‘SEBI’ IS HAVING NO POWER TO GRANT COMPENSATION

[Mr. M. GOVINDARAJAN]

The object of Securities and Exchange Board of India Act, 1992 is to provide for the establishment of a Bard to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental thereon. Section 11(2) of the said Act provides the powers and functions of the Board as detailed below:

• To regulate the business in stock exchanges and any other securities markets;
• To register and regulate the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets tin any manner;
• To register and regulate the working of the depository participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf;
• To register and regulate the working of venture capital funds and collective investment schemes, including mutual funds;
• To promote and regulate self regulatory organizations;
• To prohibit and regulate self regulatory organizations;
• To promote investors’ education and training of intermediaries of securities markets;
• To prohibit insider trading in securities;
• To regulate substantial acquisition of shares and take over of companies;
• To call for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self regulatory organization in the securities market;
• To call for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board;
• To perform such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) act, 1956 as may be delegated to it by the Central Government;
• To levy fees or other charges for carrying out the purposes of this section;
• To conduct research for the above purpose;
• To call from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions;
• To perform such other functions as may be prescribed.

From the above it is clear that SEBI is having no power to grant compensation to any investor for any alleged loss in his transaction in securities market. This is substantiated by Securities Appellate Tribunal, Mumbai Bench in ‘Mrs. Ramkishori Gupta V. Securities and Exchange Board of India’ – 2013 (5) TMI 435 - Securities and Exchange Board of India The facts of the case run as follows:

The applicants have traded in the shares of M/s Vital Communications Limited, a listed company on the Bombay Stock Exchange from the period from 23.05.2002 to 25.06.2002.   The appellants were impressed by the advertisements published in various newspapers particulars as regard issue of buy back as well bonus shares on different dates e.g, 04.05.2002, 20.05.2002, 21.05.2002, 27.05.2002 and 04.06.2002 in Economic Times as well as the web site of Bombay Stock Exchange giving out that the growth of the VCL as that-

• VCL had been continuous for the last 7 years;
• There was increase in the company’s turnover;
• There was also increase in the earning per shares (EPS); and
• Increase in its shareholding of foreign Institutional Investor

Above all the advertisements made deceptive and alluring promises of buy back of equity shares at a maximum price up to Rs.30 per share and also preferential allotment to promoters at a price up to Rs.35 per shares which was never done.   The company also exhibited of issuing bonus shares in 8:10 proportion. Nothing had happened by which the appellants, according to them, incurred a heavy loss.

The appellants filed a complaint before the Consumer Forum for redressal of their grievances.   The National Commission opined that the complaint of the appellants was not within the purview of the Consumer Protection Act. 1986 and if the appellants wished to pursue their remedy, they might approach SEBI for the redressal of their grievances.   Therefore the appellants preferred a petition before SEBI in respect of complaints regarding announcements relating to buy back of shares, preferential allotment and bonus issue etc., taxmanagementindia.com

SEBI rejected the request of the appellants for grant of compensation stating that they did not have such jurisdiction to consider and grant compensation to the investors who incidentally suffer losses in the process of purchasing/selling shares in the open market. SEBI has taken against VCL and its directors and the company was barred from accessing the securities market and from buying, selling or dealing in securities for a period of two years. The Tribunal on the file of appeal by the company remanded the matter to SEBI to decide the case after hearing a reasonable opportunity of being heard for the company. SEBI is under the process of remanded case.

The appellants filed an appeal before the Tribunal.   The prayers of the appellants are as follows:

• As the BSE has failed to save the investor from the fraudulent and unfair practice adopted by VCL for the promotion of sale of the shares duly listed at BSE for wrongful gain against the land laws of the country as well as SEBI and BSE. The appellants prayed for directing BSE, SEBI and VCI to compensate the appellant up to the extent of Rs.51,53,190/- for 11771773 shares at the rate of Rs.30/- per share at least;
• Pendente lite and future interest at the rate of 10@ per annum on the above amount from the month of June 2002 to the date of payment;
• Cost of the case.

The Tribunal heard the parties to the appeals. The Tribunal minutely perused the scheme of SEBI Act and noted that its express object is to protect the investors in securities and to promote the development of the securities market and also its regulation so as to have an orderly, systematic and a more organized capital market.   Thus, greater emphasis is given by the SEBI Act to empower SEBI to streamline the functions of the securities market. Section 11(1) also deals with powers and functions of the Board in a manner similar to the preamble of the Act. Section 11(2), however, enumerates around 15 directives to SEBI to be undertaken by it in the discharge of its duties to attain the objectives for which it has been established.   There is no directive or mandate in any of the 15 or 16 measures empowering SEBI to undertake the task of considering and granting compensation to an investor for the alleged losses he might have suffered due to certain misleading or fraudulent advertisements by a company.   In view of the legal position the prayer of appellants seeking compensation is totally misconceived and the Tribunal rejected the claim of the appellants.