Chapter-5

Investor Grievances Redressal Mechanism

and
Protection for Retail Investors

5.1 Introduction

Investor grievance redressal mechanism and protection of retail investors go hand in

hand with one another. If there is a transparent, time bound, easier and simpler
grievance redressal mechanism for retail investors, their protection will be
automatically ensured and they will be able to park their investments in the capital
markets, and thus would contribute towards development of economy by channelizing
their savings into investments and facilitating capital formation in the economy.
Nayak (2010) is of the view that the system must offer adequate checks and balances
in which the entrepreneurial effort is backed by investors' confidence so as to easily
capitalize on it. This has, however, failed to happen at least to the extent expected and
desired. In succeeding paras, grievances of retail investors, their redressal at
Securities & Exchange Board of India (SEBI), Ministry of Corporate Affairs (MCA),
Stock Exchanges and listed companies have been studied and critically examined. An
effort has also been made to study the existing Grievance Redressal Mechanism at
few foreign Stock Exchanges of repute. These stock exchanges include New York
Stock Exchange, Singapore Stock Exchange, Australian Stock Exchange, Toronto
Stock Exchange and Taiwan Stock Exchange. The study of these stock exchanges has
been done so that international practices on this subject are also examined and
analyzed at the global level, so as to propose the most suited model for Indian
Securities Market.

5.1.1 Grievances of Retail Investors

Despite the various measures and steps taken by Securities and Exchange Board of
India, Ministry of Corporate Affairs, Ministry of Finance and Stock Exchanges, the
retail investors feel disappointed, dejected and sometimes feel excluded from the

171
system. Various laws, acts, rules and regulations have been framed to protect the
interest of the retail investors, but their grievances still remain. On paper, Indian laws
are at par with the world standard. Despite this retail investors are not coming to the
mainstream. These laws need to be effective so as to provide the redressal mechanism
in a timely and effective manner.

The redressal mechanism of the grievances of retail investors is not yet satisfactory
and much remains to be done on this account by the Government, market regulator
SEBI as well as from other market intermediaries. While comparing the grievances
redressal mechanism in India and overseas market, Deena Mehta, Managing Director,
Asit C Mehta Investment Intermediates, and one of the three trading member-
directors on the board of the Bombay Stock Exchange, in her report states that the
biggest difference between Indian markets and overseas markets is speedy disposal of
cases and harsh and immediate punishment to wrongdoers (Dalal, 2011). This is
harming the Retail Investors and Indian Capital Market.

During the last two decades, especially after 1991, many scams like Harshad Mehta
scam, plantation companies scam, Ketan Parekh scam, Unit Trust of India (UTI)
fiasco, vanishing companies, Satyam scam and various other malpractices like insider
trading, bucket trading (commonly called dabba trading in India), unauthorized
trading in the accounts of investors, churning to increase brokerage, induced volatility
to make arbitrage opportunities for larger players at cost of the retail players etc.,
apart from incurring of heavy losses for them in securities market has shaken the
confidence of retail investors.

According to Somaya (2005) as per one estimate, 50,000 crore of savings of

retired people, pensioners, salaried persons were either looted or locked up in these
scams but no concrete action has been taken to recover this huge amount of money
from the perpetrators of these scams, besides the retail investors continuously lose due
to these malpractices. The retail investors have a lot of grievances against the market
regulator and other various intermediaries. The grievances of the investors can be
against any of the following agencies/ intermediaries, namely:

1. Securities & Exchange Board of India,

172
 2. Stock Exchanges,
3. Depositories and Depository Participants,
4. Stock Brokers and sub-brokers,
5. Merchant Bankers,
6. Registrars and Transfer Agents,
7. Listed Companies, and
8. Other Stock Market Intermediaries.

The various studies and the data show that investors are far from happy and their
grievances are piling. At time, most of the grievances go unnoticed by the regulatory
authorities as the investors find it difficult to approach the right authority for lodging
their complaints. Their grievances are either not redressed in time, or partially
redressed at most times. What is required is to have a relook at the redressal
mechanism and sincere efforts to be made to recover the lost money of grieved
investors and given back to them. Table 5.1 depicts the various types of
grievances/complaints of the investors.

Table 5.1: Various Types of Investors Grievances

S. No. Nature of Grievance
1. Delay in transfer of shares
2. Non-receipt of shares/dividends/rights/bonus shares
3. Delay/ Non-receipts in issue of duplicate shares
4. Delay/ Non-receipt of annual reports
5. Delay/ Non-receipt of redemption amount of debentures
6. Delay/ Non-receipt of interest on debentures
7. Delay/ Non-credit of shares in the account by the broker
8. Delay/ Non-payment of sale proceeds by the broker etc.
9. Manipulation in the accounts statements
10. Unauthorized trades and unauthorized movements of shares
and funds from the clients accounts.
11. Dabba Trading/ churning etc. in clients accounts
12. Delay/ Non-updating of clients information in records
SEBI website: www.http://investor.sebi.gov.in.investorcomplaint.form.)

173
The present study articulates the various grievances of the investors in securities
market so as to have a meaningful redressal of their grievances. SEBI, the market
regulator has classified various types of grievances of retail investors in securities
market.

5.1.2 Grievance Redressal Mechanism

5.1.2.1 Preamble

Different regulators bodies and Self Regulatory Organisations (SROs), like SEBI,
Stock Exchanges, Reserve Bank of India (RBI), Ministry of Corporate Affairs (MCA)
and Ministry of Finance (MoF) have different grievance redressal mechanism for the
retail investors in India. Stock Exchanges on paper too have a powerful grievance
redressal system for retail investors and have different entities with their specific roles
assigned. Other stock market intermediaries at the direction of SEBI have set up their
own grievances redressal mechanism. The main redressal mechanism is with the stock
exchanges that directly interact with the investors on day-to-day basis.

Companies listed with Stock Exchanges also have set up their own grievance
redressal mechanism for their shareholders, which is made effective through the
provisions of the Company Law, 1956, and the listing agreement executed with the
Stock Exchanges.

5.1.2.2 Classification of Complaints and with whom to Lodge

In order to have early resolution of complaints and to have clarity in the minds of the
investors, market regulator SEBI has clear cut defined mechanism specifying therein
the nature of the complaint and whom to lodge so that the investors are not harassed,
and at the same time to facilitate a quick resolution of the complaint. One can also
approach according to the nature of ones complaint to various agencies for its
redressal. Depending upon their grievances, the investors can approach the concerned
authority for redressal of their grievances.

Table no. 5.2 depicts the nature of complaints and to whom the same are to be lodged
for their speedy redressal.

174
 Table 5.2: Classification of Complaints and with whom to Lodge these
Complaints
S. No. With whom to File Nature of Complaint
1. The Stock Complaints related to securities traded/listed
Exchanges at their with the Exchanges
Investor Service Complaints regarding the trades effected in the
Centre Exchange with respect to the companies listed
on it or by the members of the Exchange
Complaints against listed companies with Stock
Exchanges

2. Department of Complaints against unlisted companies
Corporate Affairs/ Complaints regarding non-receipt of annual
concerned Registrar report, AGM Notice, etc.
of Companies (ROC) Complaints relating to fixed deposits in
manufacturing companies
3. The Reserve Bank of Fixed deposits in banks and NBFCs
India
4. The concerned Forfeiture of shares, etc.
company/ ROC

5.2 Grievance Redressal Mechanism with SEBI

SEBI has been mandated to protect the interest of the investors in securities market of
the country. SEBI Act, 1992 clearly specifies that SEBI has been formed for the
development, regulation of securities market and to protect the interest of the
investors. That is why the protection of the investors interest has always been the
priority of SEBI. An investor would like to trade in securities market only if he knows
how to invest, if he has full knowledge of the market, if the market is safe and there
are no miscreants, and more importantly there is a strong mechanism to redress his
grievances, if any.

SEBI has established a comprehensive and robust investor grievance redressal

mechanism and has also directed the Stock Exchanges to do the same at their level.
Investor assistance and education division of SEBI located at Mumbai takes up the
complaints from the investors. Office of Investor Assistance and Education (OIAE)
acts the single window interface, interacting with investors seeking assistance of
SEBI. SEBI has also put in dedicated helpline telephone numbers with dedicated

175
personnel operating the helpline (SEBI website www.http://sebi.gov.in, Complaints
and Assistance Contact Details of Division Chiefs).

SEBI has put in dedicated grievance cell for grievances against listed companies,
against stockbrokers, against Depository Participants and other market intermediaries.
Each complaint received by SEBI is acknowledged and reference no. is sent to the
complainant. Each complaint is taken up with the company, and if the complaint is
not resolved within a reasonable time, this division carries out periodical follow up
with the concerned company. The officials of SEBI regularly hold meetings with
company officials to impress upon their obligations to redress the grievances of
investors. But the question arises whether these measures are effective enough to
provide speedy redressal of the grievances.

SEBI has a comprehensive mechanism to facilitate redressal of investor grievance

against intermediaries and listed entities. Whenever a retail investor has any grievance
against broker, sub-broker, or listed entities, the complaint can be filed with Stock
Exchange or SEBI. Stock Exchanges are having the jurisdiction over above-said
entities to resolve, conciliate the complaints of the investors. Investors can also send
the complaints to SEBI directly. Recently, SEBI has realized 30 crore of disgorged
money of unlawful gains from IPO irregularities and distributed to the aggrieved
investors. Is this action of SEBI enough? The question remains to be answered.

5.2.1 Classification of Investors Complaints

In order to have clarity in the minds of the investors and easy & early redressal of
investors complaints, SEBI has classified various types of complaints in different
eleven categories from type I to type XI. The classification aims to identify the
various complaints such as refund order/ allotment advice, non-receipt of dividend/
debentures and their proceeds, complaints against collective investment schemes,
mutual funds, etc. against stock exchanges, DPs, and various other intermediaries.
This classification has been done in order to bring the clarity in the minds of investors
and for the speedy resolution of their complaints, to provide smooth and sound
mechanism for the redressal of their complaints.

176
The detailed classification is with regard to the nature of the complaints like non-
receipt of refund orders/ allotment advices, non-receipt of dividend from the listed
companies, non-receipt of share certificates lodged for transfer with listed entities,
non-receipt of debenture proceeds or redemption amount, complaints against
Collective Investment Vehicles, complaints against brokers, etc. Table 5.3 classifies
various types of complaints, which can be lodged with market regulator SEBI, and
other various intermediaries.

Table 5.3: Types of Complaints

S. No. Type Nature of Complaints

1. Type-I Refund Order/ Allotment Advice
2. Type-II Non-receipt of dividend
3. Type-III Non-receipt of share certificates after transfer
4. Type-IV Debentures
5. Type-V Non-receipt of letter of offer for rights
6. Type-VI Collective Investment Schemes
7. Type-VII Mutual Funds/ Venture Capital Funds/ Foreign Venture
Capital Investors/ Foreign Institutional Investors/ Portfolio
Managers, Custodians
8. Type-VIII Brokers/ Securities Lending Intermediaries/ Merchant
Bankers/ Registrars and Transfer Agents/ Debenture
Trustees/ Bankers to Issue/ Underwriters/ Credit Rating
Agencies/ Depository Participants
9. Type-IX Securities Exchanges/ Clearing and Settlement
Organizations/ Depositories
10. Type-X Derivatives Trading
11. Type-XI Corporate Governance/ Corporate Restructuring/ Substantial
Acquisition and Takeovers/ Buyback/ Delisting/ Compliance
with Listing Conditions
Source: SEBI Annual Report, 2004-05, www.http://sebi.gov.in.

SEBI has further specified that in order to have timely corrective actions, investors
are advised to address their grievances pertaining to above-said grievances directly to
Office of Investor Assistance and Education (OIAE) Division, SEBI Office, Mumbai
office or at its regional offices. As on date SEBI has the following regional offices
where the investors can lodge their grievances:

177
 1. Northern Region : New Delhi
2. Eastern Region : Kolkata
3. Western Region : Ahmadabad
4. Southern Region : Chennai

5.2.2 Complaints not dealt by SEBI

Investors are advised to know which types of the complaints are dealt and which
types of complaints are not dealt by SEBI. This would result in avoidance of wastage
of time of the investors as well as enable them for speedy redressal of their
grievances. Following types of complaints are not dealt by SEBI:

1. Complaints against unlisted/ delisted/ wound up/ liquidated/ sick companies.

2. Complaints those are sub-judice (relating to cases which are under
consideration of any court of law, quasi-judicial proceedings, etc.)
3. Complaints falling under the purview of other regulatory bodies e.g. Reserve
Bank of India, Insurance Regulatory Development Authority, Pension Fund
Regulatory and Development Authority of India (PFDRA), Competition
Commission of India (CCI), Forward Market Commission (FMC), etc.

5.2.3 SEBI Complaint Redressal System (SCORES)

Faced with the piling of unaddressed investors grievances, SEBI, the market
regulator has put in place a web-based centralized system for speedy redressal of
these grievances. The present grievance system lacked a centralized database and the
resolutions of the grievances usually got delayed. By reducing the time gap between
the receipt and redressal of a complaint, the new system of SEBI is expected to help
in proper storage of investors grievances and their timely handling.

The new system is code named SCORES, i.e., SEBI Complaints Redressal System
(www.http://sebi.giv.in Circular No. CIR/OIAE/2/2011. June 3, 2011). The system
facilitates the investors for lodging the complaints pertaining to any of the regional
SEBI offices from anywhere across the country. All the grievances of the investors
are now in the electronic mode and linked to the central server. Besides this, the

178
investors are able to access the status of their complaints, including action taken, if
any, on their grievances. The salient features of the system are as under:

1. Centralized grievances tracking system for the entire SEBI,

2. Grievances pertaining to any of regional SEBI office can be lodged from
anywhere across the country,
3. All grievances and Action Taken Report to be in electronic mode, and
4. Action taken and the current status of the grievance can be accessed online by
the investors.

5.2.4 Status of Investor Grievance Received and Redressed

Although the market regulator SEBI is making continuous efforts to redress the
pending complaints and have put in computerized system for early disposal of the
complaints, yet the number of unresolved investors complaints as on March 2011
stood at 150711 which includes 28,653 pending grievances cases where action is yet
to be initiated (SEBI, Annual Report 2010-11). Although as per SEBI, this number is
smaller, but if comparison is made with the unresolved complaints for the
corresponding previous years figures, the position is not. Table 5.4 gives a detailed
status of grievances received, redressed and pending during the last five years with
SEBI.

Table 5.4: Status of Investor Grievances Received and Redressed

Grievances Received Grievances Redressed Pending Grievances

Cumulative
Year
Year- Cumulative Year- Cumulative Action Pending
wise wise Initiated
2006-07 26,473 25,62,047 17,899 23,95,895 1,66,152

2007-08 54,933 26,16,980 31,676 24,27,571 1,33,354 56,055

2008-09 57,580 26,74,560 75,989 25,03,560 1,21,887 49,113

2009-10 32,335 27,06,895 42,742 25,46,302 1,22,713 37,880

2010-11 56,670 27,63,565 66,542 26,12,854 1,22,058 28,653

Source: Compiled from SEBI Annual Reports for the period 2006-07 to 2010-11

179
5.2.5 Status of Pending Grievances against Various Market Intermediaries

SEBI in order to inform the general public and policy-makers various types of
pending grievances publishes in its annual report every year. Table 5.5 gives a
detailed view of such pending grievances for the last five years against various market
intermediaries like listed companies, Collective Investment Scheme, Mutual Funds,
Brokers, sub-brokers, Merchant Bankers, Stock Exchanges, etc.

Table 5.5: Type-wise Status of Pending Grievances against various Stock Market
Intermediaries

Type Particulars Pending Investor Grievances as on

31-3-07 31-3-08 31-3-09 31-3-10 31-3-11

I to V Complaint against listed 46203 61,648 38,498 37,755 29,508

companies.
VI Non Receipt of Investment & 1,09,525 1,09,076 1,09,121 1,09,373 1,09,897
Receipts of Returns there on
(CIS)
VII Mutual Funds, Venture 900 1,766 1,669 1,974 2,711
Capital Funds, Foreign
Venture Capital Funds,
Portfolio Managers, FIIs,
Custodians etc.
VIII Brokers, Sub-brokers, 8,680 15,119 18,602 9,879 7,132
Merchant Bankers, Debenture
Trustees, RTAs, Bankers to
Issue, Underwriters, Credit
Rating Agencies, DPs, etc.
IX Stock Exchanges, Clearing 161 264 258 293 165
and Settlement Organisations,
Depositories etc.
X Derivative Exchanges and 23 24 24 2 1
related organisations etc.
XI Corporate Governance, 602 1,512 2,828 1,317 129
Restructuring, SAST,
Buyback, Delisting,
Compliance with Listing
Conditions etc.
Total no. of Grievances 1,66,094 1,89,409 1,71,000 1,60,593 1,50711
awaiting Redressal.
Source: Compiled from Various SEBI Annual Reports.

The said table 5.5. shows that the largest numbers of piling grievances are against
Collective Investment Schemes for non-receipt of Investment and returns thereon.
More than one lakh of grievances are pending for more than five years. Nothing
appears to have been done by the market regulators, except simply publishing in its
annual report every year. On the second spot is the number of grievances pending
against listed companies. As on 31st March, 2011, as many as, 29508 grievances were

180
pending against the listed companies. Also, as many as, 7132 complaints of Type VIII
were pending with the market regulator. It is pertinent to note that despite the best
efforts of SEBI, the number of complaints has not come down considerably. This is a
serious issue and needs to be addressed at all levels. As per the following table, as on
31 March 2011, as many as 1,50,711 complaints are pending against various capital
market intermediaries. Out of these huge pending complaints, action against only
28,653 complaints has been initiated.

5.2.6 Enforcement against Listed Companies

The details of enforcement actions against listed companies are presented in table 5.6.

Table 5.6: Enforcement Actions against Listed Companies for Failure to

Redress the Investors Grievances
( in Lakh)
S. No. Name of the company Penalty Imposed/
Action Initiated
1. Enkay Texofood Industries Ltd. 30,00,000
2. Jayant Vitamins Ltd. 17,00,000
3. Nexus Software Ltd. 10,00,000
4. Steelco Gujarat Ltd. 5,00,000
5. Pankaj Agro Protinex Ltd. 2,00,000
6. Motorol Enterprise Ltd. 25,00,000
7. Kleidscope Films Ltd. (Formerly known 17,00,000
as Gujrat Investment Castings Ltd.)
8. Akar Laminations Ltd. Directors Restrained
9. Bhuvan Tripura Industries Ltd. Directors Restrained
10. Chicago Software Industries Ltd. Directors Restrained
11. Dr. Softtech Industries Ltd. Directors Restrained
12. Hindustan Industrial Chemicals Ltd. Directors Restrained
13. Indo-American Credit Corporation Ltd. Directors Restrained
14. Indo-American Optics Ltd. Directors Restrained
15. Ishwar Medical Services Ltd. Directors Restrained
16. Kanel Oil & Export Industries Ltd. Directors Restrained
17. Kolar Information Technologies Directors Restrained
18. Neon Resin & Industries Limited Directors Restrained
19. Panjawani Packaging Ltd. Directors Restrained
20. Prakash Fortan Softech Ltd. Directors Restrained
21. Rane Computers Consultancy Ltd. Directors Restrained
22. Steelco Gujarat Ltd. Directors Restrained
23. Topline Shoes Ltd. Directors Restrained
Source: Compiled from Various SEBI Annual Reports,

181
In order to initiate action against the defaulting companies and for speedy resolution
of the investors grievances, SEBI has identified top 100 companies in terms of
number of unresolved grievances and is vigorously following up for the resolution.
Adjudication proceedings have been initiated against twenty-three companies, which
failed to redress the investors grievances. As per the Table SEBI has levied penalty
against top seven defaulting companies, and the directors of sixteen defaulting
companies have been restrained from accessing the capital markets for a certain
period.

5.2.7 Regulatory Action against Suspended Companies

It has been observed that number of unresolved cases against the suspended
companies are continuously piling. SEBI has also initiated action against the
suspended companies by initiating the following actions:

1. The members of board of directors of the suspended companies shall disclose

the details of their directorship in the offer document, if any, of the companies
whose shares have been/ were suspended from trading by stock exchanges,
when they were director of such suspended company for more than three
months, in the five year period preceding the date of filing of the offer
document.
2. Stock Exchanges have been advised to display on their respective websites, the
names of the companies suspended as on date along with the name of directors.
3. Stock Exchanges have been advised to submit report to SEBI in respect of each
suspended company along with the names of directors and the compliance
officer.
4. Directing the Stock Exchanges to allow the resumption of trading only after
resolution of all investors complaints to their satisfaction.

5.2.8 Action taken against Insider Trading and Market Manipulation

SEBI has been initiating action against the various stock market intermediaries
including listed companies with regard to violations of insider trading and market
manipulation. Sabarinathan (2010), is of the view that Indian Securities Market is still

182
subject to several manipulative practices and lot of instances of insider trading do
happen. Although, SEBI has initiated action against the violators, yet from the data
published by SEBI shows much more is still desired to done to make the capital
market a safe place for market players.

Table no. 5.7 highlights SEBIs record of action initiated against insider trading,
market manipulation and takeover, and action completed against these manipulations
for the last five years. The data given during the year indicates number of fresh cases
taken up during the year. This does not include the number of pending cases as on 1st
April. During the year 2005-06, 6 more complaints were received against insider
trading and proceedings against 8 were completed during the year. Similarly, SEBI
undertook 140 cases of market manipulation during the year 2005-06, but could
complete only 63.

Table 5.7: Record of Action against Insider Trading and Market Manipulation

Year Insider Trading Market Manipulation Takeovers Miscellaneous

Taken Completed Taken Completed Taken Completed Taken Completed
up* up* up* up*

05-06 6 8 140 63 4 3 15 7
06-07 18 10 95 81 2 3 5 8
07-08 7 28 12 118 2 2 4 21
08-09 14 12 54 63 3 1 5 7
09-10 10 10 46 53 2 5 13 6
Source: SEBI, Handbook of Statistics on the Indian Securities Market 2010,
*The figures indicate numbers taken-up during the year in addition to pending as
on beginning of the year.

5.3 Grievance Redressal Mechanism with Ministry of Company Affairs

(MCA)

5.3.1 Introduction

Ministry of Corporate Affairs (MCA) acknowledges that there is a strong need for the
effective and efficient mechanism for redressal of the investor grievances. The Motto
of the Ministry is Empowering Business, Protecting Investors. It is the

183
responsibility of the Government to establish accountable, responsive and user-
friendly effective and efficient mechanism to that effect. Ministry of Company
Affairs deals with the Grievance Redressal Mechanism for investors in securities
market, which includes investor complaint form to be submitted to the Ministry. The
complaint pertaining to debentures or bonds, Fixed deposits (non-receipt of amount,
Miscellaneous non-receipt of shares/ funds and pertaining to non-receipt of share
certificate, Conversion, Splitting, Consolidation, Duplicate or submission of
indemnity bond, Transfer, Endorsement, Dividend warrants, Bonus, etc. may be
lodged with MCA.

5.3.2 Structure of Grievance Redressal Mechanism

The grievances of the investors are received at various designated places. There are
mainly two nodal agencies that handle the grievances. These are:

1. Department of Administrative Reforms and Public Grievances

2. Directorate of Public Grievances, Cabinet Secretariat

5.3.3 Procedure of Handling the Grievances

The Department of Administrative Reforms and Public Grievances primarily
undertakes initiatives in the fields of administrative reforms and public in a hassle-
free manner, and eliminates the causes of grievance. The grievances received by the
Department are forwarded to the concerned Ministries/ Departments/ State
Governments/ UTs, which are dealing with the substantive function linked with the
grievance for redressal under intimation to the complainant.

On the basis of the grievances received, Department identifies the areas in which the
problems arise in a regular manner. These problem areas are then subjected to studies
and remedial measures are suggested to the concerned Department/ Organization.

5.3.4 Public Grievance Redressal Mechanism in Central Government Ministries/

Departments/ Organizations

1. The Public Grievance Redressal Mechanism functions in Government of India

on a decentralized basis. The Central Government Ministries/ Departments,

184
 their attached and subordinate offices and the autonomous bodies dealing with
substantive functions deal directly with the mechanism.

2. The functioning of Public Grievance Redressal Machineries in various

Ministries/ Departments/ Organizations is regularly reviewed by a Standing
Committee of Secretaries.

3. With a view to ensure prompt and effective redressal to the grievances, a

number of instructions have been issued by Department of AR&PG from time
to time for quicker disposal of the complaints (Department of Administrative
Reforms and Public Grievances, Government of India, 2010).

5.3.5 On Line Registration of Grievances

The objective of the Ministry is to make Public Grievance Redressal and Monitoring
System (PGRAMS) software, operational with every Director of Grievances. This
shall enable the Director of Grievances to immediately place the details of grievances
received in a database (efficient dak management) as well as record the fact whether
he intends to monitor its progress, identify the section/division where it is being sent,
etc., generate the time taken in dealing with the grievance, enable review of pending
grievances in the organization or across the organizations, generate
acknowledgements to complainants, conduct analysis etc. The system should also
have the facility of on-line registration of grievances by the citizens and access to
information on the status of his/her grievances.

5.4 Grievance Redressal Mechanism at Stock Exchanges

5.4.1 Introduction

Various Stock Exchanges of the country at the directions of SEBI have established
grievances redressal mechanism for the speedy and orderly redressal of the grievances
of the investors and have set up various mechanisms for the redressal of the
grievances (www.http://bseindia.com).

Table no. 5.8 depicts the various mechanisms that have been set by the Stock
Exchanges:

185
 Table No. 5.8 : Grievance Redressal Mechanism of Stock Exchanges
S. No. Grievance Redressal Mechanism
1. Investor Service Cell & Investor Service Committee/
Investor Grievance Cell & Committee
2. Arbitration & Conciliation Mechanism
3. Investor Protection Fund
4. Listing Agreement Mechanism
Source: http://www:bseindia.com , http://www:nseindia.com

5.4.2 Investor Service Cell and Investor Service Committee

Stock Exchanges as per the direction of SEBI have constituted Investor Service Cell
and Investor Service Committee to provide a host of services to the investors. The
activities of this cell and committee are to provide educational services like bulletin,
literature of the capital market, conducting seminars, encourage research papers etc.
The main objective of the cell/committee is to provide education and related
assistance to investors. The cell also continuously educate the investors about their
rights, responsibilities and various Dos & Donts related to stock market activities.

The most important job of the investor grievance cell/committee is redressal of the
grievances of the investors against both brokers and listed companies. Whenever any
complaint/ grievance is received, the investor service cell immediately records the
complaints and takes up with the concerned entity against whom the complaint/
grievances is lodged. The cell continuously follows up with both the investor and the
entity against which the grievance is lodged. It provides all the logistic support to the
investor in its bid to successfully resolve the grievance.

5.4.3 Investor Grievance Cell and Arbitration Committee

Stock Exchanges have conciliation and arbitration mechanism to resolve the

grievances/ complaints of investors. If the complaint is not resolved at the level of
investor service cell, the matter is taken up with investor services committee of stock
exchange. If the complaint is still unresolved, the complainant is advised to approach
the arbitration mechanism of the Exchange. Stock Exchanges are having requisite

186
arbitration mechanism through the constitution of Arbitration Committees for
effective resolution of the investors complaints. One can go in appeal against the
appeal of the arbitration committee to the court of law within 90 days of the order of
the committee under section 34 of Arbitration and Conciliation Act, 1996. The
exchange arbitration mechanism is a quasi-judicial mechanism with a penal of
arbitrators, consisting of retired Judges and other professionals such as solicitors,
chartered accountants, company secretaries and other having expert domain of capital
market.

The stockbroker is the first point of contact in case of investor grievance. The byelaws
of the exchanges provide that investor should bring his dispute to the notice of broker
within six months of transactions. If it is not resolved, the investors can approach
Investor Grievance Cell of the stock exchange for the resolution of their complaints.

5.4.4 Arbitration and Conciliation Mechanism

The bye-laws of the recognised Stock Exchanges provide for redressal mechanism for
disputes, between members or between members and non-members, through
conciliation and arbitration (the term "non-member" shall include a client (investor)
of the member), arising out of or in relation to any bargains, dealings, transactions or
contracts made subject to the Rules, Bye-laws, Circulars, Orders and Regulations of
the Exchange as well as instructions/ guidelines/ directions/ rules/ regulations issued
by Securities & Exchange Board of India/ Central Government from time to time or
with reference to anything incidental thereto.

5.4.4.1 SEBI Circular

SEBI in consultations with Stock Exchanges has streamlined the arbitration

mechanism at stock exchanges arising out of claims, complaints, and differences
arising between investors and brokers and between broker members of exchange. The
said mechanism has been laid down vide SEBI circular no. CIR/MRD/DSA/24/2010
dated August 11, 2010. The SEBI circular provides for the detailed procedure and
carries the following contents:

1. Maintenance of Panel of Arbitrator

187
 2. Code of Conduct for Arbitrators
3. Arbitration Procedures
4. Appellate Arbitration
5. Arbitration Fees
6. Place of Arbitration
7. Implementation of Arbitration Award
8. Records and Arbitration.

5.4.4.2 Arbitration Panel

SEBI has laid down criterion for formation of arbitration panel. The arbitration
mechanism is as under:

1. Stock Exchanges shall maintain a panel of arbitrators having numbers of

arbitrators commensurate to the number of disputes;
2. Stock Exchanges shall have a set of fair and transparent criteria for inclusion of
names of arbitrators. While deciding the panel of arbitrators stock exchanges
shall look into their background like age, qualification of subject matter,
unblemished track record, etc.; and
3. Stock Exchanges shall enforce proper code of conduct.

5.4.4.3 Arbitration Procedure

The limitation period for filing an arbitration reference has been prescribed as
provided in The Limitation Act, 1963. The arbitration claim or the counter claim up to
25 lakh is dealt with by a sole arbitrator, and for the amount above 25 lakh, the
same is to be dealt by a panel of three arbitrators. The stock exchange is to ensure that
the process of appointment of arbitrator(s) is completed within 30 days from the date
of receipt of application for arbitration. The arbitration reference has to be concluded
by way of arbitral award within four months from the date of appointment of
arbitrator(s).

5.4.4.4 Appellate Arbitration

The aggrieved party by an arbitral award may appeal to the appellate panel of
arbitrations of the Stock Exchange against such award. The appeal before the

188
arbitrators is required to be filed within one month of the award, and the appellate
panel shall consist of three arbitrators who shall be different from the one who passed
the arbitral award. Stock Exchanges are supposed to appoint the appellate tribunal
within one month of the reference, and the panel has to dispose of the appeal within
three months of their appointment by way of appellate arbitral award.

The conciliator(s) are guided by the Rules, Regulations, Bye-laws, Circulars, orders
of Exchange as well as the instructions, guidelines, directions, rules, regulations
issued by Securities and Exchange Board of India/ Central Government from time to
time. They are also supposed to follow the principles of objectivity, fairness and
natural justice while looking at the cases. They shall only attempt to reach a
settlement between the parties in relation to the dispute.

5.4.5 Investor Protection and Education Fund

SEBI (2003) through the Model Bye-laws has advised the stock exchanges to
establish and maintain an Investors' Protection Fund to protect the interests of
investors against the possible defaults or the expulsion of the trading members.
Objective of the said fund, is to compensate the investors a genuine and bona-fide
claim made by any client, who has either not received the securities bought from a
trading member for which the payment has been made by such client to the trading
member or has not received the payment for the securities sold and delivered to the
trading member or has not received any amount or securities which is/are legitimately
due to such client from the trading member, who is either declared a defaulter or
expelled by the Exchange.

5.4.5.1 Corpus and Composition of the Fund

SEBI has further advised the stock exchanges that every trading member of the
Exchange shall contribute such amount, as may be determined by the relevant
authority from time to time, to constitute the corpus of the Investors Protection Fund.
The relevant authority shall have the power to call for such additional contributions,
as may be required from time to time to make up for any shortfall in the corpus of the
Investors Protection Fund. The Exchange shall also credit to the Investors Protection
Fund such amount out of the listing fees collected by it in each financial year, as may

189
be prescribed by SEBI or as may be specified in the relevant Regulations from time to
time. The Exchange may also augment the Investors' Protection Fund from such other
sources, as it may deem fit.

5.4.5.2 Ceiling for Corpus

The Exchange or SEBI may from time to time determine the ceiling amount up to
which the contribution from the trading members and contribution from the listing
fees shall be collected and credited to the Investors Protection Fund. While
determining the ceiling amount, the Relevant Authority may be guided by factors,
which may, inter alia, include highest amount of compensation disbursed from the
Investors Protection Fund in a financial year during the preceding five financial
years, amount of interest accrued to the Fund in the previous financial year and the
number of times the size of the corpus is a multiple of the highest aggregate amount
of compensation disbursed from the Investors Protection Fund in any particular
financial year. The relevant authority may, subject to taking prior approval of SEBI
with proper justification, decide to reduce, and/or not to call for, any further
contribution from the trading members and/or from listing fees.

5.4.5.3 Management of the Fund

The Investors Protection Fund shall be held in trust and shall vest in the Exchange or
any other entity or authority, as may be specified by the relevant authority from time
to time. The Investors Protection Fund shall be managed by the Trustees appointed
under the Trust Deed created and executed and in accordance with the provisions
contained in the Trust Deed and the Rules, Byelaws and Regulations of the Exchange.

5.4.5.4 Utilization of the Fund

Once the claim is lodged with the stock exchange for payment under the fund rules
and guidelines, the Trustees of the fund shall refer matter to the Committee for
Settlement of Claims Against Defaulters, which may scrutinize and vet each of the
claims placed before it for consideration after due screening by the officials of the
Exchange and also by an Independent Chartered Accountant, if need be, for satisfying
that each claim meets the requirements, as may be stipulated by the Committee for
Settlement of Claims against Defaulters from time to time.

190
5.4.5.5 Claims Entertained only if executed on the Trading System of Exchange (ATS)

While considering a claim under the said rules, Committee for Settlement of Claims
against defaulters may direct payment of such claim, which, in the opinion of the
Committee, the investor has made the claim which has the direct relevance to such
transactions executed on the system of the Exchange.

5.5 Grievance Redressal Mechanism with Listed Companies vis-a-vis

Listing Agreement of Stock Exchanges

Under section 21 of securities Contract (Regulation) Act, 1956, all the recognised
Stock Exchanges on the direction of SEBI have prescribed a listing agreement. Every
company, which intends to list its share with the recognised stock exchange is
required to execute listing agreement with it. The listing agreement contains 53
exhaustive clauses with the ultimate objective of protecting the interest of investors.
The listing agreement through its various clauses ensures the Redressal of their
Grievances also. A listing agreement is legal document, which is executed between a
company and a Stock Exchange when the securities of a company are listed on it. It is
binding on a company to comply with post-listing requirements of the listing
agreement. Any violation of provisions of listing agreement attracts strong penal
action from the Exchange which includes suspension in the trading of scrips of a non-
compliant company, fines, penalties and even delisting the company from stock
exchange.

5.5.1 Listing Agreement and Investor Protection

The objective of entire listing agreement is to ensure the investor protection by

ensuring timely dissemination of important information to shareholders, publication
of financial results, adherence to the highest standards of corporate governance and
host of various other requirements which the listed company is required to implement
in an effective manner. Table 5.9 provides the summary of some of the clauses of the
Listing Agreement that directly relate to investor protection and grievance redressal
mechanism.

191
Table 5.9: Listing Agreement and Grievance Redressal Mechanism

Clause No. Rationale behind the Clause

and Contents
3, 12, and 21 As per these clauses, a company is required to execute share
Timely transfers within one month of lodgment. As most of the
handling of complaints are relating to share transfers, these clauses have been
share important legal provisions in the hands of investors.
certificates
12(a) Transfer This clause also strengthens an investor towards his request for
of shares transfer of shares. Subsection 12(a) of the Listing agreement
stipulates that a company shall not refuse the transfer of shares
when proper documents are lodged for transfer and there are no
material defects in the documents except minor difference in
signature of the transferor(s).
15 and 16 As per clause 15 & 16 of the Listing agreement, a listed
Book Closure company is required to give advance notice of Book Closure and
record date to the Exchange. The same notice is disseminated on
the website of the Exchange through trading terminals across the
country. This instrument works for the protection of investors.
19 Price The objective of this clause is to inform the shareholders about
sensitive these events so that undue fluctuations in the prices are avoided
information and investors are able to take informed decisions pursuant to
such information.
20- Prior The objective of this clause is also to inform the shareholders as
intimation to early as possible about the price sensitive information arising out
SE regarding of board decisions about these events so that undue fluctuations
board meetings in the prices are avoided and investors can take well informed
decisions in a timely manner.
30- To notify The objective of this clause is also to inform the shareholders of
the exchange any material development at the earliest, so that the information
any material reaches to all the investors at quickest possible time so that they
development are able to take informed decisions in a timely manner.
31(1) and 32 It is clearly evident that a listed company is required to supply a
Copies of copy of annual report as per this clause and an investor specially a
Annual Report retail investor comes to know about state of affairs in a company.

35 & 36 These clauses empower the investors about any price sensitive
Price sensitive information/ information having material impact on the
information to operations of the company. These protect their interests by
Exchange. informing them and ensuring adequate disclosures from the
company.

192
40- Minimum The rationale behind this clause is to have at all times the at least
level of public minimum number of shareholders in the company so as to have
shareholding enough liquidity and public float in the scrips of the company.
41- Un-audited This clause empowers the retail investors about vital financial
Financial information of a company at frequent levels which is also
results disseminated on the website of the Exchange where the securities
of a company are listed.
49- Corporate This clause is the most important provision in the listing
Governance agreement which safeguards the interests of investors through
clause following provisions:

a. Role of Investors Services Committee,

b. Role of Audit Committee,
c. Independence of Board of Directors, and
d. Other important disclosure provisions of this clause.

This provision acts as a tool of investor protection. Independent

directors and Audit Committee are expected to work for the
interests of shareholders or investors. It ensures the accuracy and
authenticity of Annual Accounts. Management Discussion and
Analysis as part in the Annual Report of a listed company which
discloses vital information about the opportunities, threats facing a
company in a given business environment, risk and concerns,
material developments in Human Resources and Industrial
Relations, etc.

Two provisions regarding shareholders and investors grievances

committee are also very important and deal with information to be
placed to investors about directors, their resumes, expertise etc.
and constitution of a shareholders grievances committee for
redressal of shareholders complaints like transfer of shares, non-
receipt of balance-sheet, non-receipt of declared dividends etc.
This institution of committee is a useful weapon in the hands of
an investor to lodge his complaint if it is not resolved by the
official/ Registrar & Transfer Agent of the company.

52- Corporate SEBI has required all the listed companies to upload the corporate
Filing and electronic filings in the exchange system in a standard format so
Dissemination that the investors get the latest information of the company
System(CFDS) without any hassles.

193
5.6 Regulatory Framework for Investor Grievances Redressal System
and Protection for Retail Investors

A comprehensive policy framework exists for redressal of complaints of retail

investors in Indian securities market. Various acts, rules, regulations and circulars
have been brought into force by various regulatory authorities from time to time on
procedure for redressal of investor complaints. Following is the detailed description
of policy framework for resolution of investor complaints in India:

5.6.1 SEBI (Disclosure and Investor Protection) Guidelines, 2000

SEBI (Disclosure and Investor Protection) Guidelines were notified by SEBI in 2000
to regulate the primary market in India. The guidelines through its various provisions
stipulated the regulatory framework for companies proposing to issue securities,
promoters contribution and lock in requirements; contents of offer document, bonus
& preferential issues, etc. Various provisions of the aforesaid guidelines were in
force since 19.01.2000, but of late these guidelines have been repealed with ICDR.
These guidelines ensured that adequate disclosures are made by the companies
proposing to issue securities in the market and cast responsibilities upon various
market intermediaries and define their entry standards. These guidelines were
originally issued by SEBI in June, 1992 under section 11 of the SEBI Act, 1992 and
fresh DIP Guidelines were issued in 2000 and came into effect from 27.01.2000.

5.6.2 SEBI (Issue of Capital and Disclosures Requirement) Regulations, 2009

(ICDR)

SEBI, vide powers conferred by section 30 through a Gazette of India notification

(2009), prescribed SEBI (Issue of Capital and Disclosures Requirements)
Regulations, 2009, which shall be applicable to the followings:

1. a public issue,
2. a right issue value the aggregate value of specified securities offered is
fifty lakh rupees or more,
3. a preferential issue,
4. an issue of bonus shares by a listed issuer,
5. a qualified institution placement by a listed issuer,

194
 6. an issue of Indian Depository receipt.

These regulations are divided into eleven chapters and twenty schedules. The chapter
inter alia deals with the disclosures requirements and cast responsibility upon the
issues of the securities with the ultimate objective of protection of interests of the
investors. These guidelines contain the provisions relating to common conditions for
the public issues, right issues and bonus issues, eligibility of requirements, pricing in
public issues, promoters contributions, pricing in public issues, promoters
contribution, its lock-in period (restriction on transferability), minimum offer to
public, disclosures and the manner of such disclosures, preferential issues, qualified
institutional placements, provisions relation to the issue of Indian Depository
Receipts, responsibilities of company management, merchant bankers and various
other intermediaries associated with issue process etc.

The schedules cover the inter-se responsibilities of the company and intermediaries,
formats for the issue of due diligence certificates and agreement between lead
merchant banker and issuer company, mandatory collection centers, and fees to be
paid along with the offer document, Manner of Submission of Soft copy of Draft
Offer Document and Offer Document to the SEBI etc. The schedules further specify
nature of up-dating/ changes in the offer document, disclosures in offer document,
abridged prospectus & abridged prospectus, formats or report to be submitted by
monitoring agency, facilities or services included in the term Infrastructure Sector,
book building process, format of report for Green Shoe Option, formats for
advertising for Public Issues, illustration explaining minimum application size,
illustration explaining procedure of allocation, formats post issue reports, format of
underwriting development statement, disclosures in placement document, disclosures
in prospectus & abridged prospectus for issue of Indian Depository Receipts, and
amendment in other regulations etc.

5.7 Grievance Redressal Mechanism at few leading Foreign Stock

Exchanges

International stock exchanges have a strong system of grievances resolution and these
exchanges too have online filing of complaints. These exchanges use arbitration as
quick dispute resolution method as it involves lesser amount of time and justice is

195
delivered in a shortest possible time. Given below is the mechanism of complaint
resolution at few international stock exchanges like New York Stock Exchange,
Singapore Stock Exchange, Australian Stock Exchange, Taiwan Stock Exchange,
Toronto Stock Exchange and IOSCO wherein the system of investor grievances
redressal mechanism has been explained.

5.7.1 Grievance Redressal Mechanism of New York Stock Exchange (NYSE)

The New York Stock Exchange has a well-defined system for the redressal of the
investors grievances. NYSE welcomes information from investors and others who
believe that a broker has violated securities rules and regulations. Following sorts of
complaints can be lodged with NYSE on-line system:

1. Order execution,
2. Insider trading,
3. Market manipulation on NYSE,
4. Unfair sale practices,
5. Improper business conduct by brokers or their representatives,
6. Banks and Saving Institutions,
7. Insurance Companies, and
8. Transfer Agents (www.http://usequities.nyx.com/regulation/complaints-
and-inquiries/before-proceeding).

The Grievance Redressal Mechanism of New York Stock Exchange deals with
dispute resolution mechanism to resolve disputes between investors and brokers. It
includes Arbitration, which enables a dispute to be resolved quickly and fairly by
impartial arbitrators, who are knowledgeable and trained in the art of resolving
disputes relating to transactions in securities. The investors are first advised to contact
the broker and if it fails to resolve, the investors may lodge the complaint with NYSE.
In order to quickly resolve their grievances, the investors are advised to submit their
complaints with following details:

1. Name of security and stock symbol

2. Date of the trade

196
 3. Specific order information
4. Order type e.g. buy, sell. Limit price or market order, etc.
5. Order size
6. Order identification code, branch code and sequence number
7. Specific nature of complaint or enquiry.

The investor can also go for arbitration mechanism, and if he chooses arbitration to
resolve the dispute, he waives the right to pursue the matter in court. Arbitration is
final and binding. It further mentions that an individual investor with a complaint or
inquiry about an NYSE brokerage firm or individual broker may file online
complaints with NYSE.

5.7.2 NASD and SIPC

5.7.2.1 Role of NASD

NASD-DR, and the New York Stock Exchange are the leading providers of
arbitration services for the securities industry in US. They have adopted detailed
procedures for conducting the arbitrations they sponsor. The Securities Exchange
Commission (SEC) of US, as part of its oversight of the SROs, reviews the procedural
fairness of SRO arbitration rules through its review and approval of proposed SRO
rule changes. The SEC also inspects the SRO arbitration programmes on a regular
basis. The SROs arbitration rules require arbitrators to disclose potential conflicts
and give parties the ability to strike or challenge arbitrators based on those disclosures
(Perino, 2002). Although the NASD does about 90% of securities arbitrations in US,
it further regulates the market through computerised audit trail system called RADAR
(Research and Data Analysis Repository) surveillance mechanism (NASD Corporate
Profile). There are three primary components of the arbitration process:

1. Obtaining and updating arbitrator background information;

2. Arbitrators disclosure obligations and conflict training; and

3. Selecting the arbitration panel.

197
5.7.2.2 The Securities Investor Protection Corporation (SIPC)

Securities Investor Protection Corporation (SIPC) is a government mandated, non-

profit organization at United States. Its objective is to protect the investors in certain
securities related losses to investors from the brokers default. However, it does not
protect the investors against losses in the securities markets, identity theft, or other
3rd-party fraud.

Although, it is not a US government agency, but SIPC was established in 1970 by an

Act of Congress through adoption of the Securities Investors Protection Act. SIPC
serves two primary roles in the event when a broker fails. First, SIPC acts to organize
the distribution of cash and securities to investors from the broker concerned. Second,
if the broker is not in a position to pay the requisite amount or the securities, SIPC
provides insurance coverage up to $500,000 of the customer's net equity balance,
including up to $250,000 in cash.

It protects the investors against the non-payment of funds and most types of
securities, such as notes, stocks, bonds, and certificates of deposit. Other items, such
as commodity or futures contracts, are not covered which are registered with the
Securities and Exchange Commission (www.http://sipc.org).

5.7.3 Grievances Resolution Mechanism of Singapore Stock Exchange (SGX)

If anyone has a complaint against a Singapore Stock Exchange (SGX), its Member
such as securities or futures broker or a person registered with SGX such as a trading
representative (typically a remeiser, dealer or futures trader) and one has information
concerning an instance of market misconduct? he can make the lodge the complaint
in the specified format to the authorities for the redressal of his grievances. The
grievance redressal mechanism at SGX is given below:

5.7.3.1 Lodging a Complaint against Stock or Futures Broker

If the complaint is regarding a commercial dispute between the complainant and his
broker or trading representative for unsatisfactory service by the broker or trading
representative or it relates to technical problems with a broker's trading system,
investor is first advised to lodge a complaint promptly with his broker. If the investor

198
fails to receive a satisfactory response after follow-ups with the broker, he may lodge
a complaint with SGX. If the matter is purely commercial, the SGX does not
intervene in the dispute. But if it involves a breach of SGX rules, the Exchange does
consider an investigation of that matter.

5.7.3.2 Lodging a Complaint with Singapore Exchange

Where a matter is relating to alleged improper conduct by a broker/ trading

representative, who had allegedly executed trades in the account of an investor
without his approval, investor may lodge the complaint with Singapore Stock
Exchange (SGX). When filing a complaint, the investors are advised to include the
following information in their complaint:

1. Name, address and contact numbers of the complainant,

2. The name of the brokerage firm and the individuals at the firm with whom
the complainant dealt, and
3. A description of the alleged improper conduct; the date when the improper
conduct took place and the details of the transactions involved.

The focus of investigation is regulatory in nature. If SGX is of the view that a breach
has occurred, it may commence disciplinary proceedings against the broker/trading
representative. However, its investigations do not necessarily result in compensation
to the complainant by the broker or the withdrawal of civil proceedings to recover
amounts owned. SGX pay compensation to the aggrieved investors from the Fidelity
Fund (a fund created for this purpose) up to a maximum amount of $ 50,000, and the
present corpus of the fund is $ 53 million.

5.7.4 Grievance Redressal Mechanism at Australian Stock Exchange

Australian Stock Exchange (ASX) is committed to addressing complaints and

enquiries from the investors in a timely manner. ASX believes that timely resolution
of the grievances of investors results in fair, orderly and transparent markets and at
the same time it ensures that market participants at all times are complying to their
obligations under the ASX rules. ASX has specified that it would be able to assist in
the following matters:

199
 1. Matters where a stock broker may have breached the ASX operating Rules,
2. Matters where listed companies may have breached the ASX Listing Rules,
3. Matters related to the Clearing House Electronic Sub-Register System
(CHESS Depository) Holding Statements, and
4. Matters related to the operations of the clearing and settlement facilities,
including activities of ASX.

The ASX rules further advise investors how to contact and where to contact, if they
have any grievances against the market participants. For the following types of
grievance, the investors are advised to contact Australian Securities and Investments
Commission (ASIC):

1. Breach of ASIC Market Integrity Rules including potential stock market

manipulations, client order instructions, client order priority, provision for
confirmation/ contract notes,
2. Breach of Corporations Act including provision of advise and quality of
advise, potential insider trading, stock price manipulation, short selling,
margin lending, false and misleading information, stock lending and
borrowing, directors duties, prospectus requirements and other disclosure
obligations.

The investors are advised to complete the ASX complaint form and send to the ASX
Customer Service Centre along with all the supporting documents. ASX confirms that
the acknowledgement is given within two business days of receipt of the complaint
and final response within 21 business days to the complainant. ASX rules further state
that it would refer the complaint to ASIC if the substance of the complaint relates to
the matter within the ASICs jurisdiction.

5.7.5 Grievance Redressal Mechanism of Taiwan Securities Market

Taiwan has one of the most advanced trading and clearing system in the world. It is
the only country, which has T+1 trading mechanism. Even India, which boasts of one
of the most vibrant settlement system in the world, has T+2 system. Taiwan

200
acknowledges it of utmost importance to enhance investor protection by ensuring
their rights and benefits. Its investor protection and grievance redressal mechanism
includes strong surveillance mechanism of stock exchange, the level of corporate
governance and self-regulation by the various enterprises. Taiwan enacted the
Investor Protection Law in 2003 with the following objectives:

1. To establish a protection centre and build up a protection fund for investor

protection,
2. To compensate the investors out of the funds in case of breach by the
intermediaries,
3. To handle the complaints and to act as a mediation settlement to settle the
grievances and to pass irrevocable judgment, and
4. To put its efficient action and effective arbitration mechanism in place
(www.http://oecd.org/finance/financialmarkets/18468447.pdf).

In order to strengthen investor protection and promote the sound development of the
securities and futures markets in Taiwan, the Securities and Futures Investors
Protection Center was set up in 2003. In addition to consultation and mediation, the
Center also handles investors complaints, files class-action lawsuits on behalf of
investors, and derivative suits on behalf of companies. This Center also manages an
investor compensation fund. It also provides consummations with regard to various
issues concerning investors rights in securities market. Where an individual is
involved in a dispute related to the trading of securities or futures, the person may opt
for arbitration mechanism or go for civil lawsuit. The Center has a arbitration or
mediation committee to provide mediation for civil disputes involving securities and
futures investors. Any individuals who are involved in a dispute may apply for
mediation with the Center.

In order to protect investor rights, the centre may file lawsuits or submit cases for
arbitration on behalf of twenty or more securities or futures investors affected by the
same incident. This helps speedy resolution of complaints from investors. In order to
strengthen corporate governance mechanisms and protect investors from securities
fraud schemes, the Center may advise company management to file a lawsuit against
the director(s) accused of wrongdoing or vice versa in the event that they may have
201
performed actions or duties that are, or were, materially injurious to the company or
are in violation of laws whenever conducting business. If the supervisors or directors
fail to act upon the advise within thirty days after receiving the advise made by the
Center, then the Center may file the lawsuit on behalf of the company. In case, the
insiders as defined under Article 157 of the "Securities and Exchange Act" and
Article 11 of the "Securities and Exchange Law Enforcement Rules", make any
profits from buying and selling the securities of the company within six months of the
transaction, they are bound to deposit the profits earned.

As required by the Securities Investor and Futures Trader Protection Act, the Center
has set up a protection fund to protect the rights of securities investors and futures
traders. The compensation is paid from the fund, in case, the brokerage firms become
insolvent are can not pay to the investors. Like wise in order to protect the investors
as global level, the Center signed the Memorandum of Understanding with the
Securities Investors Protection Corporation (SIPC) of the U.S. and Canadian Investors
Protection Fund of Canada in June 2006 and March 2009 respectively. These
memorandums, provide a sound mechanism for the investor protection. This was
done not only to safeguard the rights of investors in cross-border transactions, but also
to offer an sound platform for information exchange and cooperation.
(http://www.twse.com.tw/en/about/company/guide.php, and www.sfipc.org.tw.)

Thus, Taiwan has one of the most effective and robust corpus of the Investor
Protection Fund. As on March 2010, it has a huge corpus of NT$ 1.031 billion and it
aims to have NT$ 5 billion. The rules of the investor protection provide a detailed
mechanism to settle the grievances of the investors. The maximum compensation
amount to each investor or trader is NT$ 1 million, and maximum compensation
amount to be paid to total investors or traders of each security from the fund is NT$
100 million. Apart from this, there is a provision for legal suits in the case of insider
trading, effective arbitration mechanism and irrevocable judgment against the erring
market intermediaries.

202
5.7.6 Investor Protection in Canada- Toronto Stock Exchange

The Canadian securities legal system is structured and evolved in such a way that
investors protections are fairly consistent between common law and civil law
provinces. Toronto Stock Exchange is seventh largest stock exchange in the world in
terms market capitalization with US $ 1912 billions as on December 31, 2011
(http://en.wikipedia.org/wiki/List_of_stock_exchanges, 2011) which is around 4.4%
of the worlds market capitalization, and it has fairly large numbers of players in the
market. Toronto Stock Exchange (TSX) is the largest stock exchange in Canada with
about 4000 listed companies. As regards investor protection, Canadian system has
managed to maintain level of profitability, liquidity and financial stability during the
credit and financial crisis. Although, the system is effective, it is complex in nature
because of multiple regulators managing each province.

Canada regulation are unique as it employs regulators only at the provincial and
territorial level. As a result, the securities regulation landscape is divided into thirteen
jurisdictions. It increase noncompliance and impose unnecessary costs on investors
and market participants. There is thus overlapping of functions and may cause delay
in redressal of investors grievances (Puri, 2012). Consequently, the Canadian
Securities Administrators (CSA) undertakes coordination efforts across provinces
and territories, and aligns policy goals across jurisdictions with regard to law
enforcement and redressal of investors grievances.

All over the world, there is debate over the single regulator for banking, insurance and
capital market in a country, yet Canada continues to have as many as thirteen
provincial and territorial regulators, each with its own securities act, fees and
regulations. This causes the increase in cost and other operation difficulties. This
system has inherent weakness in the form of inefficient allocation of resources, co-
ordination problems, high cost involved, time delays, and the most important non-
proper priorities for the investor protection. The civil law jurisdiction as prevalent in
Canada provides weaker legal protection than common laws jurisdictions. There are
separate investor protection laws in Canada Business Corporation Act (CBCA) and
Qualifications and Curriculum Authority (QCA) and there are multiple corporate laws
statutes with each province and the federal government having their own statutes. As

203
a whole, there are lesser investors complaints and it remained unscathed from the
2007-2009 financial crisis. Despite complex regulatory system, Canada has
maintained safe and sound capital market environment. Halpern and Puri (2007) are
of the view that amidst the economic turbulence that the world has experienced since
2008, Canada is perceived to have a safe and stable regulatory system and a
conservative banking industry. As quoted by them, Washington Post writes that,
While the United States reels from the global financial crisis, with credit markets
still frozen and stock prices careening from highs crease Canadas competitiveness
and maintain investor protection.

5.7.7 IOSCO and Investor Protection

The objectives od IOSCO is to promote the financial stability across the globe by
joining the regulations of all the countries at a common platform by applying the
consistent standards across all worlds financial markets with an ultimate objective to
enable to enable effective enforcement across jurisdictions. Diplock (2010) states that
the regulators across the globe through the mechanism of IOSCO membership, aim do
the followings:

1. to cooperate in promoting high standards in securities regulations in order to

maintain just, efficient and sound market;
2. to cooperate in promoting high standards of regulation in order to maintain just,
efficient and sound markets;
3. to cooperate in promoting high standards of regulation in order to maintain just,
efficient and sound markets;
4. to exchange information on their respective experiences in order to promote
development of their domestic markets;
5. to exchange information on their respective experiences in order to promote
development of their domestic markets;
6. to unite their efforts to establish standards and effective surveillance of
international securities transactions; and
7. to assist each other in promoting the integrity of markets by rigorous application
of standards and their effective enforcement.

Likewise, Okubo (2011), states that IOSCO cooperates, supports and coordinates

204
with other members of organization other committees and their members, in order to
enhance the effectiveness and value of self regulation in promoting efficiency,
transparency and integrity of markets; contribute to regulatory policy development
and implementation through the expertise and input provided by its members and
related parties; identify potential investor protection and market integrity issues and
proactively address emerging trends; effectively address the wide range of issues in
securities markets for the benefit of the regulatory community and investors globally;
and share experiences as SROs with other members and interested parties through
seminars and training programs.

International Organisation Securities Commission (IOSCO) has made a system for the
investor protection where it receives alerts and warnings from its members about
firms which are not authorized to provide investment services in the jurisdiction
which issued the alert or warning. Some of the alerts or warnings are about
unauthorized firms using names similar to those of authorized firms or about
unauthorized firms falsely claiming to be associated with authorized firms. The alerts
and warnings are provided in the specified formats and the investors can download
the details of the warning by clicking the download button. These warnings are
provided by IOSCO members on a voluntary basis. The contents of the alerts and
warnings are the responsibility of the IOSCO member which issues them.

By clicking on these the investors are directed to the text of the alert or warning on
the IOSCO member's web page. Investors are advised to look at the IOSCO member's
web page to get all the relevant information. Only alerts posted during the previous
and current months are visible, but the investors can reach to all alerts which are
searchable.

5.8 Summary

From the above, it is evident, that in India, there is multiplicity of agencies involved
in the redressal of investor complaints with specific tasks assigned to them. Some of
the key areas have overlapping of various activities, and because of this, there is lack
of clarity. This causes confusion not in only in the minds of intermediaries, but also
confuses the investors. For a retail investor who has not adequate resources, expertise

205
and knowledge and skills, it is a very complex and cumbersome process for him to
have redressal of his complaints in a timely and effective manner. He wastes a
considerable time and energy in approaching the authorities and mechanism as stated
above. Some-times, when he gets the justice, it is too late, and the very purpose of
filing his complaint is defeated. If he gets his shares back say after one year, the
market price of the shares may have gone down to a considerable extent causing him
the great loss. Similarly, if he gets his money after a long gap, he looses opportunities
in the market. In nutshell he is so frustrated with lengthy grievance redressal system,
he decides to say goodbye to the investing in securities market altogether.

Hence, there is need for devising a simpler, cost- effective and time bound grievance
redressal mechanism for retail investors, which will go a long way in protecting the
interests of investors. This would make Indian securities market deeper and broader,
and more and more money would come to securities market.

206
 References

Dalal Suchta, (2011), Manifesto for retail investors and senior citizens,
March 10, 2011, posted on. source: http://www.moneylife.in , accessed on July,
10, 2012.

Diplock Jane (2010), Corporate Governance in the Wake of the Financial Crisis-
Governance of Markets Matters, Souvenir paper at United Nations Conference on
Trade and Development, New York and Geneva, pp. 89-107.

Government of India (2010), Compilation of Guidelines for Redress of Public

Grievances, Dept. of Administrative Reforms & Public Grievances

Halpern Paul & Poonam Puri, (2007), Canada Steps UpTask Force to Modernize
Securities Legislation in Canada: Recommendations and Discussion, Capital Markets
Law Journal, April 23, 2007, Vol. 2, No. 2, pp. 191-221,

Ministry of Corporate Affairs, Government of India, website http://www.mca.gov.in/

Ministry/reportonexpertcommittee/chapter7.html, Last accessed on date August 17,
2011.

Nayak Mahesh Keyur, (2010), Investigating the nature of Investors Grievances and
Assessing the Role of the Grievance Redressal Agencies, Journal of Law and
Conflict Resolution Vol. 2(4), April 2010, pp. 60-65, Available online at
http://www.academicjournals.org/JLCR,

Okubo Yoshio (2011), Report of Chairman of the SRO Consultative Committee,

IOSCO Annual Report, 2011, p. 16

Perino, Michael A. (2002), Report to the Securities and Exchange Commission

Regarding Arbitrator Conflict Disclosure Requirements in NASD and NYSE
Securities Arbitrations.

Puri Poonam (2012), Securities Litigation and Enforcement: The Canadian

Perspective, Brooklyn Journal of International Law, Vol. 37, No. 3, 2012 pp. 967-
1019, Electronic copy available at: http://ssrn.com/abstract=2132589

SEBI website: .www.http://investor.sebi.gov.in/investor complaint form.

Somaya Krit (2005), Scientific Management of Small Investors: Protection in the

Millennium with Reference to India: Challenges and Opportunities, Presented to
Department of Commerce, University of Mumbai, Mumbai.

SEBI, Annual Report, 2010-11, OTW/ 19501/ 2011. Dated, June 23rd, 2011, pp. 122,

207
Sabrinathan, G. (2010), SEBIs Regulation of the Indian Securities Market: A
Critical Review of the Major Developments, Vikalpa, Vol. 35, No. 4, Oct.-Dec.,
pp. 13-26.

SEBI Circular No. CIR/MRD/DSA/24/2010, dated August 11, 2010.

SEBI (2003), Model Bye Laws of Stock Exchanges, SEBI/MRD/SE/SK/Cir- 41

/2003, October 28, 2003, pp. 176-184.

Securities Contract (Regulation) Act, 1956, Section 21, Available at BSE Website,
www.http://www.bseindia.com, Last accessed on date June 23, 2011.

The Gazette of India, Extraordinary Part III- Section 4, Dated 26th August, 2009, No.
LAD-NRO/ GN/ 2009-10/15/17441

Websites:
http://www.pgportal.gov.in/grm.aspx
http://usequities.nyx.com/regulation/complaints-and-inquiries/before-proceeding.
http://www.bseindia.com
http://www.sipc.org
http://www.oecd.org/finance/financialmarkets/18468447.pdf.
http://www.iosco.org.
http://en.wikipedia.org/wiki/List_of_stock_exchanges
http://www.securitiesadministrators , ca/aboutcsa.aspx?id=77, Canadian Sec.

http://www.twse.com.tw/en/about/company/guide.php,
www.sfipc.org.tw.)
www.http://sebi.gov.in, Complaints & Assistance -- Contact Details of Division
Chiefs.

www.http://sebi.gov.in Circular no. CIR/OIAE/2/2011 June 3, 2011.

208