CHAPTER-12

INVESTOR PROTECTION
OVERVIEW OF CHAPTER:-
• analyze role of SEBI and stock exchange in investor protection.
• understand investors grievances and their redressal system.
• Know SCORES SEBI centralized web-based system for investors
complaints.
• explain security ombudsman scheme
• examine the reforms of SEBI in investor protection
• know amendments in listing agreements
• understand prohibition of insider trading
• explain regulation of unpublished price sensitive
information
• know investors awareness programmes of SEBI NSE and
BSE.
• know role of BSE in investor protection
• Know role of NSE in investor protection
• Explain investors activism in india
 Introduction
Investor protection is one of the crucial elements of a
growing securities market. Investor protection focuses
on making sure that investors are fully informed about
their purchases transactions and the Corporate affairs
and updates. Investor protection is a Buzz word
among the parties of the capital market, eight stock
exchanges like BSE and NSE market regulators like SEBI
MCA RBI for investors association for the companies
themselves. various procedures, guidelines, rules and
regulations have been issued in the legislation to
protect the investors right and repose their
confidence.
keeping the above in view, this chapter will help to
understand the concept and need for investor
protection and education, rights and responsibilities of
investors, legal framework for investor protection in
India, measures taken for financial literacy in India and
SEBI initiatives etc.
 Role of SEBI in Investor Protection
The securities and exchange Board of India is the
regulator of capital market in India. It was established in
the year 1988 and was given statutory powers on April
12, 1992 in accordance with the provisions of the
securities and exchange Board of India act 1992. The
preamble of SEBI describes its basic functions. It reads
as "....to protect the interest of investors in securities
and to promote the development of and to regulate
the securities market and for matters connected
therewith or incidental thereto".
Thus as it can be seen the primary function of
SEBI is the protection of the investors interest.
The two broad objectives of SEBI are given
below:-
1) Conductive Environment:- SEBI aims at
creating a proper and conductive environment
for raising money from capital market through
rules, regulations, trade practices and guidelines.
SEBI regulates stock exchanges and other
intermediaries in securities market such as
brokers, sub- brokers, merchant bankers, venture
funds, mutual funds, FII etc.
2) Investors Protection and Education:-
SEBI AIMS at protecting investors from
fraudulent practices and educating
investors so as to make them aware of
their rights as well as duties.
 Measures taken by SEBI for investors protection:-

Investors are the pillar of the financial and securities market.

They determine the level of activity in the market. They put the
money in funds, stocks, etc. to help grow the market and thus,
the Economy. It thus very important to protect the interests of
the investors. investor protection involves various measures
established to protect the interests of investors from
malpractices. Securities and Exchange Board of India (SEBI) is
responsible for regulations of the Mutual Funds and safeguard
the interests of the investors. Investor protection measures by
SEBI are in place to safeguard the investors from the
malpractices in shares, the stock market, Mutual Fund, etc.
1) Issue of Regulations and guidelines:-SEBI
issues regulations and guidelines to companies
mutual funds portfolio managers merchant
bankers underwriters lead managers etc. These
guidelines ensure transparency in their
operations and avoid exploitation of investors by
one way or the other. SEBI has issued revised
guidelines for listing agreement. These
guidelines are provided later in the chapter. SEBI
has also issued securities ombudsman scheme
governed by RBI ombudsman regulations 2003.
The details are provided later in this chapter.
2) Investor protection education and public interest
advertisements:- SEBI encourages the formation of
investor associations that disseminate information
through newsletters. As on July 2nd 2015, 18 investor
associations are recognised by SEBI. Moreover these
monthly publications market review and news letters in
phones and educates investors at large. SEBI issues
public interest advertisement to 18 investors on the
basic features of various instruments and minimum
precautions that they should take care before choosing
an investment. All these efforts are made to create
awareness among investors about their rights and
about their remedies if problem arise. SEBI has also
established investor protection and education fund.
3) Grievance redressal system (dealing with
complaints of investors):- the investors can
make complaints to SEBI in case they face any
problems relating to industrial securities and
financial assets investment. The complaints
generally relate 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 committed to redress these
complaints. SEBI complaint redressal system
(SCORES) facilitate investors to launch their
complaints online with SEBI and view its status.
4) Disclosure Requirements by Companies:- SEBI
requires disclosure on various financial aspects of
companies. these provisions relating to disclosures are
for the information and protection of small and retail
investors.

5) Other Measures:- SEBI conducts inspection,

inquiries and audits of stock exchanges intermediaries
and self-regulating organizations and takes suitable
remedial measures whenever necessary. It penalizes
those who undertake fraudulent and unfair trade
practices.
Investor's Grievances and Redressal System of
SEBI:- INVESTOR'S 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 / are intermediary against whom there is a complaint.
investors who are not satisfied with the response to their
grievances received from the brokers for depository
participants for listed companies can lodge their grievances
with the stock exchanges for depositories.
The grievance can be lodged at any of the officers of the
BSE/NSE located at Chennai Mumbai Kolkata and New Delhi.
In case of unsatisfactory redressal, BSE/NSE has designated Investor
Grievances Redressal Committees (IGRCs) or Regional Investor
Complaints Resolution Committees (RICRC). This forum acts as a
mediator to resolve the claims disputes and differences between
entities and complainants.

Stock exchanges provide a standard format to complainant for

referring the matter to IGRC/RICRC. The committee calls for the
parties and acts as a nodal point to resolve the grievances.

If the grievance is still not resolved an investor can file arbitration

under the rules, Bye Laws and Regulations of the respective Stock
Exchange/Depository.
 Handling of Investor Complaints 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 of 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 predict 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 or
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.
 Types of Complaints handled by SEBI
Complaints arising out of activities that are covered under SEBI
Act 1992, Securities Contract (Regulations) Act, 1956 and rules
and regulations made there under and provisions that are
covered under companies Act 2013 are handled by SEBI.
Various entities against which complaints are handled by SEBI
include the following:-
•Listed companies
•Stock brokers
•Stock exchanges
•Depository / Depository participants
•Registrar to an issue or share transfer agent
•Mutual funds
•Portfolio managers
•Bankers to an issue
•Collective Investment Schemes
•Credit Rating Agencies
•Custodian of securities
•Debenture trustees
•Merchant bankers
•Underwriters
SEBI also has a separate Department to look into market irregularities.
If any irregularities are found in trading in shares or manipulation in
price or violation of insider trading regulations, the same can be
reported to SEBI.
An important initiative recently taken by SEBI is the launch of a web
portal for lodging complaints.
This is known as SCORES.
 What is SCORE (SEBI Complaints
Redress System)
SCORES is a web based centralized grievance redress system of
SEBI (http://scores.gov.in). 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.
 Process to raise complaint in SCORE webpage Step by step
process to raise complaint in SCORE webpage

Visit scores.gov.in/Registration.aspx to register as new user.

Here, user needs to give important personal information like
name, e-mail, address, PAN no. etc. On successful registration,
SCORE will send user id and password to registered e-mail id.
Go to login page http://scores.gov.in/Default.aspx in left side of
webpage enter USERNAME and PASSWORD provided by SCORE,
then click “SIGN IN”.
After successful login, in top left side user will get “COMPLAINT
REGISTRATION”, “SEND REMINDER” & “VIEW COMPLAINT
STATUS” option. Click on COMPLAINT REGISTRATION option to
raise new complaint.
Then Complaint Registration Form will open, where user needs
to fill up personal details like name, address, mobile no. etc.
In bottom part of Complaint Registration Form user should
select category of complaints like Mutual fund, Depository
participant listed companies, Broker etc.
Once user selects the category, web page will ask for other
details like type of complaint, name of mutual fund Company,
descriptions of complaints etc. User can also upload supporting
document up to 1MB. Then click submit.
Then you will get complain registration number. (SMS and e-
mail confirmation)
User needs to wait for 30 days for the response.
 The salient features of SCORES are:-
• SCORES is web enabled and provides online access 24 × 7.
• complaints and reminders their own can be lodged online at
anytime from anywhere.
• 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 is forwarded online to the entity concerned for its
redressal.
• the complaint is 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 close the complaint if it is
satisfied that complaint has been addressed adequately.
• The concerned investor can view the status of the
complaint online from the above website by lodging in
the unique complaint registration number.
• The entity concerned and the concerned investor
can seek and provide clarification on the complaint
online to each other.
• every complaint has an audit trial 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.
 SECURITIES OMBUDSMAN
In order to ensure effective and transparent system of investors grievance
redressal, the scheme of ombudsman has been provided under the the SEBI
(Ombudsman) regulations 2003 and under section 11(1) of SEBI Act, 1992.

Ombudsman means any person appointed under regulation 3 of of these

regulations and it includes stipendiary ombudsman.

Securities means securities as defined in clause (h) of section 2 of the the

securities contracts (regulation) Act 1956.

Stipendiary ombudsman means a person appointed under regulation 9 for the

purpose of acting as Ombudsman in respect of a specific matter.
 Qualifications of an Ombudsman
In order to be appointed as an ombudsman a person shall be
a) a citizen of India
b) of high moral integrity
c) not below the age of 45 years of age and
d) Either
i) a retired district judge or qualified to be appointed as a district
judge
ii) having at least 10 years experience of service in any regulatory
body
iii) having special knowledge and experience in law, Finance,
corporate matters, economics, managements or administration
for a period not less than 10 years or
iv) an office bearer of investors association recognized by the board
having experience in dealing with matters relating to investor
protection for a period not less than 10 years
 Powers and functions of ombudsman
Ombudsman have all the following powers and functions in
general
1) to receive complaints specified in regulation 13 against any
intermediary or a listed company or both.
2) to consider such complaints and facilitate resolution there
of by amicable settlement.
3) to approve a friendly or amicable settlement of the
dispute between the parties.
4) to adjudicate search complaints in the event of failure of
settlement there of by friendly or amicable settlement.
For the purpose of carrying out his duties under these regulations,
an ombudsman may require the listed company or any other party
to provide any information or document relating to the complaint.

Ground of Complaints:-
A person may lodge a complaint on any one or more of the
following grounds either to the SEBI or are to the ombudsman
concerned
1) non receipt of refund orders allotment letters in respect of a
public issue of securities of companies or units of mutual funds
or collective investment schemes.
2) non receipt of share certificates, unit certificates, debenture
certificate, bonus shares.
3) non receipt of dividend by shareholders or unit holders.
4) non receipt of interest on debentures, redemption amount of
debentures are interest on delayed payment of interest on
debentures.
5) non receipt of interest on delayed refund of application
money.
6) non receipt of annual reports or statements pertaining to the
portfolios.
7) non receipt of redemption amount from a mutual fund for
returns from collective investment scheme.
8) non transfer of securities by an Issuer company, mutual fund,
collective investment management company aur aur depository
within the stipulated time.
9) non receipt of letter of offer for consideration in takeover or
buyback offer or delisting.
10) non receipt of statement of holding corporate benefits or
any grievances and respect of Corporate benefits etc.
11) any grievance in respect of public, rights
or bonus issue of a listed company.
12) any of the matters covered under Section
55A of the companies Act 1956.
13) any grievance in respect of issue or
dealing in securities against an intermediary
or a listed company.
Settlement by mutual agreement
As soon as it may be editable so to do, the ombudsman shall
endeavor to promote a settlement of the complaint by
agreement or mediation between the complainant and the
listed company or intermediary named in the company. If any
amicable settlement or friendly agreement is arrived at
between the parties, the ombudsman shall pass and award
in terms of such settlement or agreement within one month
from the date there of and direct the parties to perform their
obligations. For the purpose of promoting a settlement of the
complaint, the ombudsman main follow such procedure and
take such actions as he may consider appropriate.
 Award on Adjudication
in the event of matter is not resolved by mutual
acceptance agreement within a period of one month
of the receipt of the complaint the ombudsman shell
based upon the material placed before him and after
giving opportunity of being heard to the parties give
his award in writing or pass any other directions for
orders as he may consider appropriate. The word on
adjudication Shall be made by ombudsman within a
period of three months from the date of filing to the
complaint. The ombudsman shall send his award to the
parties to the adjudication to perform their obligations
under the award.
OTHER REGULATORS/AUTHORITIES TO APPROACH FOR
COMPLAINTS OTHER THAN THOSE DEALT BY SEBI
 Reforms Brought Up by SEBI
1) Amendments in Listing Agreement:-In
order to ensure transparency and better
investor protection, during the year 2014, a
series of amendments were made to clause
49 of the listing agreement with the purpose
of aligning it with the companies Act 2013
 Applicability
The clause 49 of the listing agreement shall be
applicable to all listed companies except
1) companies having paid up equity share capital
not exceeding rupees 10 crore and net worth not
exceeding rupees 25 crore as on the last day of
the previous financial year.
2) 2) companies whose equity share capital is listed
exclusively on the SME platforms.
 Key Provisions of Listing Agreement
1) Board of Directors
• the board of directors of the company shall have an optimum
combination of Executive and non executive directors with at
least one woman director and not less than 50% of the board
of directors comprising non executive director.
• where the chairman of the board is a non executive director, at
least one third of the board should comprise independent
directors and in case the company does not have a regular non
executive chairman, at least half of the board should comprise
independent director.
• a person shall not serve as an independent director in more than
7 listed companies. Further any person who is serving as a
whole time director in any listed company shall serve as an
independent director in not more than three listed companies.
• the maximum tenure of independent directors shall be in
accordance with the companies Act 2013 and clarifications issued
by the ministry of Corporate affairs in this regard from time to
time.
• the company shall establish a vigil mechanism for directors and
employees to report concerns about unethical behavior, actual or
suspected fraud or violation of the company's code of conduct or
ethics policy.
 2) Audit Committee
• the audit committee shall have minimum 3 directors as members. two
third of the members of audit committee shall be independent directors.
• the chairman of the audit committee shall be an independent director.
• all members of audit committee shall be financially literate and at least
one member shall have accounting or related financial management
expertise.
• the audit committee should meet at least four times in a year and not
more than four months shall elapse between two meetings.
• the role of the audit committee shall include
a) oversight of the company's financial reporting process and the
disclosure of its financial information to ensure that the financial
statement is correct sufficient and credible.
b) b) review and monitor the authors independence and performance
and effectiveness of audit process.
 3) Nomination and Remuneration Committee:-
• the company through its board of directors shall institute the
nomination and remuneration committee which shall comprise at
least three directors. Chairman of the committee shall be an
independent director.
• the chairperson of the committee whether executive or non
executive may be appointed as a member of the nomination and
remuneration committee but shall not chair such committee.
The role of the nomination and remuneration committee shall include
a) formulation of the criteria for determining qualifications positive
attributes and independence of a director and requirement to the
board of policy relating to the remuneration of directors, key
managerial personnel and other employees.
b) b) formulation of criteria for evaluation of independent directors
and the board.
c) c) devising a policy on board diversity.
 4) Risk Management
• the board shall be responsible for framing implementing and
monitoring the risk management plan for the company.
• the company through its board of directors shall constitute
risk management committee. the board shall define the roles
and responsibilities of the risk management committee and
main deligate monitoring and reviewing of the risk management
plant to the committee and such other functions as it may deem
fit.
• the majority of committee shall consist of members of the
board of directors. Senior executive of the company may be
members of the committee but the chairman of the committee
shall be a member of the board of directors.
 5) Related Party Transactions
• a related party transaction is it transfer of resources, services obligations
between a company and A related party, regardless of whether a price is
charged.
• the company shall formulate a policy on material ATI of related party
transactions and also on dealing with related party transactions.
• a transaction with the related party shall be considered material if the
transactions to be entered into individually or taken together with the
previous transactions during a financial year exceeds 10% of the annual
consolidated turnover of the company as per the last audited financial
statements of the company.
• all related party transactions shall require prior approval of the audit
committee. However the audit committee may grant Omni bus approval for
related party transactions proposed to be entered into by the company subject
certain conditions.
• all material related party transactions shall require approval of the
shareholders through special resolution and the related parties shall abstain
from voting on such resolutions.
 6) Disclosure
• details of the material related party transactions shall
be disclosed qualitatively along with the compliance
report on corporate governance.
• as part of the directors report or as an addition there
to a management discussion and analysis report should
form part of the annual report to the shareholders.
• in case of the appointment of a new director or re-
appointment of a director, the shareholders must be
provided with the detailed information.
7) Report on Corporate Governance
• there shall be a separate section on corporate governance
in the annual reports of the company, whether a detailed
compliance report on corporate governance. non compliance
of any mandatory requirement of this clause with the
reasons there of and the extent to which the non mandatory
requirements have been adopted should be specifically
highlighted.
• the companies shall submit a quarterly compliance report
to the stock exchanges within 15 days from the close of
quarter as per prescribed format.
 Regulations regarding Insider Trading
insider” means any person who is either a connected person or is
in possession of or having access to unpublished price sensitive
information. Therefore, it includes persons connected on the basis
of being in any contractual, fiduciary or employment relationship
that allows such person access to “unpublished price sensitive
information” (“UPSI”).
The Companies Act, 2013
Section 195 of the Act prohibits directors or key managerial
personnel of a company from engaging in insider trading.
According to the Act, “insider trading” means an act of
subscribing, buying, selling, dealing or agreeing to buy, sell or deal
in any securities by any director or key managerial personnel or
any other officer of a company either as principal or agent if he is
reasonably expected to have access to any non-public price
sensitive information in respect of securities of a company.
 SEBI Act, 1992 and 2015 Regulations
UPSI has been defined as information not generally available and
which may impact the price. This definition provides a test to identify
price sensitive information, aligning it with the Listing Agreement and
providing a platform for disclosure.
The charge of insider trading has been extended to securities listed
and proposed to be listed on stock exchanges. The 1992 Regulations
were only applicable to listed securities.
Notes to Interpretation: every provision under the Regulations is
accompanied by specific notes setting out the legislative intent for
which that provision has been formulated. As India continues to move
from a ‘form approach’ to a ‘substance approach’, these notes will aid
in capturing the spirit of the legislation and how to regulator is likely
to view its enforcement.
·Restrictions have been placed on communication, procurement, and
trading in securities when in possession of UPSI.
The regulations provide for certain exceptions which include, in
the conduct of due diligence, for off-market transactions, a trade
executed in the absence of any leakage of information and trades
executed in the pursuance of trading plans.
·Qualification criteria have been set for compliance officers who
shall report to the Board of Directors of the company or the head
of the organization, as the case may be.
According to the SEBI Act, Insider Trading is punishable with a
penalty of INR 250,000,000, or three times the profit made from
insider trading, whichever is higher. Any person contravening or
attempting to contravene or abetting the contravention of the Act
may extend to 10 years or a fine, which may extend to INR
250,000,000 or both. The regulations also prescribe certain
disciplinary sanctions that may be taken by companies or market
intermediaries to require due compliance with the Regulations.