The Hindu Business Line : Why import a new cadre?

WE HAVE more than one forum for redressal of investor grievances — the Company Law Board (CLB), the Company Law Tribunal that is to replace the CLB when the amendments to that effect come into force, the Securities Appellate Tribunal, Consumer Disputes Redressal Forums, and the courts. Is there any rational basis or necessity for creating one more forum exclusively for the various causes for complaint detailed in regulation13?

Will not the purpose be served equally well if not better, by falling back on the existing forums, instead of wasting money and getting bogged down for lack of qualified or suitable personnel for appointment as ombudsmen under SEBI regulations?

The fact that it has not been possible to fill up vacancies in the CLB for several years should have served to show the futility of persisting in similar folly of creating posts for which suitable men may not be easily available.

The fact that the jurisdiction of any new forum specially created by SEBI will necessarily be restricted to listed companies and that the services of an ombudsman, if one is appointed, will be directed primarily to protection of small investors who cannot afford to engage the services of lawyers to fight their cases before the existing forums point to the need for shifting of the provisions governing his appointment and extending the range of his services to all companies, public and private, with a monetary ceiling based on the relief sought, to the Companies Act.

The public are not interested in the efforts of SEBI and the DCA to expand their respective empires, while the general demand is for less administration and a reduction in public expenditure, particularly on salary and establishment.

Merely because the SEBI Act provides for extensive powers it does not mean that the framing of the ombudsman regulations should be taken to be an opportunity for exploiting them.

If costs are a barrier for small investors going to the Securities Appellate Tribunal and the Company Law Tribunal, provisions may be made in the Companies Act and the SEBI Act for the levy of a token or nominal fee for cases in which the monetary value of the relief prayed for does not exceed a prescribed limit and a bar may be placed on the appearance of lawyers, company secretaries or chartered accountants on behalf of the investors in such cases.

From all accounts the Consumer Disputes Redressal Forums are less expensive than the others.

If the intention is to help speedy disposal of cases of hardship due to systemic deficiencies at low cost, unencumbered by the formalities and delays which are built into most of our laws, the remedy would lie not in evolving a new forum but in making the best use of the existing forums with exemption from fees or reduction in costs arranged for those who are not familiar with the intricacies of the regulations governing investment in securities in a public or a private company or who cannot afford to pay heavy fees to lawyers or other consultants to avoid trouble in complying with the law's requirements.

Lessons from Britain

PE Morris has pointed out in his article entitled `The Investment Ombudsman — a Critical Review' in the Journal of Business Law (January, 1996 issue) that there was a rapid proliferation of ombudsmen in the financial services in the UK. According to him there was a perceived lack of independence in ombudsmen from the industry and the existing scheme lacked an accountability mechanism.

The success of the scheme would depend on the complainants' confidence in it as an impartial extra-judicial dispute resolution mechanism. The prohibition on the use of lawyers does not prevent the complainant from seeking legal advice as long as he corresponds in person with the ombudsman's office and makes no reference to any legal advice which has been obtained.

The ombudsman would prefer the demands of equity to prevail against the advantages conferred by commercial certainty, despite an investor's relationship with a company being wholly contractual.

According to Walter Merricks, who had been Insurance Ombudsman between 1996 and 1999 and thereafter became the Chief Ombudsman of the Financial Ombudsman Service, an ombudsman `jurisprudence' has developed in the UK, avoiding some of the constraints of the precedent-based system (Journal of Business Law, November 2001 issue).

Merricks believes that the ombudsmen will `make new law' and do not have to pretend to `find' what the law is. They are not bound by precedents. While courts decline to deal with hypothetical questions, ombudsmen may consider situations that have not yet arisen but seem likely to do so. They will be guided by the public interest and not the letter of the law. They not only resolve disputes but reduce or prevent the rise of disputes.

The possibility of the above approach being acceptable to SEBI in India appears remote. Regulation 20(3) provides for a review by the Board of any award made by the Ombudsman, if "(a) there is substantial miscarriage of justice, or (b) there is an error apparent on the face of the record."

Non-conformity with the letter of the law may be treated as an error apparent on the face of the record.

In any case it is doubtful whether the respondent-company against which the complaint in question has been lodged can be stopped from taking its dispute to the Securities Appellate Tribunal.

When there is no substantial provision in the SEBI Act enabling arbitration at the discretion of the ombudsman where conciliation efforts have failed, how can an aggrieved company be deprived of its right to file an appeal against the SEBI's `review order' to the Securities Appellate Tribunal?

In any event, there can be no legal impediment to a challenge before a High Court under article 226 of the Constitution.

If a company considers that the issue involved in an award made by the ombudsman is of general importance, covering several other cases it may certainly move the High Court through a writ application.

That privilege cannot be denied to a `big' investor also for he cannot be denied access to an ombudsman if the relief he seeks qualifies him for availing of the services of the ombudsman.

The English model of an investment ombudsman may, therefore, be of relevance in Indian conditions, only up to a point. There is no possibility of litigation being minimised by ombudsmen.

(Concluded)

(The first part of the article appeared on February 5)

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

More Stories on : Accountancy | Investor Grievances

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Pump-prime agriculture

Why import a new cadre?

An unacceptable `offer' argument

A Bill of no return

We need to put them in a fishbowl

Is selective protectionism `sugar' to FTAs?

Why cutting IIM fees makes no sense at all

A. Q. Khan's `confession' — The long-term implication

Models to watch before parting with money

IIMs and autonomy