover of companies.
 Promoting investors education and training of intermediaries of securities market.
 Carry out inspection/audit of the SEs/intermediaries etc.
 Call for information from any bank/any authority/corporation/agencies in respect of
any transaction in securities which is under investigation or inquiry by SEBI.

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 Rights of Investor under SEBI Act- A descriptive Study

SEBI has given out various methods and measures to ensure the investor protection from
time to time.‖ 1

CONCLUSION

All in all, SEBI justifies its role as an investor protector by not only conducting various
awareness programs but also initiating compensation schemes that can be accessed
through its easy to reach grievance redressal mechanisms such as SCORES. But the role
of investor protection can be fulfilled properly only when it is linked to certain
obligations being followed by the investor himself so as to entitle him to come under the
ambit of grievance redressal. For example, entering the market only with a SEBI
approved broker or even ―to sign a proper member constituent agreement and to possess a
valid contract or purchase note along with the delivery of securities with valid documents
and proper signatures.

―Even though, there are various opportunities available for investment, investors are
scared of investing in corporate. In this situation, the individual investors protection
becomes necessary to sustain the economic development of all countries. To achieve the
desired level of economic growth is dependent upon investor‘s protection availability of
the concerned country.‖

SEBI also performs various protective functions which directly protect the investor. SEBI
prevents activities that promote price rigging which involves manipulating the price of the
stock which may defraud the investors by depicting them faulty prices. It also takes
measures to prevent insider trading where sensitive information is passed on from people
within the company which has the power to determine the rise and fall of the stock prices
of the company. For example, an issue of bonus shares at the end of the year might be the
cause for the insiders to buy the stocks so as to profit off the same. This information is not
available to the public at large. SEBI also controls any kinds of misstatements made by
the companies which have the power to increase the sales in the stock market. It also
issues various guidelines for the commonly faced problems of debenture holders where
the terms are often changed after the debentures are purchased to the disadvantage of such

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 Rights of Investor under SEBI Act- A descriptive Study

investors. SEBI is also into restricting preferential allotment of shares to a certain few at a
select price that is different from the market price.