CIC hauls up SEBI regarding its grievance handling mechanism and its role as a regulator

[karira]

In two recent orders, CIC has severely criticised SEBI's handling of investor grievances as well as the way it (SEBI) views its role as a regulator. Although the comments of the CIC are only partly related to RTI , these are being posted here so that any members/guests can use them in matters related to SEBI.


http://cic.gov.in/CIC-Orders/AT-25052009-04.pdf

Before parting with this appeal, I consider it important to mention that investor and client protection is an important function of SEBI as capital market regulator. It has been the experience of the Commission in the past that investors and other persons dealing with the Stock Exchanges approached the Commission invoking the provisions of the RTI Act because somehow it is their feeling that SEBI, as market regulator, was not providing to them the type of support and relief they were looking for. This second-appeal is itself a case in point. SEBI believes that it has the authority under SEBI’s own laws to access the information requested by this appellant on his behalf from the Bombay Stock Exchange. If this is what the understanding of SEBI officials of their powers under SEBI law, then the ideal thing to do would have been for them to invoke the SEBI Act to obtain information requested by the appellant from BSE and to provide it to him. For some unknown reason, this was never done forcing the appellant to approach the Commission under the RTI Act. Now SEBI claims that it has the power under its own Act to access the information and to provide it to the appellant under the RTI Act Section 2(f). To my mind, this is a very circuitous and complicated way of providing to the lay investors or ordinary public the protection they need from the several entities operating in the capital market. SEBI’s responsibility should not be seen as limited to acting when it is forced to do so under the provisions of the RTI Act. In all fairness to ordinary investors and ordinary public, SEBI ought to be discharging this function under its own laws ⎯ RTI Act or no RTI Act. I am quite confident that if SEBI lays down clear guidelines about how it intends to promote to promote investor protection through promotion of transparency in the functioning of entities such as stock exchanges and it forces compliance through the power which vests in it under the SEBI Act, this will go a long way in obviating, on the one hand, the tendency among ordinary public and investors to choose information -disclosure under the RTI Act as a tool of their grievance-settlement and, on the other hand, expand and deepen SEBI’s own involvement as market regulator in providing protection to the most vulnerable among the entities in the market, i.e. the investors and the ordinary public. In that sense, I believe that RTI Act has presented to SEBI a unique opportunity to introspect about its own powers and functions and to take meaningful actions in a vital area of its regulatory function.

In the context of the above, by powers vested in me under Section 19(8)(a) of the RTI Act, the following directions are issued:-

(a) Within three months of the receipt of this order, the Chairman, SEBI shall ensure that detailed instructions are issued to the stock exchanges in respect of transparency in the functioning of the stock exchanges, especially in respect of investor protection, and protection of ordinary public which come in contact with these exchanges in multiple capacities.

(b) A grievance-settlement-mechanism shall be put in place - if not already in place - and if it is already in place to ensure that it is so
compliant with the provisions of the RTI Act that a petitioner is not required to approach the RTI regime for information aimed at his grievance-settlement by using the provision of Section 2(f) of the RTI Act. Like it is in the RTI Act, SEBI’s grievance-settlement-mechanism should be entirely predictable and should provide to the petitioner time-bound relief/information.

(c) A statement about the action taken in this regard shall be presented to the Commission within one month of the action having been taken by SEBI.


http://cic.gov.in/CIC-Orders/AT-18052009-02.pdf

15. What is noted from the various submissions in the second-appeal is that the appellant had won an arbitration Award for over Rs.3.9 lakhs along with interest at 9% per annum against the sub-broker, Mr.Adeel K Medhora, who acted through the broker, JHP Securities Private Ltd. The sub-broker apparently failed to honour the Award and appellant’s efforts to make the broker or the Stock Exchange ensure compliance with the Award by the sub-broker proved futile. His approach to SEBI also yielded no result. He has been advised to approach fora empowered to enforce the award appellant has received against the sub-broker.

16. It is clear from the above that SEBI has a certain way of looking at its role as regulator ⎯ especially its role as the protector of the investors’ interest ⎯ and ensuring implementation of arbitration Awards won by such investors is not part of that role. I find this approach somewhat surprising. This virtually amounts to saying that even after an investor has won an arbitration award against a sub-broker, he has no way to get this Award enforced except by going through long judicial proceedings before Courts of law. Many will differ with SEBI in so completely washing its hands off the grievance and the plight of an investor vis-à-vis a sub-broker.

17. I would urge the higher authorities at SEBI to reconsider its position in matters such as this.

18. Given the fact that appellant has been making several petitions to SEBI about his grievance and SEBI has been in touch with the Bombay Stock Exchange in the matter, it sounds unlikely that they did not have any document or record in this subject. It is important and necessary that they revisit their position.

19. In view of this, it is directed that matter be remitted back to the Appellate Authority , Shri M.S. Sahoo, Whole-Time Member. He is directed to re-examine the entire matter in the light of the records held by SEBI and the Stock Exchange which SEBI can access under the law, and make a fresh determination about whether or not requested information is actually available either in the control of SEBI, the Stock Exchange or both. These should be examined for whether their disclosure under RTI Act is possible.

[karira]

As reported by ET Bureau in economictimes.indiatimes.com on 10 June 2009:
SEBI told to be pro-active in helping investors- Indices-Markets-The Economic Times

SEBI told to be pro-active in helping investors

MUMBAI: The Central Information Commission (CIC) has asked capital market regulator Securities and Exchange Board of India (Sebi) to use its power pro-actively to seek information from market intermediaries to address investor grievances. In a recent order, CIC has directed the regulator to ensure that stock exchanges function in a transparent manner, especially in respect of investor protection.

The order in favour of Bhoj Raj Sahu, who had sought information from the Bombay Stock Exchange (BSE) through Sebi under the Right To Information (RTI) Act, has also instructed Sebi to put in place a grievance settlement mechanism. “It has been the experience of the Commission in the past that investors and other persons dealing with stock exchanges approached the Commission, invoking the provisions of the RTI Act because somehow it is their feeling that Sebi as market regulator was not providing them the type of support and relief they were looking for,” the order by Information Commissioner AN Tiwari, said.

“Sebi’s responsibility should not be seen as limited to acting when it is forced to do so under the provisions of the RTI Act. In all fairness to ordinary investors and ordinary public, the regulator ought to be discharging this function under its own laws — RTI Act or no RTI Act,” the order said. When contacted, a senior Sebi official told ET: “We have seen the order and we will be responding to it.”

The appellant had sought information from the regulator, asking for the list of shareholders in all the delisted companies, or number of shareholders, whichever was available. Sebi’s response was that the list of shareholders in all delisted companies was not available, either with it or with the stock exchanges. After delisting, these companies were no longer under the purview of Sebi and hence, the details could not be obtained from them. In his further submissions, the appellant said a delisting committee of BSE had undertaken the exercise of delisting the companies.

The information commissioner directed Sebi to provide the information or obtain it from BSE and provide it. However, in its reply, BSE declined to furnish the information to the appellant on the ground that the stock exchange was not a public authority within the meaning of RTI Act, and the matter regarding its role under RTI Act was sub-judice. It also contended that the information sought by the appellant did not fall within the authority of Sebi as market regulator. When contacted by ET, Mr Tiwari said: “Sebi must become more actively engaged in promoting transparency in the capital market.”

Says Sharad Abhyankar of ANS Law Associates: “Sebi has been empowered to access information from not only stock exchanges, but also from all the intermediaries in the securities market. In my view, it would be appropriate for the regulator to access the relevant information in the interest of investor protection from any private body like issuer companies to any of the intermediaries like stock exchanges, depositories, registrar and share transfer agents.”