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Published : July 29, 2013 | Author : abhayagnihotri
Category : Banking and Finance laws | Total Views : 29247 | Rating :

law student

Protection of the Interest of the Investor

Investors are the backbone of the securities market. They not only determine the level of activity in the securities market but also the level of activity in the economy. The growth in the numbers of investors in India is encouraging. The trends reveal that in addition to FIIs and Institutional Investors, small investors were also gradually beginning to regain the confidence in the capital markets that had been shaken consequent to the stock market scams during the past decade. It is imperative for the healthy growth of the corporate sector that this confidence is maintained. However, many investors may not possess adequate expertise/knowledge to take informed investment decisions. Some of them may not be aware of the complete risk-return profile of the different investment options. Some investors may not be fully aware of the precautions they should take while dealing with market intermediaries and dealing in different securities. They may not be familiar with the market mechanism and the practices as well as their rights and obligations.

The corporate systems and processes need to be credible and transparent, so that the interests of the investors may be safeguarded in a manner that enables them to exercise their choice in an informed manner while making investment decisions, and also providing them with a fair exit option. The Securities and Exchange Board of India (SEBI) has been mandated to protect the interests of investors in securities and to promote the development and regulate the securities market so as to establish a dynamic and efficient Securities Market contributing to Indian Economy.

The concept of investor protection has to be looked at from different angles taking into account the requirements of various kinds of investors i.e.
(i) Investors in equity
(ii) Large institutional investors
(iii) Foreign Investors
(iv) Investors in debentures
(v) Small investors/deposit holders etc.

SEBI does not give a guarantee for payment of money rather it helps you in recovering the amount back from the concerned entity (broker).

An investor is a person who is an individual or a corporate legal entity investing his capital in another venture or business but does not do the business himself or itself. The investor has no role to play in the day-to-day management of the business or its control except as permitted by the law. Investor carries on business when they buy and sell assets, arranges for other to buy and sell assets, manages assets belonging to others, or operates collective investment schemes. An investor engages these activities, but they are not having any control over the day-to-day activities of any corporate. Normally, an investor is a blind person; they do not know any activities made by the company. Investor cannot guide the fate or destiny of the money invested. An investor to that extent is quite fragile and is exposed to certain risks because the utiliser of his money can commit mistakes. Normally they are contributing the funds for productive purpose of the company, and they are exposing him to the business decisions that the company has taken or will be taking. There are no doubt laws some of which are adequate but some are not. An investor obviously needs some protection.

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.

As an investor has three objectives while investing his surplus money, namely safety of invested money, liquidity position of invested money, and return on investment in selected securities. Normally, an investor desires to have safety of his invested funds, liquidity of his investments and a good return with minimum risk. An investor can be classified as individual or professional who manages the funds on behalf of others. First there are inexperienced investor who needs to be properly advised about the intricacies of investment avenues and opportunities in corporate securities. Secondly, there are the experienced investors who understand the risks involved in the selected investment avenues and who need no advices from others, his response / order just to be executed without much time. Thirdly, there are occasional investors who seek advice and assistance once in a while with no desire to create a long- term perspective.

During 1990s, there was a bearish trend in the Indian capital market. During 2000s, there is an unexpected bullish trend in the capital market. There is every uncertainty in terms of market price and rate of return. The uncertainty acts as barriers for many investors to enter into the stock market operations. The investors fear that there is no protection for their investments and immediate return as dividend. The disclosure of information relating to the issue of securities, market operations, grievance redressal mechanism etc, is there but there is no regulator to give assurance relating to the return on investment and capital appreciation.

In spite of these legislative measures, there are fraudulent companies, which are cheating the investors. For example, in India around 9600 listed companies are available for trade in Bombay Stock Exchange and National Stock Exchange of India Ltd., but only 2500 company shares are traded in Bombay Stock Exchange and nearly 800 company shares are actively traded in National Stock Exchange, most of companies are traded only in the penny stock level. The remaining companies are enjoying benefit from the legal provisions of corporate veil from the Companies Act 1956. Recently the Central Government has identified nearly 229 companies which were vanished. The Government also was unable to trace some companies managerial persons, proper communication addresses etc, and the Department of Company affairs filed a prosecution against 75 companies through the Registrar of Companies. Most of the vanished companies tapped capital from the market and collected funds from the public through issue of shares / debentures at the time of Capital Market boom period during early 1990s. Some of the companies took advantage of the market conditions but later defaulted in their commitments made to the public while mobilizing funds. Some of these companies are not even traceable; the public has thus been cheated of their hard earned money.

At present there is no ceiling on the quantum of issue of securities by the issuing companies and instead any number of securities can be issued for raising funds subject to the guidelines of SEBI for issue of securities. Besides fresh issue of securities can be made either at free pricing or as a process of book building price. But dividend will be paid only on the par value, under this circumstance the investors will be benefited only when there is capital appreciation over and above free pricing or book building process pricing. Whether the liberalized capital market followed by free pricing or book building process will protect the investors in terms of capital gain and return on investment or not?

For the Investor, Protection in the Indian Securities Market was the first empirical verification. Neelamegam R. & Srinivasan R. examined the adequacy of various protective measures offered under the existing Companies Act 1956, Securities Contracts (Regulation) Act 1956, and Securities and Exchange Board of India Act 1992 and also examined the trading activities of primary market and secondary market in India. They have found from their study, regulators through the legislative system took various protection measures. The investors have lost their confidence, which is revealed in the increasing trend of grievances and complaints even after the establishment of the SEBI and administrative system of securities market.

In India, the worries for the investors in the securities market are shortage of application forms, preferential allotment to the financial institutions, miss-statements, concealment of facts and pushing the issue through advertisement, fraudulent company management, price volatility, price manipulation, insider-trading, unfair trade practices of brokers and sub-brokers, increasing the number of vanishing companies, lack of commitment for the corporate entities, stock market scams, price rigging, insider- trading, lack of professional expertise, defaults committed by brokers, multiplicity of number of investor complaints, absence of genuine investors, price rigging before issue, prevalence of insider-trading, lack of liquidity, scarcity of floating securities, lack of transparency, high volatility in the secondary market, dominance of public sector and financial institutions. The Former Chairman of SEBI G.N. Bajpai has so expressed in his tenure period as “My main priority is to build investors confidence and bring the small investor back”. The same view was expressed in the report of the expert group headed by Justice Kania, for suggesting amendments to Securities and Exchange Board of India Act, 1992 deliberated that the investors in the equity market invest in risk capital and no assured return or compensation for non fulfillment of every expectation may be provided in the statute. However, the compensation in respect of fraud or misrepresentations or miss-statements by companies or intermediaries may be considered. Further, the compensation to small investors in respect of fraud or misrepresentations or miss-statements by companies or intermediaries may be considered as a matter of investor protection.

Regulatory Framework
At present, the five main Acts governing the securities markets are:
(a) The SEBI Act, 1992
(b) The Companies Act, 1956, which sets the code of conduct for the corporate sector in relation to issuance, allotment, and transfer of securities, and disclosures to be made in public issues.
(c) The Securities Contracts (Regulation) Act, 1956, which provides for the regulation of transactions in securities through control over stock exchanges.
(d) The Depositories Act, 1996 which provides for electronic maintenance and transfers of ownership of demat (dematerialized) shares.
(e) The Prevention of Money Laundering Act, 2002.

The SEBI Act, 1992: The SEBI Act, 1992 was enacted to empower SEBI with statutory powers for:
(a) Protecting the interests of investors in securities,

(b) Promoting the development of the securities market, and

(c) Regulating the securities market. Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with the securities market.

It can conduct enquiries, audits, and inspection of all concerned, and adjudicate offences under the Act. It has the powers to register and regulate all market intermediaries, as well as to penalize them in case of violations of the provisions of the Act, Rules, and Regulations made there under. SEBI has full autonomy and the authority to regulate and develop an orderly securities market.

Securities Contracts (Regulation) Act, 1956: This Act provides for the direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges, and aims to prevent undesirable transactions in securities. It gives the Central Government regulatory jurisdiction over:

(a) Stock exchanges through a process of recognition and continued supervision,
(b) Contracts in securities, and
(c) The listing of securities on the stock exchanges.

As a condition of recognition, a stock exchange complies with the conditions prescribed by the Central Government. Organized trading activity in securities takes place on a specified recognized stock exchange. The stock exchanges determine their own listing regulations, which have to conform to the minimum listing criteria set out in the Rules.

Depositories Act, 1996: The Depositories Act, 1996 provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy, and security by:
(a) Making securities of public limited companies freely transferable, subject to certain exceptions.
(b) Dematerializing the securities in the depository mode.
(c) Providing for the maintenance of ownership records in a book entry form.

In order to streamline the settlement process, the Act envisages the transfer of ownership of securities electronically by book entry, without making the securities move from person to person. The Act has made the securities of all public limited companies freely transferable, restricting the company’s right to use discretion in effecting the transfer of securities, and the transfer deed and other procedural requirements under the Companies Act have been dispensed with.

Companies Act, 1956: It deals with the issue, allotment, and transfer of securities, as well as various aspects relating to company management. It provides the standard of disclosure in public issues of capital, particularly in the fields of company management and projects, information about other listed companies under the same management, and the management’s perception of risk factors. It also regulates underwriting, the use of premium and discounts on issues, rights, and bonus issues, the payment of interest and dividends, the supply of annual reports, and other information.

Prevention of Money Laundering Act, 2002: The primary objective of this Act is to prevent money laundering, and to allow the confiscation of property derived from or involved in money laundering. According to the definition of “money laundering,” anyone who acquires, owns, possess, or transfers any proceeds of crime, or knowingly enters into any transaction that is related to the proceeds of crime either directly or indirectly, or conceals or aids in the concealment of the proceeds or gains of crime within India or outside India commits the offence of money laundering. Besides prescribing the punishment for this offence, the Act provides other measures for the prevention of money laundering. The Act also casts an obligation on the intermediaries, the banking companies, etc. to furnish information of such prescribed transactions to the Financial Intelligence Unit-India, to appoint a principal officer, to maintain certain records, etc.

Rules and Regulations
The Government has framed rules under the SCRA, the SEBI Act, and the Depositories Act. SEBI has framed regulations under the SEBI Act and the Depositories Act for the registration and regulation of all market intermediaries, and for the prevention of unfair trade practices, insider trading, etc. Under these Acts, the Government and SEBI issue notifications, guidelines, and circulars that the market participants need to comply with. The SROs, like the stock exchanges, have also laid down their own rules and regulations

Investors Protection Fund (IPF)
The Government has established an Investor Education and Protection Fund (IEPF) under Sec. 205 C of the Companies Act, 1956 under which unclaimed funds on account of dividends, matured deposits, matured debentures, share application money etc. are transferred through the IEPF to the Government by the company on completion of seven years. The Government is required to utilize this amount through an Investor Education and Protection Fund. For this purpose, the proceeds from the companies are credited to the Consolidated Fund of India through this fund. The Fund may then be entrusted with full fledged responsibility to carry out activities for education of investors and protection of their rights.

BSE is the first Exchange to have set up the 'Stock Exchange Investors Protection Fund (IPF) in the interest of the customer's of the defaulter members of the Exchange. This fund was set up on 10th July, 1986 and has been registered with the Charity Commissioner, Government of Maharashtra as a Charitable Fund. The maximum amount of Rs. 10,00,000 payable to an investor from Investor Protection Fund in the event of a default by a Trading Member has been revised to Rs. 15,00,000; which shall be applicable to the clients of the Trading Member of the Exchange, who will be declared Defaulter after 5th December, 2009. (This has been progressively raised by BSE from Rs.10,000 in 1988 to the present level).

BSE is the only Exchange in India, which offers the highest compensation of Rs.15lacs in respect of the approved claims of any Investor against the defaulter Trading Members of the Exchange.

The Trading members at present contribute 1 paisa per 1lakh of gross turnover. The Stock Exchange contributes 2.5% of the listing fees collected by it. Also the entire interest earned by the Exchange on 1% security deposit kept by with it by the companies making public / rights issues is credited to the Fund.

Investor Awareness Program
Launching the Securities Market Awareness Campaign organized by SEBI (January 2003), the Prime Minister said the prolonged quietness in the stock markets had tested the confidence of the small investor who was the backbone of the securities market. If investors are not attracted, then companies will not be able to raise money through the capital market. The Indian household investor, off late, has been putting much of his savings in non-financial assets. Even with financial assets, most of the savings are going to the banking system. This is not the best or the most productive use of our savings, he said. In recent years, there had been many instances of companies raising money from the market by creating hype and then defrauding the investor. Many of them issued shares at hefty premiums; most of their scrip are now trading well below their face value. Stock market scams brought a bad name to the Indian business community. This is how boom went bust and hopes turned to dust for many gullible investors. And that is how the investor community lost confidence in the market, leading to prolonged stagnation. The Prime Minister, therefore, called upon the market regulator and the intermediaries to learn the right lessons from our experience of the past few years. He said we need markets that are known for their safety and integrity.

Investor Awareness Program
Investor Awareness programs are being regularly conducted by stock exchanges to educate the investors and to create awareness among the Investors regarding the working of the capital market and in particular the working of the Stock Exchanges. These programs have been conducted in almost all over the country.

The Investor Awareness program covers extensive topics like Instruments of Investment, Portfolio approach, Mutual funds, Tax provisions, Trading, Clearing and Settlement, Rolling Settlement, Investors' Protection Fund, Trade Guarantee Fund, Dematerialization of shares, information on Debt Market, Investors’ Grievance Redressal system available with SEBI, BSE & Company Law Board, information on Sensex and other Indices, workshops and Information on Derivatives, Futures and Options etc.

Further, for the benefit of the Investors’ the Bombay Stock Exchange has:
· BSE Training Institute which organizes Training programs periodically on various subjects like comprehensive programs on Capital Markets, Fundamental Analysis, Technical Analysis, Derivatives, Index Futures and Options, Debt Market, etc. Further, for the Derivatives market BSE also conducts the compulsory BSE’s Certification on Derivatives Exchange (BCDE) certification for Trading Members and their dealers to impart basic minimum knowledge of the derivatives markets.

Compensation to the Investors
Capital market includes investment into risk bearing instruments. In such cases, the investor is required to make his own assessment of risk and reward. No compensation could be visualized for such investors whose investments were in risk bearing instruments. Similarly, investment in a fixed return instrument necessitated a careful review of the borrowing entity. Such actions would also be subjected to known or declared risks. Besides, the capital market also provides an opportunity for an investor to exit. The need therefore, is to ensure proper and healthy market operation so that investors could exercise their exit options in a reasonable and equitable environment. However, there may be situations where such a frame work is distorted through frauds. There may be provisions for compensation in the event of fraud by companies being established in securing funds from investors. For this purpose lifting of corporate veil may be enabled by the law.

BSE is the only Exchange in India, which offers the highest compensation of Rs.15Lacs in respect of the approved claims of any Investor against the defaulter Trading Members of the Exchange

Safeguards for Investors
These are some of the safe-guards that needs to be adhered to by the Investors’ before trading in the securities market.

1. While Selecting the Broker/ Sub-Broker:
Deal with only SEBI registered Broker / Sub-broker after due diligence. Details of List of Brokers’ can be procured from the Member’s List published by the Exchange and from the website.

2. While entering into an Agreement:
a. Fill in a Client registration form with Broker / Sub – broker

b. Each and every prospective client should read and understand the Risk Disclosure Document specified by the Exchange and before entering into trading in the Equities (Cash) or the Derivatives Segment. The Client should obtain a signed copy of the same from the Trading Members.

c. Enter into Broker / Sub–broker – Client Agreement. This agreement is mandatory for all Investors for registering as a client of a BSE Trading Member. The Client should ensure the following before entering into an agreement:

- Carefully read and understand the terms and conditions of the agreement, before executing the same on a valid stamp paper of the requisite value.

- Agreement to be signed on all the pages by the Client and the Member or their representative who has the authority to sign the agreement. Agreement has also to be signed by the witnesses by giving their name and address.

- The Client should obtain signed copy of all the documents for his records.

3. While Transacting
a. Specify to the Broker / Sub- broker, the Exchange through which your trade is to be executed and maintain separate account per Exchange.

b. Obtain a valid Contract Note issued by Trading Member of the Exchange within 24 hours of the execution of the Trade.

Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client in a format prescribed by the Exchange. It establishes a legally enforceable relationship between the Member and Client in respect of settlement of trades executed on the Exchange as stated in the Contract note.

Contract notes are made in duplicate, and the Member and Client both keep one copy each. The Client/s are expected to sign on the duplicate copy of the contract note for having received the original.

· Contract Note – cum-Bill - Form ‘A’ & “AA” – Contract Note issued where Trading Member is acting for constituents as brokers and agents.

· Contract Note – Form ‘B’ – Contract note issued by Trading Member dealing with constituents as Principals.

Ensure that the Contract Note contains:
· SEBI registration number of the Trading Member.

· Details of trade such as, Order no, trade no., trade time, quantity, price, brokerage, settlement number, details of other levies.

· The trade price should be shown separately from the brokerage charged.

· The maximum brokerage that can be charged is Rs.0.25 per share/debenture or 2.5% of the contract price per share /debenture whichever is higher. Any additional charges that the Trading Member can charge are Securities Transaction Tax , Service Tax on brokerage, Stamp duty ,etc., as may be applicable from time to time.

· The brokerage and service tax is indicated separately in the contract note.

· Signature of authorized representative.

Arbitration clause stating that the Courts in Mumbai shall have exclusive jurisdiction in respect of all proceedings to which the Exchange is a party, and in respect of all other proceedings, the Courts having jurisdiction over the area in which the respective Regional Arbitration Centre is situated, shall have jurisdiction must be present on the face of the Contract note.

The back of the Contract Note should indicate clause to Arbitration, Limitation period for filing of Arbitration Reference as well as the details pertaining to geographical jurisdiction for filing complaint/Arbitration Reference.

Investor Grievance Redressal
An effective investor grievance redressal mechanism at the corporate level could ensure protection of the interest of investors through timely interventions. The Stakeholders Relationship Committee should be mandatory for a company having a combined shareholder/deposit holder/debenture holder base of 1000 or more.

Disclosures and Investor Protection
Proper and timely disclosures are central to safeguarding investor interests. The law should ensure a disclosure regime that compels companies to disclose material information on a continuous, timely and equitable basis. Information should be disclosed when it is still relevant to the market. The companies should, therefore, be made to disclose routine information on a periodic basis and price sensitive information on a continuous basis. Capital market regulator and stock exchanges have a significant role to play in ensuring that such information is accessible by all market participants rather than a few select market players.

Use of modern technology, internet, computers, should be enabled to enhance the efficiency of the disclosure process. It should be possible to submit and disseminate financial and non-financial information by electronic means.

Investor Rights and obligations
Investor Rights:
The right to get
· The best price
· Proof of price/brokerage charged.
· Money/shares on time.
· Shares through auction where delivery is not received.
· Square up amount where delivery not received in auction.
· Statement of Accounts from trading member.

Investor Obligations
The obligation to :
· Sign a proper Member-Constituent Agreement
· Possess a valid contract or purchase/sale note
· Deliver securities with valid documents and proper signatures

The right for redressal against:
· Fraudulent price
· Unfair brokerage
· Delays in receipt of money or shares
· Investor unfriendly companies

The obligation to ensure :
· To make payment on time
· To Deliver shares on time
· To send securities for transfer to the company on time.
· Forwarding all the papers received from the company under objections to the broker on time

Steps taken by SEBI to make investors aware of their rights and obligations
The Primary function of Securities and Exchange Board of India under the SEBI Act, 1992 is the protection of the investors’ interest and the healthy development of Indian financial markets. No doubt, it is very difficult and herculean task for the regulators to prevent the scams in the markets considering the great difficulty in regulating and monitoring each and every segment of the financial markets and the same is true for the Indian regulator also. But what are the responsibilities of the regulators to set the system right once the scam has taken place, especially the responsibility of redressing the grievances of the investors so that their confidence is restored? The redressal of investors’ grievances, after the scam, is the most challenging task before the regulators all over the world and the Indian regulator is not an exception. One of the weapons in the hand of the regulators is the collection and distribution of disgorged money to the aggrieved investors. SEBI had issued guidelines for the protection of the investors through the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000. The Securities and Exchange Board of India under Section 11 of the Securities and Exchange Board of India Act, 1992, have issued these Guidelines.

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.’

The campaign was launched at the national level by the then Prime Minister, Shri Atal Bihari Vajpayee, on January 17, 2003. The national launch was closely followed by launches in 12 states. The structural foundation of the campaign is based on workshops that are being conducted all across the country with the continued and active participation of market participants, market intermediaries, Investors Associations etc, to spread SEBI’s message of “Invest with Knowledge”.

Workshops- At workshops, the aim is to acclimatize the investors with the functioning of the securities market, the basic fundamentals of investment and risk management and their rights and responsibilities

Till date, more than 2188 workshops have been conducted in around 500 cities/towns across the country.

Advertisement- SEBI has prepared simple “dos and don’ts” for investors relating to various aspects of the securities market. Till date, over 700 advertisements relating to various aspects of Securities Market have appeared in 48 different newspapers/magazines, covering approximately 111 cities and 9 regional languages, apart from English and Hindi.

Educative Materials-SEBI has prepared a standardized reading material and presentation material for the workshops.

All India Radio- With regard to educating investors through the medium of radio, SEBI Officials regularly participate in programmes aired by All India Radio.

Cautionary Message on television- With a view to use the electronic media to reach out to a larger number of investors, a short cautionary message, in the form of a 40 seconds film let, has been prepared and the same is being aired on television

Internet based response system: A simple and effective internet based response to investor complaints has been set up. On filing of your complaint electronically, an acknowledgement mail would be sent to your specified email address and you will be issued a complaint registration number instantaneously.

Risks in investing in Securities
· Investment in equity shares cannot be guaranteed with any income and/or growth.
· Equity holders are the real owner of the company and with the growth of the company equity holders also get capital appreciation. Vice versa is also true.
· Investment in other securities say debenture, preference shares may yield as specified return to the investors.

Rights of a shareholder
· To receive the share certificates, on allotment or transfer (if opted for transaction in physical mode) as the case may be, in due time.
· To receive copies of the Annual Report containing the Balance Sheet, the Profit & Loss account and the Auditor’s Report.
· To participate and vote in general meetings either personally or through proxy.
· To receive dividends in due time once approved in general meetings.
· To receive corporate benefits like rights, bonus, etc. once approved.
· To apply to Company Law Board (CLB) to call or direct the Annual General Meeting.
· To inspect the minute books of the general meetings and to receive copies thereof.
· To proceed against the company by way of civil or criminal proceedings.
· To apply for the winding up of the company.
· To receive the residual proceeds.
· To receive offer to subscribe to rights shares in case of further issues of shares.
· To receive offer under takeover or buyback offer under SEBI Regulations.

Besides the above rights, which you enjoy as an individual shareholder, you also enjoy the following rights as a group:
· To requisite an Extra-ordinary General meeting.
· To demand a poll on any resolution.
· To apply to CLB to investigate the affairs of the company.

Rights of a debenture holder
· To receive interest/redemption in due time.
· To receive a copy of the trust deed on request.
· To apply before the CLB in case of default in redemption of debentures on the date of maturity.
· To apply for winding up of the company if the company fails to pay its debt.
· To approach the Debenture Trustee with your grievance.
· The rights may not necessarily be absolute.

Responsibilities of a security holder
These are general and not statutory liabilities:
· To be specific.
· To remain informed.
· To be vigilant
· To participate and vote in general meetings.
· To exercise your rights on your own or as a group.

Advantages of dealing through a Stock Exchange
· If you choose to deal (buy or sell) directly with another person, you are exposed to counter party risk, i.e. the risk of nonperformance by that party. However, if you deal through a Stock Exchange, this counter party risk is reduced due to trade/settlement guarantee offered by the Stock Exchange mechanism. Further, you also have certain protections against defaults by your broker.

· When you operate through an exchange, you have the right to receive the best price prevailing at that time for the trade.

· Right to receive the money or securities on time. You also have the right to receive a contract note from the broker confirming the trade and indicating the time of execution of the order and other necessary details of the trade. If you have opted for transaction in physical mode, you also have the right to receive good delivery and the right to insist on rectification of bad delivery. If you have a dispute with your broker, you can resolve it through arbitration under the aegis of the exchange, instead of filing a civil suit.

· Larger number of buyers and sellers are available at Stock Exchange and this way it ensure liquidity to the investors.

Complaints to be taken up with SEBI’s Investor Information centre
· Complaints related to securities traded/listed with the exchanges.
· Complaints regarding the trades effected in the exchange with respect to the companies listed on it or by the members of the exchange.
· Issue of duplicate share certificates.

Complaints to be taken up with Department Of Company Affairs/ concerned Registrar of Companies (ROC):
· Complaints against unlisted companies.
· Complaints regarding non-receipt of annual report, AGM Notice.
· Fixed deposit in manufacturing companies
· Forfeiture of shares

Complaints to be taken up with the Reserve Bank of India
· Fixed deposits in banks and NBFCs

Grievances undertaken by SEBI
There will be occasions when you have a grievance against a listed company/intermediary registered with SEBI. In the event of such grievance you should first approach the concerned company/ intermediary against whom you have a grievance. However, you may not be satisfied with their response. Therefore, you should know whom you should turn to, to get your grievance redressed.

SEBI takes up grievances related to issue and transfer of securities and non-payment of dividend with listed companies. In addition, SEBI also takes up grievances against the various intermediaries registered with it and related issues.

General Do's and Don’ts for Investors
1. Always deal with the intermediaries registered with SEBI/ stock exchanges.

2. Always keep copies of all investment documentation (e.g. application forms, acknowledgement slips, contract notes).

3. Always keep copies of documents you are sending to companies etc.

4. Send important documents by reliable mode / registered post to ensure deliver.

5. Ensure that you receive contract note at the end of the day/ account statements for every transaction.

6. Ensure that you have money before you buy.

7. Always settle the dues through the normal banking channels with the market intermediaries.

8. Ensure that you have are holding securities before you sell.

9. Follow up diligently and promptly e.g. If you do not receive the required documentation within a reasonable time contact the concerned person i.e. the Trading Member, Company etc. immediately.

10. Give clear and unambiguous instruction to your Trading Member /agent/ depository participant.

11. Mention clearly whether you want to transact in physical mode or demat.

12. Investors should take informed investment decision without being influenced by misleading recommendations given in the public media such as newspapers, electronic media, website etc. verify all the claims made in such advertisements.

13. Before placing an order with the market intermediaries, please check about the credentials of the companies, its management, fundamentals and recent announcements made by them and various other disclosures made under various regulations. The sources of information are the websites of Exchanges and companies, databases of data vendor, business magazines etc.

14. Adopt trading / investment strategies commensurate with your risk-bearing capacity as all investments carry some risk, the degree of which varies according to the investment strategy adopted.

15. Carry out due diligence before registering as client with any intermediary. Carefully read and understand the contents stated in the Risk Disclosure Document, which forms part of the investor registration requirement for dealing through brokers.

16. Be cautious about stocks which show a sudden spurt in price or trading activity, especially low price stocks.

17. There are no guaranteed returns on investment in the stock market.

18. Lodge your complaint or Arbitration Application against the Trading Member, at the concerned Regional Arbitration Centre, by confirming geographical jurisdiction.

The period consumed in redressal of complaint thru IGRC services will not be considered while measuring period of ‘limitation’ in filing arbitration application provided the complaint and / or arbitration application is / are filed at the concerned Regional Arbitration Centre.

19. Lodge your complaint against a company listed on BSE, at the concerned Regional Arbitration Centre, by confirming geographical jurisdiction. Please use your address for deciding the geographical jurisdiction. This will enable to process the complaint expeditiously.

1. Don’t deal with unregistered Trading Members/ sub-brokers, intermediaries.

2. Don't execute any documents with any intermediary without fully understanding its terms and conditions.

3. Don’t file your grievance/s and / or arbitration application against trading member, in the Regional Arbitration Centre having no geographical jurisdiction over the matter.
The Exchange redresses investors’ complaints through arbitration and IGRC mechanism, which are quasi-judicial in nature. The period consumed in redressal of complaint thru IGRC will not be considered while measuring period of ‘limitation’ in filing arbitration application provided the complaint is filed at the concerned Regional Arbitration Centre.

4. Don’t file your grievance /s against companies listed on BSE, in the Regional Arbitration Centre having no geographical jurisdiction over the matter, for its expeditious redressal.

5. Don’t forgo taking due documents of transactions, in good faith even from people whom you know.

6. Don’t fall prey to promise of unrealistic high returns.

7. Don’t get misled by companies showing approval / registrations from Government agencies as the approvals could be for certain other purposes and not for the securities you are buying.

8. Don’t transact based on rumours generally called ‘tips’.

9. Don't leave the custody of your Demat Transaction slip book in the hands of any intermediary.

10. Don’t forget to take note of risks note of risks involved in the investment.

11. Don’t get misled by guarantees of repayment of your investments through post-dated cheques.

12. Don’t hesitate to approach concerned persons and then the appropriate Authorities.

13. Don’t get swayed by promises of high returns.

14. Don't get carried away with advertisements about the financial performance of companies in print and electronic media.

15. Don't blindly follow media reports on corporate developments, as some of these could be misleading.

16. Don't blindly imitate investment decisions of others who may have profited from their investment decisions.

Process of solving Investors’ grievances
BSE has established a full-fledged Investors’ Services Cell (ISC) to redress Investor’s grievances. Since its establishment in 1986, the Cell has played a pivotal role in enhancing and maintaining Investors’ faith and confidence by resolving their grievances either against listed companies or against Members of the Exchange.

Investors are expected to submit their complaints in the prescribed Complaint format to the concerned Regional Arbitration Centre of BSE, by confirming geographical jurisdiction on the basis of an investor's address. Filing of complaint at the concerned Regional Arbitration Centre will enable to process the complaint expeditiously.

The services offered by the ISC are as under:
Investor’s grievances against Listed Companies: Lodge your complaint against a company listed on BSE, at the concerned Regional Arbitration Centre, by confirming geographical jurisdiction. Use of address for deciding the geographical jurisdiction. This will enable to process the complaint expeditiously.

DIS forwards the Complaints to the respective company and directs them to solve the matter within 15 days. In spite of the above efforts, if the company fails to resolve the Investor’s Complaints and the total number of pending complaints against the company exceed 25 and if these complaints are pending for more than 45 days, then steps are initiated to suspend the trading in the securities of the company till grievances of the company investors are resolved after issue of show cause notice. BSE may also transfer such Scrip’s to ‘T’ category for non–resolution of Investors' Complaints.

DIS takes many other pro-active measures to resolve the Investor’s grievance such as:
· Calling the Company representative to the Exchange to interact with Investor’s / Members to resolve the complaints.

· Calling major Registrar & Transfer agent to the Exchange to interact and resolve the grievances of the Investor’s and Members of the Exchange.

· Pursuing Mumbai based companies to depute their representative to the Exchange to take the pending list of complaints & resolve the same immediately.

Arbitration procedure against listed companies: It is proposed that the transferee (investor) may make any claim, difference or dispute against a company for delay in transfer of securities and delay in furnishing of the objection memo beyond the specified time of 1 month from the receipt of the securities by the company. This shall be referred to and decided by arbitration under the Rules, Bye- Laws & Regulations of the Exchange.

The company shall be liable to compensate the aggrieved party for the opportunity losses, if any, caused during the period of the delay.

JURISDICTION OF COURTS: The Courts in Mumbai shall have exclusive jurisdiction in respect of all proceedings to which the Exchange is a party, and in respect of all other proceedings, the Courts having jurisdiction over the area in which the respective Regional Arbitration Centre is situated, shall have jurisdiction.

Grievance Redressal
There will be occasions when you have a grievance against the company in which you are a stake-holder. It may be that you have not received the share certificates on Allotment or on transfer, it may be that you did not receive the dividend/ interest warrant or refund order, perhaps you did not receive the Annual accounts etc. You would first approach the company in that regard you may not be satisfied with the company’s response there to .You would like to know whom you should contact to get your grievance redressed. The following table would provide you the guidance in this regard.

  Types of Complaints Can be taken up with
a. Re-validation of transfer deeds Registrar of Companies (RoC)
b. Regarding bad delivery of shares Bad Delivery Cell of the Stock Exchange
c. Regarding shares or debentures in unlisted companies Ministry of Corporate Affairs
d. Deposits in collective investment schemes like plantations etc. SEBI
e. Units of Mutual Funds SEBI
f. Fixed Deposits in Bank and Finance Companies Reserve Bank of India
g. Fixed Deposits in manufacturing companies Dept. of Company Affairs
h. Non-receipt of money:
Refund in Public / Rights issue
Interest on debt securities
Redemption of debt securities
Fractional entitlement
Stock Exchange / SEBI
i. Non-receipt of Equity shares (demat & Physical):
In Public / Rights issue (including allotment letter)
Conversion / endorsement / consolidation / splitting / duplicate certificate
Stock Exchange / SEBI
j. Non-receipt of Debt Securities (demat & Physical):
In Public / Rights issue (including allotment letter)
Conversion / endorsement / consolidation / splitting / duplicate certificate
Stock Exchange / SEBI
Non receipt of corporate benefits / entitlements:
Rights form
Buyback letter of offer
Delisting letter of offer
Annual Report
Stock Exchange / SEBI
l. Non-receipt of interest for delay in:
Interest on debt security
Redemption of debt security
Stock Exchange / SEBI
Others: (including non adherence to corporate governance norms) Stock Exchange / SEBI

Investor Information Centres have been set up in every recognized Stock Exchange Which in addition to the complaints regarding the trades effected in the Exchange and the relevant trading Member of the Exchange.

Investors Grievances –Rights and Remedies
Misleading Advertisements
In certain cases publicity material, circulars, the companies, Trading Member or Intermediaries inviting applications from the public for subscription to shares debentures, publish brochures. However, these publicity materials may not form part of the prospectus or letter of offer.

Grievances: Investors have complaints against the advertisement, brochures, circulars which have exaggerated claim of the performance of the company .The above information circulated is marked “This is only an announcement and not a prospectus” or “Private circulation only”. This practice could be misleading to the investing public because it may contain the information not included in the prospectus.

Rights and Remedies:
· Companies Act : In case of misleading advertisements, the investor may refer to Section 68 of the Companies Act and write to Ministry of Corporate Affairs (MCA). The investor can also seek remedy u/s621.
· Consumer Protection Act (COPRA) : The investor can file complaints before the District Forum, state Commission or National commission.
· SEBI: The Investor can write to SEBI in case of misleading, advertisements, circulars or brochures.

Disclosures in Prospectus
Prospectus is a document circulated by a company making a public issue inviting applications from the public for subscription to shares / debentures containing adequate disclosures about issue, issuing company and risk factors.

Grievance: In some cases it has been noticed that the prospectus does not contain full particulars regarding progress of work and activities, risk involved, group companies, associates or auditor’s statements regarding servicing of debentures already issued etc., and the disclosures are inadequate. The investor has to make investment decisions on incomplete facts and information.

Rights and Remedies
· Companies Act: Investors can claim compensation for loss suffered by them on account of misstatements made in Prospectus. In such cases, the investor may refer to Section 62 & 63 of the Companies Act and write to the MCA. The investor can also seek remedy u/s 621.

· SEBI: Investors can write to SEBI and obtain redressal with regard to misstatements in the prospectus, etc.

Delay in listing of Securities
Some of the companies state in the prospectus that an application has been made to one or more. Stock Exchanges for the listing of shares / debentures. This indicates to the investors that the said shares/ debentures will become marketable. However, there is no guarantee that permission will be granted by the Stock Exchange authorities.

Grievance : The dealing in the shares / debentures can commerce only after completion of the listing formalities. In certain cases, companies are unable to complete the said formalities within the prescribed time. This causes delay in allotment of shares / debentures and despatch of refund orders. The interest of the investor is adversely affected if the permission for dealing in securities is not granted, as the allotment of shares / debentures if made by the company becomes void.

Rights and Remedies:
· Companies Act: In case of delay in listing of securities, the investor may refer to Section 73, 73(1A) & 73(2) of the companies Act and write to the MCA. The Investor can also seek remedy u/s. 621.

· SEBI: Investors can write to SEBI and obtain redressal with regard to delay in listing of securities

Delay in Despatch of Allotment Letters / Refund Orders

Companies have to mandatorily ensure timely dispatch of allotment letters / certificates and refund orders to the applicants.

Grievance: Investors are put into difficulty if they do not get refund of their money, in case shares are not allotted, Further, they are also put into difficulty, if there is a delay in receipt of certificate / allotment letter.

Rights and Remedies:
· Companies Act : In case of delay in despatch of allotment letter / refund orders, the investor may refer to Section 73(2A), 73(2B) of the Companies Act and write to the MCA. The investor can also seek remedy u / s. 621.

· SEBI : Investors can write to SEBI and obtain redressal with regard to delay in dispatch of the allotment letters / refund orders.

Delay in Dispatch of securities
A share certificate under the seal of the company is prima-facie documentary evidence to title of the shareholder to the shares specified therein.

Grievance: In certain cases the investors complain with regard to delay in receipt of shares /debentures certificates allotted to them.

Rights and Remedies:
· Companies Act : In case of delay in dispatch of securities, the investor may refer to Section 113 of the Companies Act and write to the MCA. The investor can also seek remedy u/s.621.

· SEBI : Investors can write to SEBI and obtain redressal with regard to delay in dispatch of securities.

Delay in Transfer of Securities
It is the primary right of the shareholder /debenture holder to be able to sell the shares / debentures in the market, and the transferee should get the certificates transferred in his name as soon as possible.

Grievance : In certain cases there has been an inordinate delay in transfer of shares / debentures lodged for transfer and registration. Thus, the transferee may in the intervening period lose certain benefits due to him (i.e. bonus, rights, dividends etc.)

Rights and Remedies:
· Companies Act: In case of delay in transfer of securities, the investor may refer to Section 111, 113 of the Companies Act and write to the Company Law Board (CLB) and the MCA respectively. The investors can also seek remedy u/s .621.

· SEBI : Investors can write to SEBI and obtain redressal with regard to delay in transfer of securities.

Delay in Payment of Interest on Debentures
Investors who would like to have fixed return by way of interest, normally invest in debentures on the assumption that the debentures are secured and risk free investments. Investors are advised to verify whether the company is healthy or sick and check the credit rating of the company before making such investments.

Grievance: There have been instances where investors have complained of non-receipt or delay in the receipt of debentures certificates or interest thereon, non-appointment of Debenture Trustee or non-creation of the stipulated security.

Rights and Remedies:
· Companies Act: In case of delay in payment of interest on debentures, the investor may refer to Section 118 & 119 of the Companies Act and write to the CLB. The investor can also seek remedy u/s.433 & 434 by approaching the court.

· SEBI : Investors can write to SEBI and obtain redressal with regard to delay in payment of interest on debentures.

Non–Payment of Dividends
The company with the approval of the shareholders declares dividends in its general meeting. Accordingly, a resolution-declaring dividend payable by the company is passed. This becomes a debt due by the company to the shareholders.

In certain cases the shareholders complain on non-receipt of the dividend declared by the company.

Rights and Remedies:
· Companies Act: In case of non-payment of dividends, the investor may refer to Section 205A & 207 of the Companies Act and write to the MCA. The investor can also seek remedy u/s.621.
· SEBI: Investors can write to SEBI and obtain redressal with regard to non-payment of Dividends.

The securities market operations promote the economic growth of the country. More efficient is the securities market; the greater is the promotion effect on economic growth. It is, therefore, necessary to ensure that securities market operations are more efficient, transparent and safe. The investors need protection from the various malpractices and unfair practices made by the corporate and intermediaries. As the individual investors community and the investment avenues are on the rise, it is interesting to know how the investors shall be protected through various legislations. Securities market in general are to be regulated to improve the market operations in fair dealings and easy to access the market by corporate and investors. The present positive attitude of investors is heartening though investor sentiments have been shaken by the various scandals. 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.

Globally, there is increased evidence to suggest that investor protection has assumed an important role in the economic development of a country. Integrity of the financial markets and economic well being of the country depend on corporate accountability and investor confidence. The global concern to make capital markets safer, transparent, strengthening financial system and managing the crisis cannot be quickly fixed. But they add up to a stronger system. Globally, many countries have undergone investor’s confidence crisis in different aspects. The global evidence suggests that every time there is stock market crisis, money pours into bank deposits. SEBI, if not 100%, than for sure it has been near to 100% success as far as the protections of the investors are concerned. As we have seen that via different guidelines it had made it sure that no stone remains unturned in the path of the mission of protecting the investors.

Again with economic recovery in the country, the funds are diverted to the markets. Investors panic when markets slide. It is important for investors to realize that returns on equities are cyclical in nature and also, market moves up and down with time. Understanding market and being patient while market is going down is important while investing in equities. The revival of investor’s protection in the corporate securities market is necessary to make market more efficient by means of converting savings to investment. If the investors have not been protected properly by means of rate of return and capital, the corporate will not be able to collect the funds from the market with cheap rate and effectively in future days. For gaining the confidence of investors in the securities market there is a need to provide an adequate rate of return and fair operating efficiency of corporate in the securities market, then the investors lure back to market. This can be done by a series of systematic measures, which would build their confidence in the systems and processes and protect the interest of investors.

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Article Comments

Posted by PACKIALAKSHMI P on April 18, 2016

Posted by PUTHU RAJA P. on April 18, 2016

Posted by ganesh tak on February 03, 2016
One RM in Prudent Securities,Mumbai called me & induced for 100 Lot trading in CALL & PUT which swapped away my large amount, pl advise me

Posted by Nagesh Bharat on March 24, 2014
Your site is an extreamly good one. God bless you to continue this

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