The Hindu Business Line : New walls to wail at

THE system of appointing an ombudsman or a representative originated in Sweden. An ombudsman was an official whose duty was to investigate complaints by individuals against maladministration by public authorities. He was primarily `the grievances man' standing between the citizen and the government, and representing the former before the latter.

Ombudsmen in Britain

The idea found favour in Britain where the first ombudsman, called the Parliamentary Commissioner, was appointed in 1967. An ombudsman for local government was appointed under Section 23 of the Local Government Act, 1974 to go into complaints against local councils involving bad administration. An ombudsman pensions was required to deal with written complaints in connection with any act or omission of the trustees or managers of an occupational or personal pension scheme under the Social Security Pension Act, 1975.

Then there came an ombudsman conveyancing to consider and report on any breach of the regulations concerning the conduct of authorised conveyancy practitioners, followed by Ombudsman, Legal Services, appointed by the Lord Chancellor to enquire into the ways in which a complaint had been handled by legal professional bodies: he may recommend reconsideration of a complaint and payment of compensation for loss or distress suffered by the complainant. An area in which the office of an ombudsman is believed to have changed the course of a history in Britain is insurance law.

The model is reported to have been copied in the banking and building society sectors in that country and it is claimed that there are Ombudsmen or their equivalents in the insurance sector in Ireland, Australia, New Zealand, South Africa, Malaysia, Finland, Norway, Sweden, Denmark, Belgium, the Netherlands, France, Switzerland, Mexico and, of course, India — `The Jurisprudence of Ombudsman' by Walter Merricks, The Journal of Business Law, November 2001 issue.

Insurance, SEBI ombudsmen

No materials are readily available on the experience of insurance corporations/companies in their experiments with the ombudsman model. The Insurance Ombudsman Redressal of Public Grievances Rules, 1998 (Insurance Rules) was framed five years back by the Central Government in exercise of its powers under sub-section (1) of Section 114 of the Insurance Act, 1938. The recommendation of a trial with the institution of ombudsman has been made by the Malhotra Committee as a measure for reducing litigation.

There are significant differences between the ombudsman scheme envisaged in the Insurance Rules and the SEBI (Ombudsman) Regulations, 2003 (SEBI Regulations). For instance, under the proviso to rule 2 of the Insurance Rules, the Central Government may exempt an insurance company from the provision of the Rules, if it is satisfied that an insurance company has already a grievance redressal machinery which fulfils the requirements of the Rules: there is no such exclusion under the SEBI regulations.

The second difference is that the award given by the ombudsman is not binding on the complainant under the insurance rules. If the complainant does not intimate the acceptance of the award within the prescribed period, it may not be implemented by the insurance company [Rule 17].

Regulation 20 of the SEBI Regulations states, on the other hand, that an award under those regulations shall be final and binding on the parties and persons claiming under them subject to review by SEBI itself if there is substantial miscarriage of justice or there is an error apparent on the face of the record.

Any person who fails to implement an award shall be deemed to have failed to redress the concerned investor's grievance and shall accordingly be liable to a penalty under Section 15C of the Securities and Exchange Board of India Act, 1992 and also exposed to one or other of the other `actions' enumerated in sub-clauses (i) to (vi) of clause (b) of sub-rule (2) of regulation 22 which read as follows: "(b) he shall also be liable for: i) an action under section 11(4) of the Act; or ii) suspension or delisting of securities; or iii) being debarred from accessing the securities market; or

iv) being debarred from dealing in securities; or v) an action for suspension or cancellation of certificate of registration; or vi) such other action permissible which may be deemed appropriate in the facts and circumstances of case."

The task before the insurance ombudsman — safeguarding the interests of the insured — is much less tough than that of the ombudsman for investors. The insurers are very few. They have so far been government-owned, directly or indirectly, and even after effect is given to the country's privatisation policy there can be no conceivable hurdle in the way of the ombudsman's functioning. He will have to tackle a very small number of insurance companies.

An ombudsman, as originally visualised, was a person charged with the duty of removing the grievances of the public against public authorities. Removal of grievances of investors against those who control and manage innumerable companies is a different kettle of fish.

Regulator or adjudicator?

An ombudsman appointed by SEBI is no more than the agent or a delegate of that regulatory authority, unlike the insurance ombudsman whose style of working is unlikely to be inhibited under the Advisory Committee constituted under rule 19. SEBI's man is obviously accountable to it, which is concerned only with listed companies, which are big companies and from which small investors are being ousted gradually but relentlessly under the takeover regulations.

The investor ombudsman may have little or no role in the improvement of services rendered by listed companies to their small shareholders, who are diminishing in number.

The insurance rules pay at least a lip service to the importance of the ombudsman's role (in rule 20) in improving the insurance administration. The rule states thus:

"The ombudsman shall furnish a report every year containing a general review of the activities of the office of the ombudsman during the preceding financial year to the Central Government and such other information as may be considered necessary by it. In the annual report, the ombudsman will make an annual review of the quality of services rendered by the insurer and make recommendation to improve these services."

The public are yet to see the annual report of the performance of the SEBI. It is too much to expect publicity for reports from ombudsmen who are to work as small cogs in that big wheel.

The status that SEBI proposes for its ombudsman is evident from the following qualifications that it has prescribed for him:

Retired district judge or qualified to be appointed a district judge;

Having at least ten years' experience of service in any regulatory body;

Having special knowledge and experience in law, finance, corporate matters, economics, management or administration for a period not less than three years; or

An office bearer of investors' association recognised by the Board having experience in dealing with maters relating to investor protection for a period not less than 10 years.

It is noteworthy that while the insurance rules prescribe that the ombudsman shall be paid a salary equal to that of a judge of the High Court (with allowances to be specified by the Central Government), regulation 8 of the SEBI Regulations leaves the salary, allowances, and so on, of an ombudsman appointed under it to be determined by SEBI from time to time.

Both recognise that each of them will need more than one ombudsman. SEBI goes further and has provided for as many `stipendiary ombudsmen' as the work may call for from time to time.

(To be concluded)

(By arrangement with Corporate Law Adviser, New Delhi.)

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