Role of SEBI in protecting Investors

Investors are the pillar and skeleton of securities market and their protection is the paramount consideration of SEBI. The rule of Caveat Emptor, ‘Let the Buyer Beware’ is though applicable in business laws, but can’t be applied blindly in capital market scenario since the financial products of investment here are not in form of some physical assets, and are rather securities or shares which are credited and debited in a DEMAT form, therefore the number of authorities like RBI, SEBI, MCA, MoF, come with relevant rules and guidelines and often function together for investors protection, and SEBI especially being the official regulator of securities market, the redressal of investors grievances after the scam constitutes to be the most herculean task for any regulator.

Following are the powers of SEBI to take punitive or preventive measures:

a) Power to issue directions under Sec. 11B and Sec. 11(4)

b) Power u/s 12(3) under Chapter V for suspension or cancellation of certificate of registration of brokers or intermediaries.

c) Power to levy monetary penalties under Chapter VIA of SEBI Act.

d) Powers are also described for Inquiry/ Enquiry/ Investigation, for violations like Insider Trading, Takeover Violations, etc.

e) Power to Prosecute u/s 24(1) of SEBI Act.[1]

Investors might have grievances against stock brokers, depository participants, listed companies, Mutual Funds, Sub Brokers, Merchant Bankers, Bankers to the issue, Debenture Trustee, Stock Exchanges and against other related public issues in primary and secondary market. And for resolving this, SEBI had come up with both physical and online redressal mechanisms, and since 2011 ‘SCORES’ is providing an effective mechanism for lodging complaints and individual grievances which can be placed, traced and solve online through the relevant data available with SEBI and even by taking help of other regulators to collect data and then decide accordingly. A list of companies is afterwards provided for lodging complaint, and then that respective company is monitored and is obligated to answer complaints in form of Action Taken Report, and if such explanation is not sufficient, then due and necessary action can be taken by SEBI.[2]

Dedicated Investor Helpline numbers (022-26449188 & 26449199) are provided and are there on the official website of SEBI through which an investor or an organization can understand the basic and general information on capital market, and also serves as a guide in approaching the relevant authority.

Introduction of SCORES has solved the problem of physical storage, maintenance and retrieval. SEBI at the same time tries to educate investors of investment risks and return by organizing various educational workshops, seminars, competitions, quizzes, and through various other innovative ways and what SEBI follows is a basic and a very comprehensive public domain approach by making each and every detail regarding its functioning and approaching available on its website. It has taken various measures like dematerialization of securities, screen based trading system, T+2 trading settlement system and many other initiatives to safeguard the transactions and improve its transparency also.[3]

What can be seen from the working of SEBI that it has adopted a major transition from Investor Protection to Investor Empowerment as past experiences hinted that this transition along with imparting proper education at both micro and macro levels will serve the purpose of SEBI and Investors both. And what SEBI does is answering the queries by E-mails, personal visits to head offices, and apart from it, the investors FAQs are also displayed on its website, and all this points out that, “An educated investor is a protected investor”. The task of this awareness generation is on IAD of SEBI, and based on SEBI Act in July 23, 2007, a fund entitled “Investor Protection and Education Fund” was established with initial corpus of Rs. 10 Cr from SEBI General Fund for educating investors and for executing such other related activities. It has even embarked on a mass media campaign aiming at dissemination of relevant messages to public about the harmfulness of investing in an unregistered scheme like CIS, Ponzi Schemes, etc. by offering messages like ‘not to rely on schemes offering unrealistic returns’, and such kind of messages are sent through a campaign consisting of many languages and in consonance and partnership with various institutions like ICAI, ICSI, AMFI, etc. SEBI initiated financial education programs utilizing Resource Persons, and have till now addressed people from different backgrounds like School Children, young investors, executives, home makers, retired people and SHGs. SEBI in a summarized manner has taken the following policy initiatives for investors protection:

a) Introducing system driven disclosures.

b) Strengthening continuous disclosure requirements for listed companies.

c) Providing an exit opportunity to investors in case of change of objects by issuers.

d) Monitoring of compliances by listed companies.

e) Cyber Security and Cyber Resilience framework for stock exchanges.

f) Filing of monthly reports by Clearing Corporations with SEBI.

g) Aadhar base e-KYC.[4]

h) Surveillance of Stock Exchanges and various financial market and other intermediaries

[1] SEBI Act, 1992

[2] Financial Market Regulation – Security Scams in India With Historical Evidence And The Role Of Corporate Governance (Munich Personal RePEc Archive 2004) <https://mpra.ub.uni-muenchen.de/4438/>

[3] G Sabrinathan, ‘SEBI’s Regulation of the Indian Securities Market: A Critical Review of the major developments’ (2010) 35(4) Vikalpa: The Journal for Decision Makers < https://journals.sagepub.com/doi/abs/10.1177/0256090920100402>

[4] Ibid

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Disclaimer:- The entire contents of this document have been prepared on the basis of relevant provisions and rules and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.