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SECURITIES LAWS AND COMPLIANCESPART B ISSUE MANAGEMENT AND COMPLIANCESSTUDY XVIII - INVESTOR PROTECTION

LEARNING OBJECTIVES

Concept and need for investor protection and educationRights and responsibilities of investorsGrievances of investor and redressal mechanismLegal framework for Investor Protection in IndiaInvestor Education and Protection FundInvestor Education and Protection Fund (Awareness and

Protection of Investors) Rules, 2001

Websites for investor protectionInvestor education/financial literacy

The study will enable the students to understand

INTRODUCTIONCapital market plays an extremely important role in promoting andsustaining the growth of an economy. It is an important andefficient conduit to channel and mobilize funds to enterprises, andprovide an effective source of investment in the economy. It playsa critical role in mobilizing savings for investment in productiveassets, with a view to enhancing a countrys long-term growthprospects, and thus acts as a major catalyst in transforming theeconomy into a more efficient, innovative and competitivemarketplace within the global arena.In addition to resource allocation, capital markets also provide amedium for risk management by allowing the diversification of riskin the economy. A well-functioning capital market tends to improveinformation quality as it plays a major role in encouraging theadoption of stronger corporate governance principles, thussupporting a trading environment, which is founded on integrity.Capital market has played a crucial role in supporting periods oftechnological progress and economic development throughouthistory. Among other things, liquid markets make it possible toobtain financing for capital-intensive projects with long gestationperiods. This certainly held true during the industrial revolution inthe 18th century and continues to apply even as we move towards

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the so-called New Economy.The existence of deep and broad capital market is absolutelycrucial and critical in spurring the growth of our country. Anessential imperative for India has been to develop its capitalmarket to provide alternative sources of funding for companiesand in doing so, achieve more effective mobilization of investorssavings. Capital market also provides a valuable source ofexternal finance.

WHO REGULATES WHICH TYPE OF ENTITYI.Given below is a list of types of intermediaries/service providersin the financial market. The names of the relevant regulatorybodies are given in the second column.ENTITY REGULATORAUDITORS The Institute of Chartered Accountants of

India/Controller & Auditor Genral of India(ICAI/CAG)

BANKS Reserve Bank of India (RBI)BANKS - ISSUECOLLECTION

Securities & Exchange Board of India(SEBI)

CHIT FUNDS RBICOMPANIES -ALL

Ministry of Corporate Affairs (MCA)/ Registrar of Companis (ROC)

COMPANIES -

LISTED

MCA/ROC/SEBI/Stock Exchanges

COMPANYSECRETARIES

The Institute of Company Secretaries ofIndia (ICSI )

CO-OPERATIVEBANKS

RBI

CREDIT RATINGAGENCIES

SEBI

CUSTODIAL SEBI

For a long time, the Indian market was considered too small towarrant much attention. However, this view has changed rapidlyas vast amounts of international investment have poured into ourmarkets over the last decade. The Indian market is no longerviewed as a static universe but as a constantly evolving marketproviding attractive opportunities to the global investingcommunity.

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SERVICESDEBENTURETRUSTEES

SEBI

DEPOSITORIES SEBIDEPOSITORY

PARTICIPANTS

SEBI

FINANCIAL &INVESTMENTCONSULTANTS -FOREIGNBROKERS

SEBI

FOREIGN DEBTFUNDS

SEBI

FOREIGNINVESTMENTINSTITUTIONS SEBIINSURANCEBROKERS/ AGENTS

Insurance Regulatory & DevelopmentAuthority (IRDA)

INSURANCECOMPANIES

IRDA

INVESTMENTBANKERS

SEBI

INVESTORASSOCIATIONS

SEBI

MUTUAL FUNDBROKERS/ AGENTS

Association of Mutual Funds of India(AMFI)/ SEBI

MUTUAL FUNDS& ASSETMANAGEMENTCOMPANIES

SEBI

NBFCs RBINEWSPAPERS &MAGAZINES

Press Council of India (PCI)

PLANTATION SEBI

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COMPANIESPORTFOLIOMANAGERS

SEBI

PRIMARYDEALERS

RBI

RADIO Ministry of Information & Broadcasting(MIB)REGISTRARS &SHARETRANSFERAGENTS SEBISOLICITORS &LEGAL

ADVISORS

Bar Council of India (BCI)

STOCKBROKERS

SEBI

STOCKEXCHANGES

SEBI

SUB-BROKERS SEBITV MIBVENTURECAPITAL FUNDS

SEBI

RIGHTS AND RESPONSIBILITIES OF INVESTORSII.Investor Rights Investor ObligationsThe right to get The obligation to The best price Sign a proper Member-

Constituent Agreement Proof ofprice/brokerage charged

Possess a valid contract orpurchase/sale note

Your money/shareson time

Deliver securities with validdocuments and proper signatures

Shares throughauction where delivery isnot received Square up amountwhere delivery not

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received in auction Statement ofAccounts from tradingmemberThe right for redressal against

The obligation to ensure

Fraudulent price To make payment on time Unfair brokerage To Deliver shares on time Delays in receipt ofmoney or shares

To send securities for transfer tothe company on time

Investor unfriendlycompanies

Forwarding all the papers receivedfrom the company under objections tothe broker on time

To receive the share certificates, on allotment or transfer (ifopted for transaction in physical mode) as the case may be,in due time.To receive copies of the Annual Report containing theBalance Sheet, the Profit & Loss account and the AuditorsReport.To participate and vote in general meetings either personallyor through proxy.To receive dividends in due time once approved in generalmeetings.To receive corporate benefits like rights, bonus, etc. onceapproved.To apply to Company Law Board (CLB) to call or direct thecalling of an Annual General Meeting.To inspect the minute books of the general meetings and toreceive copies thereof.

To proceed against the company by way of civil or criminalproceedings.To apply for the winding up of the company.To receive the residual proceeds.

The Rights of Investor as a shareholder

To requisition an Extra-ordinary General meeting.

Besides the above rights, which investors enjoy as an individual shareholder, investors also enjoy the following rights as a group:

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To demand a poll on any resolution.To apply to CLB to investigate into the affairs of thecompany.To apply to CLB for relief in cases of oppression and/ormismanagement.

To receive interest on redemption of debentures in due time.To receive a copy of the trust deed on request.To apply for winding up of the company if the company failsto pay its debt.To approach the Debenture Trustee with your grievance.You ma y note that the above mentioned rights may notnecessarily be absolute. For example, the right to transfersecurities (in physical mode) is subject to the companys rightto refuse transfer as per statutory provisions.

Rights of Investors as a debenture holder

Responsibilities of an Investor as a security holder

To be specificTo remain informedTo be vigilantTo participate and vote in general meetingsTo exercise your rights on your own or as a group.

While you may be happy to note that you have so many rightsas a stakeholder in the company that should not lead you tocomplacency; because you have also certain responsibilities todischarge.

COMMON GRIEVANCES OF INVESTORSIII.

Furnishing inadequate information or makingmisrepresentation in prospectus, application forms,advertisements and rights offer documents.

1.

Delay/non-receipt of refund orders, allotment letters andshare certificates/ debenture certificates/bonds.

2.

Delay/non-receipt of share certificates/debenture certificatesafter transfer.

3.

Delay in listing of securities with stock exchanges.4.Delay/non-receipt of share certificates/bonds/debenturesafter endorsement of part payment/call money.

5.

Delay/non-receipt of share certificates/bonds/debenturesafter sub division or consolidation.

6.

The general grievances the investors have against companiescan be listed as under:

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Delay/non-receipt of letter of offer of rights issue.7.Delay/non-receipt of bonus shares/right shares.8.Delay/non-receipt of notices for meetings/annual reports.9.Delay/non-receipt of interest warrants and dividend warrants.10.Fixing unduly high premium on shares.11.Difficulties in sending odd lots.12.Obtaining undue benefits by company insiders.13.Delay/default in payment of interest and repayment ofdeposits.

14.

In respect of each of the above grievances complaints can belodged with the Registrar of Companies, stock exchanges orSEBI as the case ma y be and in certain cases, they can bepursued with the Company Law Board also to obtain remediesand relief.REDRESSAL OF INVESTOR GRIEVANCESIV.The following table indicates nature of investors grievances andthe authorities to be approached:Nature of grievance Concerned Authority In case of any public issue Non-receipt of:- Refund order - SEBI- Interest on delayed refund - Ministry of Company

Affairs- Allotment advice - Stock Exchange- Share certificates - Registrars to the Issue- Duplicates for all of the above- RevalidationsIn case of a listed security Non-receipt of the certificates after:

- transfer - SEBI- transmission - Ministry of CompanyAffairs

- conversion - Stock Exchange- endorsement- consolidation- splitting

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- duplicates of securities Regardinglisted

- SEBI

Debentures, non-receipt of- interest due - Ministry of Company

Affairs

- redemption proceeds - The Debenture TrusteesNature of grievance Can be taken up with - interest on delayed payment - Stock ExchangeRegarding bad delivery of shares - Bad delivery cell of

the stock exchangeRegarding shares or debentures inunlisted companies

- Ministry of CompanyAffairs

Deposits in collective investmentschemes like plantations, etc.

- SEBI

Units of Mutual Funds - SEBIFixed Deposits in Banks andFinance Companies

- Reserve Bank ofIndia

Fixed Deposits in manufacturingcompanies

- Ministry of CompanyAffairs

Investor Information Centres have been set up in everyrecognised stock exchange which take up all complaintsregarding the trades effected in the exchange and the relevantmember of the exchange.

Complaints with Consumers Disputes Redressal Forum.1.Suits in the Court of Law.2.

Moreover two other avenues are always available to theinvestors to seek redressal of their complaints:

But considering the cost and time involved, the investor shouldbetter opt for these methods only as a last resort, after

exhausting other simpler and direct methods of redressal oftheir grievances.SEBI has issued rules, regulations and guidelines to monitor theworking of various players both in the primary market andsecondary market including stock exchanges and mutual funds.In particular, SEBI guidelines provide for due diligence to becarried out by each intermediary in the performance of his work.LEGAL FRAMEWORK FOR INVESTOR PROTECTION INV.

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INDIA

Companies Act, 19561.Acceptance of DepositsSection 58 A - This section provides that no Company shallinvite any public deposits without issuing an advertisement inaccordance with the Companies (Acceptance of Deposit)Rules, 1975. In the said advertisement the Company is underobligation to indicate its financial position as also detailsabout the Companys business, Board Directors etc. A copyof the said advertisement has to be filed with the Registrar ofCompanies.In terms of sub-section 9 where a Company fails to repay anydeposit or part thereof, the Company Law Board may eitheron its own or on the application of the depositors, by orderdirect the Company to make re-payment of such depositsthereof forthwith or within such time and subject to suchconditions as may be specified in the order.Sub-section 10 provides for penalty in the case of failure tocomply with any order made by the Board under sub-section9.Section 58AA: In this Section the Companies Act hasrecognized that a small depositor means a depositor who hasdeposited in a financial year a sum not exceeding Rs.20,000/- in a company and includes its successors,nominees and legal representatives. This section inter alia,provides that in case of any default made by a company inthe re-payment of such deposits and part thereof or interestthereon, it shall give an intimation within 60 days about suchdefault to the Company Law Board (CLB).It is also provided

In order to afford adequate protection to the investors,provisions have been incorporated in different legislations suchas the Companies Act, Securities Contracts (Regulation) Act,Consumer Protection Act, Depositories Act, and ListingAgreement of the Stock Exchanges supplemented by manyguidelines, circulars and press notes issued by the Ministry ofFinance, Ministry of Company Affairs and SEBI from time totime. The legislations as well as the rules and regulationsnotified thereunder specify disclosure requirements to becomplied with by the companies and also punishments andremedies for failure of compliance.

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that upon default in re-payment to small depositors, nocompany shall accept any further deposits from smalldepositors until the matured deposits and interest accruedthereon have been paid fully.Mis-statements in ProspectusSection 63: This Section deals with criminal liability formisstatement in prospectus issued by a company. For suchmisstatements, the section provides for imprisonment upto 2years which and fine which may extend to Rs. 50,000/- orwith both and the offence is compoundable.Section 68: This section deals with the penalty forfraudulently inducing persons to invest money in security of acompany and provides for imprisonment upto 5 years or findupto Rs. 1 lakh.Non-payment of DividendSection 205: This section, inter alia, requires a company whohas declared a dividend for any financial year to deposit theamount of such dividend (including interim dividend, if any) inseparate bank account within 5 days from the date ofdeclaration of such dividend.Section 205A: This section provides that where a dividendhas been declared by a company which has not been paid orclaimed within 30 days from the date of such declaration, thecompany shall within 7 days of expiry of the said period of 30days transfer the total amount of dividend which remainsunpaid or unclaimed to a special account to be opened by acompany in this behalf.This section also provide for penalty for non complying withthe above requirement and the same by way of interest @12% on the amount of unpaid/unclaimed dividend nottransferred to the special account.Section 205C: This section provides for establishment ofInvestors Education and Protection Fund by the CentralGovernment. Various types of unpaid/unclaimed amounts ofapplication money/matured deposits/matured debenture etc.are to be credited to the said fund. The said accumulation inthis fund are to be utilized for promotion of investorsawareness and protection of investors interests.Transfers and Transmission of SecuritiesRegarding transfers and transmissions of securities

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necessary provisions are available in Section 111, 111A and113 of the Companies Act. As regards listed companies, theclauses in the listing agreement contain provisions for promptissue of certificates after effecting transfers.Failure to comply with the provisions of Companies Act canbe brought before the Company Law Board through anappeal under Section 111 and 111A. After hearing the partiesCompany Law Board may by order direct the company toregister the transfer.Failure to Send Financial StatementsSection 219: This section provides for the right of a memberfor copies of Balance-sheet and auditors Report.Sub-section 3 makes the default in complying with thisrequirement punishable with fine which may extend to Rs.5,000/-.Besides, Section 621 of the Companies Act, 1956 permitsthe shareholder to proceed against the company and itsofficers in a court of law generally for offences committedunder the Companies Act including prospectus, abridgedprospectus, allotment, listing, transfer of shares, dividendpayment etc. committed by the company as well as itsofficers under various provisions in the Act.Protection to DebentureholdersSection 117A to 117C protect the debenture holders, and thenew sections contains stringent punishments for default.SEBI Act, 19922.In the preamble to the SEBI Act, 1992 two objectives arementioned. The first objective is protecting the interest of theinvestors in securities and the second is to promote thedevelopment of and to regulate the securities market and formatters connected therewith or incidental thereto. Thuspriority is accorded to investor protection in the SEBI Act.Section 11 in Chapter IV of the SEBI Act lists out thefunctions of the SEBI. There are 15 functions provided forSEBI in this section. Section 11(2)(e) stipulates prohibition offraudulent and unfair practices relating to securities marketsas one of these functions and Section 11(2)(g) provides forprohibition of insider trading in securities. In pursuance of thisprovision the Board had notified the SEBI (Prohibition offraudulent and unfair practices relating to securities markets)

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Regulations, 1995 on 25th October, 1995 in exercise ofSection 30 of SEBI Act which empowers SEBI to makeregulations for different purposes of the Act. Theseregulations have now been replaced with SEBI (Prohibition ofFraudulent and Unfair Trade Practices relating to SecuritiesMarket) Regulations, 2003 w.e.f. 17.7.2003.Section 15A to Section 15HA provide for penalty in respect offailure to furnish information, return, etc., failure by anyperson to enter into agreement with clients, failure to redressinvestors grievances, certain defaults in case of mutualfunds, failure to observe rules and regulations by an assetmanagement company, default in case of stock brokers,insider trading, non-disclosure of acquisition of shares andtakeovers, fraudulent and unfair trade practices.Section 24 provides for punishment with imprisonment upto10 years or with fine which may extend to Rs. 25 crores orwith both. If any person contravenes or attempts tocontravene or abets the contravention of the provision ofSEBI Act or any rules or regulation.As regards violation of provisions in the listing agreement,investors can forward their complaints to the stockexchanges with whom the company is listed to initiate action.The Investors are also at liberty to file complaints before theDistrict Forum, State Commission or National Commissionestablished under Section 9 of the Consumer Protection Act.In the case of listed companies investors are entitled toforward their complaints to the company and SEBI and thelatter takes up the matter with the companies. SEBI has thepower to take action including criminal proceeding wherenecessary against persons responsible for delay.Powers under the Companies Act, 1956SEBI has delegated powers to take action against listedcompanies under 45 Sections of the Companies Act inrelation to issue and transfer of securities and non-paymentof dividend. SEBI is empowered to deal with violations anddefaults under Sections 55 to 58, 59 to 84, 108 to 110, 112 &113, 116 to 122, 206 and 206A & 207, committed by listedcompanies as well as public companies which intend to makepublic issues and get their securities listed on any recognisedstock exchange. Under Section 209A, officers of SEBI are

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also authorised to undertake inspection of books of thecompany in regard to matters covered under Section 55A,and SEBI need not give previous notice to the company inthis regard.Securities Contracts (Regulation) Act, 19563.Section 23 provides for penalties which may extend to 10years or with fine which may extend to Rs. 25 crores or withboth for contravention of the provisions of the Act.Section 23A to Section 23H provide for penalty in respect offailure to furnish information, return etc., failure by anyperson to enter into an agreement with clients, failure toredress investor grievances, failure to segregate securities ormoneys of client or clients, failure to comply with provisionsof listing conditions or delisting conditions or grounds, excessdematerialization or delivery of unlisted securities, failure tofurnish periodical returns, contravention with any provision ofthe act where no separate penalty is provided.Section 23M provides for penalty for imprisonment for a termwhich may extend to 10 years or with fine which may extendto Rs. 25 crore or both for contravention or attempts tocontravene or abates the contravention of the provisions ofthe Act or any rules or regulations or bylaws.Reserve Bank of India Act, 1938.4.Section 45 QA of the Reserve Bank of India Act gives adepositor similar rights as are provided under Companies Actto approach CLB for payment of matured deposits in thecase of NBFCsIndian Penal Code5.Economic Offence Wings of the Police Departments havepowers under IPC to take up the cases of cheating, forgeryand misappropriation etc. relating to investments.Stock exchanges can also take up the issues pertaining tosecurities in terms of the conditions of listing agreement,rules and regulations

PROHIBITION OF FRAUDULENT AND UNFAIR TRADEPRACTICES

VI.

SEBI Regulations prohibiting the Fraudulent and Unfair TradePractices relating to Securities Market have been divided into 3chapters. While Chapter I deals with preliminary matters,Chapter II provides for prohibition of fraudulent and unfair trade

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practices relating to securities markets and Chapter IIIprescribes the powers and procedure for investigating intoalleged contraventions and issuing directions and ordersincluding suspension or cancellation of registration of anintermediary guilty of such contraventions.

"dealing in securities" includes an act of buying, selling orsubscribing pursuant to any issue of any security or agreeingto buy, sell or subscribe to any issue of any security orotherwise transacting in any way in any security by anyperson as principal, agent or intermediary referred to inSection 12 of the Act.

1.

a knowing misrepresentation of the truth or concealment ofmaterial fact in order that another person may act to hisdetriment;

i.

a suggestion as to a fact which is not true by one whodoes not believe it to be true;

ii.

an active concealment of a fact by a person havingknowledge or belief of the fact;

iii.

a promise made without any intention of performing it;iv.a representation made in a reckless and careless mannerwhether it be true or false;

v.

any such act or omission as any other law specificallydeclares to be fraudulent;

vi.

deceptive behaviour by a person depriving another ofinformed consent or full participation;

vii.

a false statement made without reasonable ground forbelieving it to be true;

viii.

the act of an issuer of securities giving out misinformationthat affects the market price of the security, resulting ininvestors being effectively misled eventhough they did notrely on the statement itself or anything derived from it other

ix.

"fraud" includes any act, expression, omission orconcealment committed whether in a deceitful manner or notby a person or by any other person with his connivance or byhis agent while dealing in securities in order to induceanother person or his agent to deal in securities, whether ornot there is any wrongful gain or avoidance of any loss, andshall also include

2.

The following definitions contained in Regulation 2 areimportant

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than the market price.And "fraudulent" shall be construed accordingly.

the economic policy of the governmenta.the economic situation of the countryb.trends in the securities market orc.any other matter of a like natured.

Nothing contained in this clause shall apply to any generalcomments made in good faith in regard to

whether such comments are made in public or in private.Prohibition of certain dealings in securities

buy, sell or otherwise deal in securities in a fraudulentmanner;

a.

use or employ, in connection with issue, purchase or sale ofany security listed or proposed to be listed in a recognizedstock exchange, any manipulative or deceptive device orcontrivance in contravention of the provisions of the Act orthe rules or the regulations made there under;

b.

employ any device, scheme or artifice to defraud inconnection with dealing in or issue of securities which arelisted or proposed to be listed on a recognized stockexchange;

c.

engage in any act, practice, course of business whichoperates or would operate as fraud or deceit upon anyperson in connection with any dealing in or issue of securitieswhich are listed or proposed to be listed on a recognizedstock exchange in contravention of the provisions of the Actor the rules and the regulations made there under.

d.

Regulation 3 provides for prohibition of certain dealings insecurities it lays down that no person shall directly orindirectly

Prohibition of manipulative, fraudulent and unfair trade practices

Without prejudice to the provisions of regulation 3, no personshall indulge in a fraudulent or an unfair trade practice insecurities.

1.

indulging in an act which creates false or misleadingappearance of trading in the securities market;

a.

Dealing in securities shall be deemed to be a fraudulent or anunfair trade practice if it involves fraud and may include all orany of the following, namely:

2.

Regulation 4 provides that

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dealing in a security not intended to effect transfer ofbeneficial ownership but intended to operate only as adevice to inflate, depress or cause fluctuations in the priceof such security for wrongful gain or avoidance of loss;

b.

advancing or agreeing to advance any money to anyperson thereby inducing any other person to offer to buyany security in any issue only with the intention of securingthe minimum subscription to such issue;

c.

paying, offering or agreeing to pay or offer, directly orindirectly, to any person any money or moneys worth forinducing such person for dealing in any security with theobject of inflating, depressing, maintaining or causingfluctuation in the price of such security;

d.

any act or omission amounting to manipulation of the priceof a security;

e.

publishing or causing to publish or reporting or causing toreport by a person dealing in securities any informationwhich is not true or which he does not believe to be trueprior to or in the course of dealing in securities;

f.

entering into a transaction in securities without intention ofperforming it or without intention of change of ownership ofsuch security;

g.

selling, dealing or pledging of stolen or counterfeit securitywhether in physical or dematerialized form;

h.

an intermediary promising a certain price in respect ofbuying or selling of a security to a client and waiting till adiscrepancy arises in the price of such security andretaining the difference in prices as profit for himself;

i.

an intermediary providing his clients with such informationrelating to a security as cannot be verified by the clientsbefore their dealing in such security;

j.

an advertisement that is misleading or that containsinformation in a distorted manner and which may influencethe decision of the investors;

k.

an intermediary reporting trading transactions to his clientsentered into on their behalf in an inflated manner in orderto increase his commission and brokerage;

l.

an intermediary not disclosing to his client transactionsentered into on his behalf including taking an optionposition;

m.

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circular transactions in respect of a security entered intobetween intermediaries in order to increase commission toprovide a false appearance of trading in such security or toinflate, depress or cause fluctuations in the price of suchsecurity;

n.

encouraging the clients by an intermediary to deal insecurities solely with the object of enhancing his brokerageor commission.

o.

an intermediary predating or otherwise falsifying recordssuch as contract notes.

p.

an intermediary buying or selling securities in advance of asubstantial client order or whereb y a futures or optionposition is taken about an impending transaction in thesame or related futures or options contract.

q.

planting false or misleading news which may induce saleor purchase of securities.

r.

Power of the Board to order investigation

the transactions in securities are being dealt with in a mannerdetrimental to the investors or the securities market inviolation of these regulations;

a.

any intermediary or any person associated with the securitiesmarket has violated any of the provisions of the Act or therules or the regulations,

b.

Regulation 5 provides that, where the Board, the Chairman, themember or the Executive Director (hereinafter referred to asappointing authority) has reasonable ground to believe that

it may, at any time by order in writing, direct any officer notbelow the rank of Division Chief (hereinafter referred to as theInvestigating Authority) specified in the order to investigate theaffairs of such intermediary or persons associated with thesecurities market or any other person and to report thereon tothe Board in the manner provided in Section 11C of the Act.Powers of Investigating Authority

to call for information or records from any person specified inSection 11(2)(i) of the Act;

1.

to undertake inspection of any book, or register, or otherdocument or record of any listed public company or a publiccompany (not being intermediaries referred to in Section 12

2.

The Investigating Authority has been vested with the followingpowers in respect of the conduct of investigation, namely:

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of the Act) which intends to get its securities listed on anyrecognized stock exchange where the Investigating Authorityhas reasonable grounds to believe that such company hasbeen conducting in violation of these regulations;to require any intermediary or any person associated withsecurities market in any manner to furnish such informationto, or produce such books, or registers, or other documents,or record before him or any person authorized by him in thisbehalf as he may consider necessary if the furnishing of suchinformation or the production of such books, or registers, orother documents, or record is relevant or necessary for thepurposes of the investigation;

3.

to keep in his custody any books, registers, other documentsand record produced under this regulation for a maximumperiod of one month which may be extended upto a period ofsix months by the Board.

4.

The Investigating Authority may call for any book, register,other document or record if the same is needed again.However if the person on whose behalf the books, registers,other documents and record are produced requires certifiedcopies of the books, registers, other documents and recordproduced, the Investigating Authority has been put underobligation to give certified copies of such books, registers,other documents and record to such person on whose behalfthe books, registers, other documents and record wereproduced;to examine orally and to record the statement of the personconcerned or any director, partner, member or employee ofsuch person and to take notes of such oral examination to beused as an evidence against such person. However the saidnotes are required to be read over to, or by, and signed by,the person so examined;

5.

to examine on oath any manager, managing director, officeror other employee of any intermediary or any personassociated with securities market in any manner in relation tothe affairs of his business and may administer an oathaccordingly and for that purpose may require any of thosepersons to appear before him personally.

6.

Power of the Investigating Authority to be exercised with priorapproval

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to call for information and record from any bank or any otherauthority or board or corporation established or constitutedby or under any Central, State or Provincial Act in respect ofany transaction in securities which are under investigation;

a.

to make an application to the Judicial Magistrate of the firstclass having jurisdiction for an order for the seizure of anybooks, registers, other documents and record, if in the courseof investigation, the Investigating Authority has reasonableground to believe that such books, registers, otherdocuments and record of, or relating to, any intermediary orany person associated with securities market in any mannermay be destroyed, mutilated, altered, falsified or secreted;

b.

to keep in his custody the books, registers, other documentsand record seized under these regulations for such periodnot later than the conclusion of the investigation as heconsiders necessary and thereafter to return the same to theperson, the company or the other body corporate, or, as thecase may be, to the managing director or the manager or anyother person from whose custody or power they were seized.However, the Investigating Authority may, before returningsuch books, registers, other documents and record asaforesaid, place identification marks on them or any partthereof.

c.

The regulations provided that subject to the provisions ofRegulation every search or seizure made has to be carriedout in accordance with the provisions of the Code of CriminalProcedure, 1973 relating to searches or seizures made underthat Code.

d.

The Investigating Authority have also been vested with thefollowing powers subject to the specific approval from theChairman or Member, namely:

Duty to co-operate, etc.The Regulation imposes on every person in respect of whom aninvestigation has been ordered under regulation 7, a duty toproduce to the Investigating Authority or any person authorizedby him such books, accounts and other documents and recordin his custody or control and to furnish such statements andinformation as the Investigation Authority or the person soauthorized by him may reasonably require for the purposes ofthe investigation; and to appear before the Investigation

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Authority personally when required to do so by him underregulation 6 or regulation 7 to answer any question which is putto him by the Investigation Authority in pursuance of the powersunder the said regulations.Regulation further a duty imposes on every manager, managingdirector, officer and other employee of the company and everyintermediary referred to in Section 12 of the Act or every personassociated with the securities market to preserve and toproduce to the Investigating Authority or any person authorizedby him in this behalf, all the books, registers, other documentsand record of, or relating to, the company or, as the case maybe, of or relating to, the intermediary or such person, which arein their custody or power.Additionally, such person has also been put under the obligationto allow the Investigating Authority to have access to thepremises occupied by such person at all reasonable times forthe purpose of investigation; extend to the InvestigatingAuthority reasonable facilities for examining any books,accounts and other documents in his custody or control(whether kept manually or in computer or in any other form)reasonably required for the purposes of the investigation; andprovide to such Investigating Authority any such books,accounts and records which, in the opinion of the InvestigatingAuthority, are relevant to the investigation or, as the case maybe, allow him to take out computer out-prints thereof.Submission of report to the BoardAfter the completion of investigation, the Investigating Authoritytakes into account all relevant facts and submit a report to theappointing authority:However, it has been provided that the Investigating Authoritymay submit an interim report pending completion ofinvestigations if he considers necessary in the interest ofinvestors and the securities market or as directed by theappointing authority.Enforcement by the BoardSEBI, if satisfied after considering the report referred to inregulation 9, that there is a violation of these regulations andafter giving a reasonable opportunity of hearing to the personsconcerned, issue such directions or take such action asmentioned in regulation 11 and regulation 12. It has been

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provided in the regulation that SEBI may, in the interest ofinvestors and the securities market, pending the receipt of thereport of the investigating authority referred to in regulation 9,issue directions under regulation 11. It has been furtherprovided that SEBI may, in the interest of investors andsecurities market, dispense with the opportunity of pre-decisional hearing by recording reasons in writing and shouldgive an opportunity of post-decisional hearing to the personsconcerned as expeditiously as possible.

suspend the trading of the security found to be or prima-faciefound to be involved in fraudulent and unfair trade practice ina recognized stock exchange;

a.

restrain persons from accessing the securities market andprohibit any person associated with securities market to buy,sell or deal in securities;

b.

suspend any office-bearer of any stock exchange or self-regulatory organization from holding such position;

c.

impound and retain the proceeds or securities in respect ofany transaction which is in violation or prima facie in violationof these regulations;

d.

direct any intermediary or any person associated with thesecurities market in any manner not to dispose of or alienatean asset forming part of a fraudulent and unfair transaction;

e.

require the person concerned to call upon any of its officers,other employees or representatives to refrain from dealing insecurities in any particular manner;

f.

prohibit the person concerned from disposing of any of thesecurities acquired in contravention of these regulations;

g.

direct the person concerned to dispose of any such securitiesacquired in contravention of these re gulations, in suchmanner as the Board may deem fit, for restoring the status-quo ante;

h.

SEBI may issue or take any of the following actions ordirections, either pending investigation or enquiry or oncompletion of such investigation or enquiry, namely:

(2) SEBI should issue a press release in respect of any finalorder passed in atleast two newspapers of which one shall havenationwide circulation and also put the order on the website ofthe Board.Suspension or cancellation of registration

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Issue a warning or censurea.suspend the registration of the intermediary; orb.cancel of the registration of the intermediaryc.

SEBI may in the interests of investors and securities markettake the following action against an intermediary:

UNIQUE IDENTIFICATION NUMBERVII.In November 2003, SEBI initiated the process of creation of aCentral database of market participants and investors. SEBI(Central Database of Market Participants) Regulations, 2003requires every specified intermediary, other entity, specifiedlisted company and specified investor to make application forallotment of Unique Identification Number for itself and for itsrelated persons.Unique Identification Number means theIdentification Number generated in the Central Database forand allotted to each applicant under the regulations. Specifiedintermediaries, investors, listed company mean suchintermediaries or other entities as may be specified by SEBI inthe notification published in the Official Gazette pursuant toRegulations. Till date, almost all the intermediaries have beenspecified for obtaining Unique Identification Number. Theregulations also deal with grant and revocation of UniqueIdentification Number, continuing obligations, action in case ofviolation such as acting, dealing etc. without obtaining UniqueIdentification number, action for giving false statement, failure tointimate changes and failure to make application for newlyadded related person. However, SEBI vide its circular datedApril 27, 2007 made PAN, the sole identification number for allparticipants in the securities market, irrespective of the amountof transaction. Therefore, SEBI vide its circular dated June 25,2007 discontinurd with the requirements of Unique IdentificationNumber, though the regulation have not yet been repealed.Major Highlights of the Regulations are provided below:Unique Identification Numbers for market participantsEvery specified intermediary, other entity, specified listedcompany and specified investor is required to make anapplication for allotment of unique identification numbers foritself and for its related persons in accordance with theregulations.Unique Identification Numbers for Specified Intermediary andOther Entity

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its principal officer and personnel engaged in the operationalactivities of the intermediary for which a certificate ofregistration is required or taken from the Board;

i.

its promoters, other than the Central or State Government orany statutory authority;

ii.

its directors, in case it is a body corporate;iii.its partners, in case it is a partnership firm;iv.its associates and their directors;v.the sponsors, trustees, asset management companies andasset managers, where applicable;

vi.

its proprietor, where applicable; and,vii.relatives of the natural persons mentioned in sub-clauses (i)to (vii) above.

viii.

The Regulations provide that on and from such date as may benotified by the SEBI in the official gazette, no specifiedintermediary or other entity shall act as such, unless it hasobtained a unique identification number from the DesignatedService Provider and the following related persons have beenallotted unique identification numbers by the DesignatedService Provider:

However such person may continue to act as an intermediary orother entity if it has made applications for allotment of uniqueidentification number under regulation 7 before the notified dateand where such application has been rejected by the Board, anappeal has been filed and such appeal is pending for disposal.Every certificate of registration issued to a specifiedintermediary by the Board after commencement of theregulations has been made subject to the condition that prior tocommencement of its activities, the intermediary shall obtain aunique identification number for itself and for the personsmentioned in the Regulations.Unique Identification Number for Specified Listed Company

it has obtained a unique identification number from theDesignated Service Provider; and,

a.

the following related persons have been allotted uniqueb.

The Regulations require that on and from such date as may benotified by the Board in the official gazette, no specified listedcompany or a company which intends to get its securities listedshall issue any securities which are proposed to be listed on arecognized stock exchange, unless

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its promoters, other than the Central or State Governmentor any statutory authority;

i.

its directors and officers;ii.its designated employees;iii.its subsidiaries, its holding company and the holdingcompanys subsidiaries, if any;

iv.

its associates and their directors; and,v.relatives of the natural persons mentioned in sub-clauses(i) to (iii) and (v) above.

vi.

identification numbers by the Designated Service Provider:

It has however been provided that a specified listed companymay, make an issue of securities which are proposed to belisted in any recognized stock exchange if it has made anapplication for allotment of unique identification numberbefore the notified date, till the disposal of the application andwhere an appeal has been filed, till such appeal is disposedof.

Unique Identification Numbers for Specified InvestorsThe Regulations provide that on and from such date as may benotified by the Board in the Official Gazette, no specifiedinvestor, not being a body corporate, shall buy, sell or deal inany securities which are listed on any recognized stockexchange or in units of a mutual fund or a collective investmentscheme or subscribe to securities which are proposed to belisted on any recognized stock exchange or units of a mutualfund or a collective investment scheme unless he has beenallotted a unique identification number.It is further provided that on and from such date as may benotified by the Board in the Official Gazette, no specifiedinvestor being a body corporate shall buy, sell or deal in anysecurities which are listed on any recognized stock exchange orin units of a mutual fund or a collective investment scheme orsubscribe to securities which are proposed to be listed in anyrecognized stock exchange or units of a mutual fund or acollective investment scheme unless such specified investor, itspromoters and directors have been allotted unique identificationnumbers.The Regulations also provide that on and from such date asmay be notified by the Board in the Official Gazette, nospecified investor, being a Foreign Institutional Investor, a sub-

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account or a Foreign Venture Capital Investor shall buy, sell ordeal in any securities which are listed on any recognized stockexchange or in units of a mutual fund or a collective investmentscheme or subscribe to securities which are proposed to belisted in any recognized stock exchange or units of a mutualfund or a collective investment scheme unless it has beenallotted a unique identification number.Every intermediary has been prohibited, after such specifieddate, from dealing in or allotting such securities on behalf of orto a specified investor unless the investor has been allotted aunique identification number. However, specified investor whohas applied for allotment of a unique identification numberbefore the notified date, till the disposal of his application or,where he has filed an appeal, till the disposal of the appeal, asthe case may be, has been exempted from the application ofthe regulations.Application by specified intermediary or other entityEvery specified intermediary or other entity is required to makean application in accordance with the Regulations to theDesignated Service Provider for allotment of uniqueidentification numbers for itself and for its related persons.Application by specified listed companyEvery specified listed company is required to make anapplication to the Designated Service Provider in accordancewith Regulations for allotment of unique identification numbersfor itself and for its related persons. Every public companyspecified in the notification issued under regulation 5 and whichintends to get its securities listed in a recognized stockexchange shall make an application to the Designated ServiceProvider for allotment of unique identification numbers for itselfand for the related persons mentioned in Regulation 4simultaneously with the filing of the offer document with theCentral Listing Authority.Application by specified investorEvery specified investor is required to make an application tothe Designated Service Provider for allotment of our uniqueidentification number.Person holding a unique identification number not required toobtain another unique identification numberThe regulations provides that no person is required to apply for

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or be allotted another unique identification number, if he alreadyholds a unique identification number allotted to him under theregulations in any other capacity. Further, where any personholding a unique identification number subsequently becomesan intermediary or a listed company or a related person of anyof them, he is required to disclose such facts to the DesignatedService Provider.Maintenance of recordsThe Designated Service Provider have been put underobligation to maintain such books, records and documents, insuch manner and for such period as may be specified by theSEBI.Format of applicationEvery application made by a specified investor or a relatedperson of a specified intermediary or specified listed companybeing a natural person, is required to be made in Form Aspecified in the Schedule accompanied with a specified fee.Similarly every application made by a specified listed company,specified intermediary, a related person of any of the above or aspecified investor, not being a natural person, is required to bemade in Form B specified in the Schedule accompanied with aspecified fee.Procedure on Receipt of ApplicationAfter receiving an application for allotment of uniqueidentification number, the Designated Service Provider shall, ifthe application is not found defective, allot to the applicant aunique identification number within thirty days of receipt of theapplication. In case it is found that any such application isdefective, the Designated Service Provider may intimate thedefect to the applicant and give it an opportunity to rectify thedefect within a period of fifteen days from the date of suchintimation or within such further period as the Board may allowon a request made in this behalf. However in these cases anydefect in the application is intimated and the defect is notrectified by the applicant within the said period of fifteen daysor, as the case may be, or further period allowed, DesignatedService Provider shall refer the application to the Board, whichmay either direct the Designated Service Provider to allot theunique identification number or reject the application after givingan opportunity to the applicant to make representations.

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Criteria to Determine Specified Intermediaries, Specified ListedCompanies and Specified Investors

in respect of intermediaries or other entities their kind andthe nature of functions performed by them, their networth andother similar factors;

i.

in respect of listed companies or companies which intend toget their securities listed their paid up capital, the numberof their public shareholders, the volume of trading in theirsecurities, the proposed issue size and other similar factors;and,

ii.

in respect of investors the quantum of investment made bythem in the securities of any listed company or their volumeof trading in securities in a particular financial year.

iii.

For specifying the intermediaries, listed companies or investorsSEBI may take into consideration the following factors:

False Statements and Revocation of Unique IdentificationNumber

in case of an intermediary, by its whole time director,managing partner, managing trustee or sole proprietor, asthe case may be, and by its compliance officer;

i.

in case of a listed company, by its whole time director and itsCompany Secretary or auditor; and,

ii.

in case of an investor, by him.iii.

No person can make a false statement or misrepresent any factin any application made to the Designated Service Providerunder these regulations. Every application made to theDesignated Service Provider under these regulations and everyintimation made under regulations shall be certified to be trueand correct:

Revocation of Unique Identification NumberIf in any case it is found that the unique identification numberwas obtained by a person through fraud or misrepresentation orwas allotted to him under a mistake, the Board may, withoutprejudice to other action that it may take under any law for thetime being in force and after giving him an opportunity ofmaking representations, revoke the unique identificationnumber allotted to him or to the related persons. Uponrevocation of the unique identification number of a person, theprovisions of the regulations shall apply from the date ofrevocation, as if no unique identification number was allotted to

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(IICM) has been engaged for conducting research/study onunclaimed dividend, interest etc. and also conductingTraining of Trainers programme.

www.iepf.gov.in IEPF Website Launched by Ministry ofCorporate AffairsFinancial literacy allows the investors to fully appreciateopportunities and associated risks, take informed decisions andparticipate actively in the economic growth story of the countryby converting savings into investments. Ministry of CorporateAffairs (MCA) has set up the Investor Education and ProtectionFund (IEPF) with the dedicated purpose of empoweringinvestors through education and awareness building.As a step towards achieving this objective, MCA on 27thSeptember, 2007 launched a website www.iepf.gov.in . It wouldprovide information about IEPF and the various activities thathave been undertaken/ funded by it. This website fulfils theneed for an information resource for small investors on allaspects of the financial markets and would attempt to do it inthe small investors language. Ministry of Corporate Affairsintends to cover many other areas like lifetime investmentstrategy, insurance, plantation companies, fixed deposits, smallsavings and banking. It is also proposed to introduce severalinvestor-friendly services like online help desks, webcasts, quizcontests, investment planning worksheets, retirement planning,tax guides, working with financial advisors and investor alerts.This website provides information on various aspects such asRole of Capital Market, IPO Investing, Mutual Fund Investing,Stock Trading, Depository Account, Debt Market, Derivatives,Indices, Indices (Comic Strip), Index Funds, InvestorGrievances &Arbitration (Stock Exchanges), Investor Rights &Obligations, Dos and Donts etc.watchoutinvestors.com Website Sponsored by InvestorEducation and Protection Fund, Ministry of Corporate AffairsFunded by MCAwatchoutinvestors.com is a flagship website aided andsponsored by the Investor Education and Protection Fund of theMinistry of Corporate Affairs, Government of India.A free public service... Arms investors with a self-defense tool to protect themselvesfrom entities and persons who have been indicted by a

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regulator for an economic default and/or for non-compliance oflaws/guidelines and/or who are no longer in the specifiedactivity Provides a user-friendly, Quick Search leading to details ofthe selected entity/personMissionTo prevent unscrupulous entities from harming investors and, inthe process help build public confidence in the financial system,thereby enabling flow of public investment to the right avenues.The websitewatchoutinvestors.com has been created to provide informationto the investors in respect of unscrupulous entities who havecommitted frauds or who have not been complying with theeconomic laws of the land. Many of these entities keepreappearing to harm the investors again, often with a newcompany or changed company names or by floating newschemes, taking advantage of short public memory andexploiting greed.Though penal regulatory action has been taken against many ofsuch entities, information about such actions was scattered andwas in a difficult-to-access, difficult-to-use format across a largenumber of sources i.e. websites, databases, publications,notifications and orders of the government and of otherorganizations, agencies, courts of law, tribunals andcommissions. It was almost impossible for an investor to locatean indicted entity at any regulators website and worse, theabsence of a combined database of actions taken by allregulators prevented the investors from assessing the extent ofdefaults by a given entity.Over several years, watchoutinvestors.com has undertaken thehuge job of collating, value adding, cleaning, standardizing,reformatting and tabulating information on all regulatory actionsof the past few years. This first-of-its-kind-in-the-world websiteis now a national web-based registry covering entities includingcompanies intermediaries, and wherever available personsassociated with such entities, who have been indicted for aneconomic default and/or for non-compliance of laws/guidelinesand/or who are no longer in a specified activity. In fact, this siteis easier to search and navigate than the official websites of thevery regulatory agencies whose actions have been tracked and

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listed by it.Regulators covered

Bombay Stock Exchange Central Depository Services (India) Ltd. Company Law Board Debt Recovery Tribunals Employees Provident Fund Organization Insurance Regulatory & Development Authority Ministry of Corporate Affairs, Registrars Of Companies National Housing Bank National Securities Depository Ltd. National Stock Exchange of India Ltd. Reserve Bank of India Securities and Exchange Board of India

The website covers the orders of several regulatory bodies,including the following:

Daily updationThe website is updated on a daily basis.Why should investors use this website?

before making any new investments with such entities for continuously reviewing their existing portfolio vis-a-vissuch entities. for getting automatic email alerts on companies in theirportfolio for new actions(mywatchout). when dealing with such entities in any manner

watchoutinvestors.com enables investors to do a fast, efficientand user-friendly search and provides them with the informationon such entities/persons which they can use:

Simple search resultsThe search results are provided in a simple tabular format. Foreach entry, the reason for the action and the action taken by theregulatory body is provided in a summary form and the sourcedocument is attached, wherever available, for authenticity anddetails. Decisions of the higher appellate authorities are alsoprovided. All regulatory charges and actions are rewritten insimple English, and standardized.ENTI TY

PERS ON

COMPETENT AUTHORITY

REGULATORY CHARGES

REGULATOR Y ACTION

The website also allows investors to check for dubious name

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changes of thousands of companies.Increasing usagewatchoutinvestors.com is being used by lakhs of investors. Thewebsite is also helping investors indirectly by increasing usageby regulators, investment bankers, stock exchanges and lawfirms.Concept, design and maintenancePrime Investors Protection Association and League (PIPAL)Investor HelplineA project sponsored by Investor Education and Protection Fund(IEPF), Ministry of Corporate Affairs, Government of India. If aninvestor has an y grievance described below,he can just Log onto: www.investorhelpline.in

A free of charge, Single dedicated portal to handleinvestor grievances. Right from filing grievances to tracking status, theinteraction with administrator has been made online to makeit user friendly. Specific Forms for Different types of Grievances.

Investor Helpline: A novel concept

Non Receipt of Refund Order/ Allotment Advise related Non-Receipt of Dividend Non-Receipt of Share certificates / Units after allotment / transfer/ Bonus Transmission etc. Non-Receipt of Debentures / Bond Certificate or Interest / Redemption Amount Offer for Rights Issue Non-Receipt of Investments and returns thereon onCollective Investment Schemes/ Plantation Companies Non-Receipt of Annual Report / AGM Notice / Proxy Form Non-Registration of Change in Address of Investor Non-Receipt of Fixed / Public Deposits related amounts Demat related Grievances General Form

GRIEVANCE TYPES

OMBUDSMANIX.Ombudsman in its literal sense is an independent personappointed to hear and act upon citizens complaint aboutgovernment services. This concept was invented in Swedenand the idea has been widely adopted. For example, various

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banks, insurance companies have appointed Ombudsman toattend to the complaints of their customers.SEBI vide its Notification SO(953)E dated 21.8.2003 has issuedSEBI (Ombudsman) Regulations, 2003. Regulation 2(l) of theRegulations defines Ombudsman as under:Ombudsman means any person appointed under regulation 3of these regulations and unless the context otherwise requires,includes stipendiary Ombudsman.Regulation 2(n) of the Regulations defines stipendiaryOmbudsman as a person appointed under regulation 9 for thepurpose of acting as Ombudsman in respect of a specific matteror matters in a specific territorial jurisdiction and for which hemay be paid such expenses, honorarium, sitting fees as may bedetermined by the Board from time to time.The regulations further deal with establishment of office ofOmbudsman, powers and functions of Ombudsman, procedurefor redressal of Grievances and implementation of the award.The term complaint under the Regulation means arepresentation in writing containing a grievance as specified inregulation 13 of these regulations; and complainant meansany investor who lodges complaint with the Ombudsman andincludes an investors association recognised by the Board.An investor means a person who invests or buys or sells ordeals in securities.listed company has been defined in the Regulations to mean acompany whose securities are listed on a recognised stockexchange and includes a public company which intends to getits securities listed on a recognised stock exchange.Establishment of Office of Ombudsman

an expert in the areas relating to financial market operationsto be nominated by the Chairman;

a.

a person having a special knowledge and experience of law,finance or economics, to be nominated by the Chairman.

b.

a representative of the Board not below the rank of ExecutiveDirector who shall be Secretary of the Selection Committee,

c.

SEBI has been empowered to appoint, on recommendation of aSelection Committee, one or more Ombudsmen for suchterritorial jurisdiction as may be specified from time to time byan order. The Selection Committee referred in sub-regulation(2)should consist of the following members, namely:

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to be nominated by the Chairman.At the request of SEBI, the Selection Committee may alsoprepare a panel of persons out of which a person may beappointed as Stipendiary Ombudsman. The panel soconstituted can remain in force for a maximum period of twoyears and shall be reconstituted from time to time. It has alsobeen provided that any person in the existing panel shall beeligible to be included in the reconstituted panel.Location of OfficeThe regulations provide that the office of the Ombudsman shallbe located at the Head Office of the Board and if more than oneOmbudsman are appointed then the office of an y suchOmbudsman may be located at any other office of the Board orany other place as may be specified by the Board from time totime. The Regulations further provide that the StipendiaryOmbudsman when appointed for any specific complaint orcomplaints shall be located at such place as may be specified.In order to expedite disposal of complaints, the Ombudsman orStipendiary Ombudsman, as the case may be, may hold sittingsat such places within his area of jurisdiction as may beconsidered necessary and proper by him. SEBI may provide thepremises and other infrastructure including staff or secretarialassistance for the office of Ombudsman or StipendiaryOmbudsman, as the case may be.Eligibility Criteria for Appointment of a Ombudsman

a citizen of India;i.of high moral integrity;ii.not below the age of forty five years; andiii.either a retired District Judge or qualified to be appointed aDistrict Judge, or having at least ten years experience ofservice in any regulatory body, or having special knowledgeand experience in law, finance, corporate matters,economics, management or administration for a period of notless than ten years, or an office bearer of investorsassociation recognised by the Board having experience indealing with matters relating to investor protection for aperiod of not less than 10 years.

iv.

In order to be appointed as an Ombudsman, a person isrequired to be

However a person is not qualified to hold the office of the

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he is an un-discharged insolvent;1.he has been convicted of an offence involving moralturpitude;

2.

he has been found to be of unsound mind and stands sodeclared by a competent court;

3.

he has been charge sheeted for any offence includingeconomic offences;

4.

he has been a whole-time director in the office of anintermediary or a listed company and a period of at least 3years has not elapsed.

5.

Ombudsman if

TenureA person appointed as an Ombudsman will hold office for aterm of three years and shall be eligible for reappointment foranother period of two years. No person can hold the office ofOmbudsman after attaining the age of sixty-five years. Howeverthe Board, at any time, before the expiry of the period specifiedmay terminate the services of the Ombudsman by giving himnotice of not less than three months in writing or three monthssalary and allowances in lieu thereof. Ombudsman also has theright to relinquish his office, at any time, before the expiry ofperiod specified by giving to the Board notice of not less thanthree months in writing.RemunerationThe salary, allowances, honorarium or fee payable to, and otherterms and conditions of service of, an Ombudsman will bedetermined by the Board from time to time.Stipendiary Ombudsman

has held a judicial post or an executive office under theCentral or State Government for atleast ten years; or

a.

is having experience of at least ten years in matters relatingto consumer or investor protection; or

b.

has been a legal practitioner in corporate matters for atleast10 years; or

c.

The Board may appoint a person as a Stipendiary Ombudsmanout of the panel prepared for the purpose of acting as anOmbudsman in respect of a specific matter or matters in aspecific territorial jurisdiction, as may be specified in the order ofappointment. A person is eligible to be appointed as StipendiaryOmbudsman if he

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has served for a minimum period of ten years in any publicfinancial institution.

d.

The Stipendiary Ombudsman is entitled to exercise all powersand functions as are vested in a Ombudsman. The StipendiaryOmbudsman is also entitled to be paid such fees or honorariumand allowances for the services rendered by him, as may bedetermined by the Board from time to time.Territorial JurisdictionEvery Ombudsman or Stipendiary Ombudsman exercisesjurisdiction in relation to an area as may be specified by theBoard by an order.Powers and Functions of Ombudsman

to receive complaints specified in regulation 13 against anyintermediary or a listed company or both;

a.

to consider such complaints and facilitate resolution thereofby amicable settlement;

b.

to approve a friendly or amicable settlement of the disputebetween the parties;

c.

to adjudicate such complaints in the event of failure ofsettlement thereof by friendly or amicable settlement.

d.

The Ombudsman has the following powers and functions:

The Ombudsman is required to draw up an annual budget forhis office in consultation with the Board and shall incurexpenditure within and in accordance with the provisions of theapproved budget and submit an annual report to the SEBIwithin three months of the close of each financial yearcontaining general review of activities of his office. Theombudsman is also under obligation to furnish from time to timesuch information to the Board as may be required by the Board.Procedure for Redressal of Grievance

Non-receipt of refund orders, allotment letters in respect of apublic issue of securities of companies or units of mutualfunds or collective investments schemes.

i.

Non-receipt of share certificates, unit certificates, debenturecertificates, bonus shares;

ii.

Non-receipt of dividend by shareholders or unit-holders;iii.Non-receipt of interest on debentures, redemption amount ofiv.

A person may lodge a complaint on any one or more of thefollowing grounds either to the Board or to the Ombudsmanconcerned:

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debentures or interest on delayed payment of interest ondebentures;Non-receipt of interest on delayed refund of applicationmonies;

v.

Non-receipt of annual reports or statements pertaining to theportfolios;

vi.

Non-receipt of redemption amount from a mutual fund orreturns from collective investment scheme;

vii.

Non-transfer of securities by an issuer company, mutual fund,Collective Investment Management Company or depositorywithin the stipulated time;

viii.

Non-receipt of letter of offer or consideration in takeover orbuy-back offer or delisting;

ix.

Non-receipt of statement of holding corporate benefits or anygrievances in respect of corporate benefits, etc;

x.

Any grievance in respect of public, rights or bonus issue of alisted company;

xi.

Any of the matters covered under Section 55A of theCompanies Act, 1956;

xii.

Any grievance in respect of issue or dealing in securitiesagainst an intermediary or a listed company.

xiii.

Procedure for filing a complaintAny person who has a grievance against a listed company or anintermediary relating to any of the matters specified above mayhimself or through his authorised representative or anyinvestors association recognised by the SEBI, make acomplaint against a listed company or an intermediary to theOmbudsman within whose jurisdiction the registered orcorporate office of such listed company or intermediary islocated. The Regulations provide that if SEBI has not notifiedany Ombudsman for a particular locality or territorial jurisdiction,the complainant may request the Ombudsman located at theHead Office of the SEBI for forwarding his complaint to theOmbudsman of competent jurisdiction. The complaint isrequired to be in writing duly signed by the complainant or hisauthorised representative (not being a legal practitioner) in theForm specified in the Schedule to the regulations and supportedby documents, if any. The Ombudsman may dismiss acomplaint on any of the grounds specified under theRegulations or when such complaint is frivolous in his opinion.

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unless the complainant had, before making a complaint tothe Board or the Ombudsman concerned, made a writtenrepresentation to the listed company or the intermediarynamed in the complaint and the listed company or theintermediary, as the case may be, had rejected the complaintor the complainant had not received any reply within a periodof one month after the listed company or intermediaryconcerned received his representation or the complainant isnot satisfied with the reply given to him by the listed companyor an intermediary;

a.

unless the complaint is made within six months from the dateof the receipt of communication of rejection of his complaintby the complainant or within seven months after the receiptof complaint by the listed company or intermediary underclause (a) above;

b.

if the complaint is in respect of the same subject matter whichwas settled through the Office of the Board or Ombudsmanconcerned in any previous proceedings, whether or notreceived from the same complainant or along with any one ormore or other complainants or any one or more of the partiesconcerned with the subject matter;

c.

if the complaint pertains to the same subject matter for whichany proceedings before the Board or any court, tribunal orarbitrator or any other forum is pending or a decree or awardor a final order has already been passed by any suchcompetent authority, court, tribunal, arbitrator or forum;

d.

if the complaint is in respect of or pertaining to a matter forwhich action has been taken by the SEBI under Section11(4) of the Act or Chapter VIA or Section 12(3) of the Act orany other regulations made thereunder.

e.

No complaint to the Ombudsman shall lie

Power to call for informationAn Ombudsman may require the listed company or theintermediary named in the complaint or any other person,institution or authority to provide any information or furnishcertified copy of any document relating to the subject matter ofthe complaint which is or is alleged to be in its or hispossession. In the event of the failure of a listed company or theintermediary to comply with the requisition made without anysufficient cause, the Ombudsman may, if he deems fit, draw the

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inference that the information, if provided or copies if furnished,would be unfavourable to the listed company or intermediary.The Ombudsman is required to maintain confidentiality of anyinformation or document coming to his knowledge orpossession in the course of discharging his duties and shall notdisclose such information or document to any person exceptand as otherwise required by law or with the consent of theperson furnishing such information or document. TheOmbudsman has been empowered to disclose information ordocument furnished by a party in a complaint to the other partyor parties, to the extent considered by him to be reasonablyrequired to comply with the principles of natural justice and fairplay in the proceedings. However these provisions shall notapply in relation to the disclosures made or informationfurnished by the Ombudsman to the Board or to the publicationof Ombudsmans award in any journal or newspaper or filingthereof before any Court, Forum or Authority.Settlement by Mutual AgreementAs soon as it may be practicable so to do, the Ombudsmanshall cause a notice of the receipt of any complaint along with acopy of the complaint sent to the registered or corporate officeof the listed company or office of the intermediary named in thecomplaint and endeavour to promote a settlement of thecomplaint by agreement or mediation between the complainantand the listed company or intermediary named in the complaint.If any amicable settlement or friendly agreement is arrived atbetween the parties, the Ombudsman may pass an award interms of such settlement or agreement within one month fromthe date thereof and direct the parties to perform theirobligations in accordance with the terms recorded in the award.For the purpose of promoting a settlement of the complaint, theOmbudsman may follow such procedure and take such actionsas he may consider appropriate.Award and AdjudicationIn case the matter is not resolved by mutually acceptableagreement within a period of one month of the receipt of thecomplaint or such extended period as may be permitted by theOmbudsman, he may, based upon the material placed beforehim and after giving opportunity of being heard to the parties,give his award in writing or pass any other directions or orders

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as he may consider appropriate. The award on adjudicationshall be made by Ombudsman within a period of three monthsfrom the date of the filing of the complaint. No award shallhowever be invalidated by reason alone of the fact that theaward was made beyond the said period of three months. TheOmbudsman should send his award to the parties to theadjudication to perform their obligations under the award.Finality of AwardAn award given by the Ombudsman shall be final and bindingon the parties and persons claiming under themrespectively.Any party aggrieved by the award on adjudicationma y within one month from the receipt of the award or correctedaward may file a petition before the Board setting out thegrounds for review of the award.Review of AwardAn award may be reviewed by the SEBI only if there issubstantial mis-carriage of justice, or there is an error apparenton the face of the award.Where a petition for review of the award is filed by a party fromwhom the amount mentioned in the award is to be paid to theother party in terms of the award, such petition shall not beentertained by the Board unless the party filing the petition hasdeposited with the Board seventy-five percent of the amountmentioned in the award. However SEBI may, for reasons to berecorded in writing, waive or reduce the amount to bedeposited.SEBI may review the award and pass such order as it maydeem appropriate, within a period of forty five days of the filingof the petition for review. The award passed by theOmbudsman shall remain suspended till the expiry of period ofone month for filing review petition or till the review petition isdisposed off by the Board, as the case may be.The Board may determine its own procedure consistent withprinciples of natural justice in the matter of disposing of reviewpetition and may dismiss the petition in limine if it does notsatisfy any of the grounds specified in the Regulations.Cost and InterestThe Ombudsman or the Board, as the case may be, have beenempowered to award reasonable compensation along withinterest including future interest till date of satisfaction of the

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award at a rate which may not exceed one percent permensem.The Ombudsman in the case of an award, or the Board in thecase of order passed in petition for review of the award, as thecase may be, may determine the cost of the proceedings in theaward and include the same in the award or, in the order as thecase may be. The Ombudsman or the Board may impose coston the complainant for filing complaint or any petition for review,which is frivolous.Implementation of the Award

he shall be deemed to have failed to redress investorsgrievances and shall be liable to a penalty under Section 15Cof the Act;

1.

an action under Section 11(4) of the Act ; ora.suspension or delisting of securities; orb.being debarred from accessing the securities market; orc.being debarred from dealing in securities; or dealing insecurities; or

d.

an action for suspension or cancellation of certificate ofregistration; or

e.

such other action permissible which may be deemedappropriate in the facts and circumstances of the case.

f.

he shall also be liable for 2.

The award will be implemented by the party so directed withinone month of receipt of the award from the Ombudsman or anorder of the Board passed in review petition or within suchperiod as specified in the award or order of the Board. If anyperson fails to implement the award or order of the Boardpassed in the review petition, without reasonable cause

Display of the Particulars of the OmbudsmanEvery listed company or intermediary is required to display thename and address of the Ombudsman as specified by theBoard to whom the complaints are to be made by any aggrievedperson in its office premises in such manner and at such place,so that it is put to notice of the shareholders or investors or unitholders visiting the office premises of the listed company orintermediary. The listed company or intermediary is required togive full disclosure about the grievance redressal mechanismthrough Ombudsman in its offer document or client agreement.Any failure to disclose the grievance redressal mechanism

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through Ombudsman or any failure to display the particularswould attract the penal provisions contained in Section 15A ofSEBI Act.INVESTOR EDUCATIONX.An increased need for financial education is felt in bothdeveloped and developing countries. In developed countries,the increasing number of financial products, its complexity,importance of retirement savings, increased growth ofsecondary market has made the imparting of financial educationimperative for all age groups, including students so thatindividuals are educated about financial matters as early aspossible in their lives. In the developing countries, the growingnumber of investors, technically advanced financial markets,liberalised economy etc. necessitates imparting of financialeducation for better operation of markets and economy and inthe interest of investor. Further imparting of financial educationis international concern due to growth of internationaltransactions, international financial instruments like ADR, GDR,IDR etc., mobility of individuals from one country to another etc.Initiatives taken so far on financial literacy in IndiaInvestor education forms an important part of SEBIs efforts toprotect the interest of the investors in securities markets. Aseries of information brochures and pamphlets have beenissued in the past for the benefit of the investors. Thesepublications indicate the various risks associated with capitalmarket investment, the rights of the investors, theresponsibilities and details of the grievance redressal machineryavailable to them and the remedy/relief to be obtained fromdifferent agencies like SEBI, Ministry of Company Affairs, StockExchanges, Reserve Bank of India and Registrars to the Issue,apart from seeking relief through Consumers DisputesRedressal Forums, Company Law Board and Court of Law.The investors associations registered with SEBI, the stockexchanges and professional bodies also conduct investoreducation programmes from time to time to appraise theinvestors of the changes in the law and regulations and themethods of protecting themselves against malpractices anddelays cropping up in the market. This is further supplementedby the journals and magazines in the field of corporateinvestment as well as newspaper articles which highlight the

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newly emerging problems, pitfalls and the methods to protect.IEPFMinistry of Corporate Affairs has taken various initiatives toeducate investors, particularly, since 2001, the InvestorEducation and Protection Fund (IEPF) has been working foreducating the investors and for creating greater awarenessabout investments in the corporate sector.So far, it has more than 20 NGOs/Voluntary Organisationsregistered including the ICSI, and funded for the activities likeorganizing seminars/interactive workshops/awarenessprogrammes, publishing magazines, pamphlets, developingwebsites etc.Spots on education and awareness of investors have beentelecast on the Doordarshan and private TV channels. Paneldiscussions on investor related issues have also been telecastover the Doordarshan. Besides, interactive workshops withNGOs/Voluntary Organisations (VOs) in this field and Trainingthe Trainers pro grammes have been funded under the InvestorEducation and Protection Fund window.Securities Market Awareness CampaignSEBI has also launched a comprehensive securities marketawareness campaign for educating investors throughworkshops, audio-visual clippings, distribution of educativeinvestor materials/booklets, dedicated investor website etc. Ithas also recognised certain investor associations through whichthe investor is educated.Financial Literacy-cum-Counselling CentreRBI has advised State Level Bankers Committee convenorbanks to set up, on a pilot basis, a financial literacy-cum-counselling centre in any one district, and based on theexperience gained, to ask the concerned lead banks to set upsuch centres in other districts. It has also undertaken a projecton financial literacy by asking banks to introduce comic booksexplaining terms like inflation, how to open an account, interestrates, etc.SEBI (INFORMAL GUIDANCE) SCHEME, 2003XI.In the interests of better regulation of and orderly developmentof the Securities market, SEBI has issued SEBI (InformalGuidance) Scheme 2003 w.e.f. 24.6.2003. The followingpersons may make a request for informal Guidance under the

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any intermediary registered with the SEBI.a.any listed company.b.any company which intends to get any of its securities listedand which has filed either a listing application with any stockexchange or a draft offer document with the Board or theCentral Listing authority.

c.

any mutual fund trustee company or asset managementcompany.

d.

any acquirer or prospective acquirer under the SEBI(Substantial Acquisition of Shares & Takeovers) Regulations,1987.

e.

scheme:

The Guidance Scheme, further deals with various aspects suchas the nature of request, fees to be accompanied alongwithrequest letter, disposal of requests, SEBIs discretion not torespond certain types of requests and confidentiality of requestsetc.The informal guidance may be sought for and given in twoforms: No-action letters: SEBI indicates that the Department wouldor would not recommend any action under any Act, Rules,Regulations, Guidelines, Circulars or other legal provisionsadministered by SEBI to the Board if the proposed transactiondescribed in a request made under para 6 is consummated. Interpretive letters: SEBI provides an interpretation of aspecific provision of any Act, Rules, Regulations, Guidelines,Circulars or other legal provision being administered by SEBI inthe context of a proposed transaction in securities or a specificfactual situation.The request seeking informal guidance should state that it isbeing made under this scheme and also state whether it is arequest for a no-action letter or an interpretive letter and shouldbe accompanied with a fee of Rs. 25,000/- and addressed tothe concerned Department of SEBI. It should also describe therequest, disclose and analyse all material facts andcircumstances involved and mention all applicable legalprovisions. SEBI may dispose off the request as early aspossible and in any case not later than 60 days after the receiptof the request. The Department may give a hearing or conductan interview if it feels necessary to do so. The requestor shall

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be entitled only to the reply. The internal records or views ofSEBI shall be confidential.

those which are general and those which do not completelyand sufficiently describe the factual situation;

a.

those which involve hypothetical situations;b.those requests in which the requestor has no direct orproximate interest;