STRENGTHENING INVESTOR PROTECTION: A CRITICAL ANALYSIS OF SEBI’S ROLE IN INDIA

Ananya Jha, Student, Symbiosis Law School, Hyderabad

Introduction

Today, the Securities and Exchange Board of India (SEBI), stock exchanges, investor groups, and, in certain situations, companies utilise the term “investor protection” extensively when discussing capital market regulation. The term “investor protection” encompasses regulations designed to protect investors against unscrupulous business practices by depository participants, merchant bankers, and other intermediaries. Investor Beware should be the catchphrase for every campaign encouraging individuals to save money for investments. Investors must understand the risk involved in any investment and take all the required precautions to protect their interests in the first place. If individuals become careless and start any project without assessing the risk, they have no choice but to blame themselves. Not all investors need the same protection for their cash from corporate securities; they might be professionals or laypeople, large or little, rich or poor. Protection of Investments “Protecting the interest of investors in securities and promoting the development of and to regulate the securities market and for matters connected therewith or incidental thereto” is the SEBI Act of 1992’s definition of investor protection. Investor protection generally refers to laws safeguarding small investors from unscrupulous investment brokers and advisors. Therefore, “investor protection” refers to the actions and measures necessary to protect investors’ interests in the capital market, such as passing pertinent laws, creating regulatory bodies, or establishing rules or guidelines.

Measure by SEBI for Investor Protection

The SEBI is the body entrusted with the responsibility of protecting the interests of investors through a variety of measures provided in section 11 (2) of the SEBI Act. A significant part of its functions is formulating rules relating to stock exchanges and ensuring that the operations in the securities market are undertaken efficiently. To make the securities market clear and responsible, SEBI also takes excellent initiative in registering and overseeing intermediaries like brokers, transfer agents, bankers, trustees, registrars, portfolio managers, investment advisers, and merchant bankers. SEBI watches custodians, depositories, participants, foreign investors, and credit rating agencies to enhance investor confidence further. This assures the quality of investment instruments, which improves the reliability and operational efficiency of mutual fund investments and venture capital funds. SEBI also promotes self-regulatory organisations that create an environment of ethical practice and increased accountability among participants in the market. 

The primary objective of SEBI is to check fraudulent behaviour and reduce unfair trade practices in the securities market. This agency oversees significant corporate transactions, such as mergers, acquisitions, and takeovers, to ensure their openness and protect investors from unethical behaviour. Additionally, it carries out education and training programs to enlighten investor about their rights and obligations so that they can make more informed choices. 

To maintain professional standards, SEBI runs training programs for intermediaries in the market, enhancing their expertise and ethical practices. It ensures systematic inspections and audits of stock exchanges and other intermediaries for compliance with established regulations. Lastly, SEBI monitors and collects fees associated with securities market operations, ensuring that SEBI’s regulatory functions are financially viable. SEBI establishes a well-regulated and transparent atmosphere within the securities market through the execution of extensive measures, thereby fostering confidence and safeguarding the interests of investors. 

The Role of SEBI in Investor Protection 

SEBI has periodically announced several strategies and actions to guarantee investor safety. It has established the Investor Protection Fund (IPF), published several guidelines, and spearheaded numerous investor awareness campaigns.
Pay the investors. Among them are: 

1. Issuance of Guidelines:  Guidelines have been provided by SEBI to enterprises that are launching new products to the market, including mutual funds, portfolio managers, merchant bankers, lead managers, underwriters, and others. These regulations aim to stop investor exploitation and promote transparency in their corporate operations. SEBI has created a code of advertising for public concerns to guarantee truthful and fair disclosures. Underwriting is optional under certain conditions to reduce the issuance cost. Another justification for these measures is investor protection. SEBI keeps an eye on all intermediaries to make sure they follow the regulations correctly. Panel action is also taken when the rules are breached. These safeguards are in place for investors. 
2. Public interest advertisements: SEBI releases public interest advertisements to educate investors about the basic features of various instruments and the bare minimum of safety precautions they must take before making an investment. According to SEBI, investors should know their rights and what to do in case of a problem. It has published a few booklets to assist investors in learning and making judgments. 
3. Dealing with complaints of investors: Investors in industrial securities and financial assets can complain to SEBI if they run into problems. SEBI receives hundreds of complaints about things like dividends or interest, allocation letters, refund orders, and delays in share and debenture transfers. SEBI is attempting to address these problems by taking the appropriate steps. 
4. Investor education: SEBI understands that investor protection necessitates education. It encourages the development of investor groups that disseminate information via newsletters. Every month, SEBI releases two publications for the benefit of investors.
   They are the SEBI Newsletter (b) and the SEBI Market Review (a). The purpose of these documents is to safeguard, inform, and direct investors. 
5. Investor surveys: SEBI has also conducted surveys on investment and prospects for small investors. The findings of the poll are extensively reported to give investors the best guidance while they are making investment selections. 
6. Introduction to stockinvest: SEBI has introduced stockinvest, a helpful tool for submitting a share application. This innovative technology, created with the assistance of banks, protects investors by paying interest on their application cash until the shares are allocated. 
7. Disclosures by companies: Guidelines for corporations to publish their half-yearly unaudited results have been developed by SEBI. It also revised the prospectus format to provide investors with more information. A condensed prospectus must accompany each share application form. The disclosure-related regulations are meant to safeguard and educate small and regular investors. 

Investor Education and Protection Fund

The Investor Education and Protection Fund [IEPF] was established by the central government (GOI) to protect the rights of securities investors, promote the expansion of the securities market, and oversee it, among other related or incidental functions. 

Motive of Investor Protection and Protection Fund 

The Investor Education and Protection Fund, IEPF was established to protect and better understand the investors’ interest in the market. This organisation aims to educate investors about how the securities market works so they can fully understand the workings of that market. The IEPF thereby enables the investor’s financial literacy in analysing all opportunities available for investment decision-making.

The IEPF also creates awareness of the market’s inherent volatility, which helps investors understand the risks and rewards associated with the investments. It also educates people about their rights as investors and the legal frameworks available to protect their interests. Furthermore, the fund promotes research and conducts surveys to generate and disseminate valuable insights, ultimately broadening the knowledge base of investors and contributing to a more informed and secure investment environment.

Utilisation of Fund

The Companies Act 2013 explicitly clarifies the purposes for which the Investor Education and Protection Fund is to be applied, strictly ensuring that it is used in accordance with the prescribed rules. One of the prominent usages of the fund relates to processing refunds for unclaimed dividends, matured deposits, matured debentures, application money pending refunds, and any interest accruing thereon. The fund also promotes investor education and awareness and protects investors’ interests.

The IEPF further plays a crucial role by equitably distributing the disgorged amount among eligible applicants, such as shareholders, debenture holders, or depositors who have been deprived of their funds due to wrongful acts. It does this by acting upon the court orders of disgorgement. It further provides for legal costs arising from class actions brought under Sections 37 and 245 of the Companies Act as mandated by the Tribunal. It covers any other incidental activities related to its primary objectives for the holistic approach to protecting and educating investors. 

Conclusion

Investor protection is the base of a capital market, which is sound, efficient and integral to enhancing investor confidence. Through the collective efforts of SEBI and the IEPF, India has brought into effect comprehensive measures for the protection of institutional and individual investors. The SEBI activities that provide a regulatory framework, redressal of grievances, transparency, and education prove that SEBI is devoted to making the securities market fair and equitable. Financial Literacy and Awareness about the risk through SEBI support these processes of using IEPF monies in appropriate forms so that funds may go directly toward refunds, litigation charges, and research work done so that, put simply, they together create an investment and financial environment for decision-makers, thereby guarding all potential victims from such manipulations. It builds market integrity; it does it with a holistic perspective that brings about the needed sustainable growth of the security market as an attractive investment avenue while being trustworthy in the sense that investments get protected. Hence, investors’ protection and education are key to attaining stable economic systems or the formation of resilient financial systems.