The Hindu Business Line : Redress doesn't get addressed

IN EXERCISE of the powers conferred by Section 30 read with sub-section 1 of Section 11 of the Securities Exchange Board of India, Act 1992 (SEBI Act), SEBI has notified, vide notification No SO953 (E) of August 21, 2003, a regulation to provide for the establishment of the office of ombudsman to redress the grievances of the investors in securities and for matters connected therewith or incidental thereto. The said regulation is called Securities and Exchange Board of India (Ombudsman) Regulation, 2003 (the said regulation)

Objective vs results

Ostensibly, the objective of the said regulation is to ensure speedy redressal of investor grievances on various matters, as more specifically mentioned in clause 13 of the said regulation. Unfortunately, the suggested mechanism is bound to delay dispensation of justice, thereby defeating the very objective.

Deficiencies

Clause 2(1)(g) defines "complainant" as meaning "any investor who lodges complaint with the ombudsman and includes a recognised investors association". Conversely, clause13 permits any person to lodge a complaint, whether he is an investor or not. On the other hand, clause 14(2) contemplates that the complaint shall be in writing duly signed by the complainant or his authorised representative (not being a legal practitioner) in the prescribed form. A harmonious reading of these clauses will clearly reflect that any person on behalf of an investor can lodge a complaint. This confusion would have been avoided by substituting the word "investor" for the word "person" in clause 13.

Clause 5 specifies qualification criteria for selection of an ombudsman. He should be a citizen of India, possess high moral integrity, be over 45 years in age and satisfy any one of the following conditions:

a retired district judge or qualified to be appointed as such;

ten years' experience in any regulatory body;

special knowledge and experience in law, finance, corporate matters, economics, management or administration for not less than 10 years, or

an office-bearer of a recognised investor association and having experience in dealing with matters relating to investor protection for not less than 10 years.

The ombudsman should also not suffer from any disqualification under clause 6. Strangely, under clause 9, a stipendiary ombudsman need not possess the same qualifications, though he can under clause 9 act as an ombudsman in respect of any specific matter or matters in a specific territorial jurisdiction and exercise all the powers and functions as are vested in an ombudsman. This contradictory provision will only result in conflict of interest and jeopardise the investors' cause.

The ombudsman shall be nominated by the SEBI chairman on the basis of the recommendation made by a selection committee. SEBI, the appointing authority, is headed by a person who has no judicial background. The said regulation does not mandate that the recommendation of the selection committee shall be final and binding. This is travesty of justice.

Appellate jurisdiction

If an award is based on mutual agreement between the parties, it is final and binding. In the event of failure between the parties to arrive at a mutual settlement there is a provision for adjudication. And in case of adjudication, the ombudsman is required to give his award within three months from the date of filing of the complaint. Under clause 20 of the said regulation, any party aggrieved by the award on adjudication may, within one month from the date of receipt of the award, file a petition before the SEBI board setting out the grounds for review of the award.

Sub-section 3 of the said clause restricts the circumstances under which a review can be carried out. This automatically follows that in the event of any disputant being aggrieved by the review order so passed by SEBI, he will be entitled to move the Securities Appellate Tribunal. It would have been better if the regulation provided that any award passed by the ombudsman on adjudication can be appealed against before the Securities Appellate Tribunal.

It will be appreciated that it is highly improper, if not illegal, for an award given by a judicial authority to be adjudicated by those who do not possess any judicial qualifications, with one member coming from the Life Insurance Corporation and the other two being retail and development bankers. As an adjudicatory authority, it is difficult for SEBI to apply its mind independently, given that the ombudsman is its own nominee. The regulation, therefore, is flawed and will not serve the interests of investors.

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