Ref. : ER/Press/’03/SEBI.25/jp-dg-kb

Consumer Education and Research Centre (CERC), Ahmedabad, has urged the Securities and Exchange Board of India (SEBI) to explicitly provide registered consumer or investor protection groups with the locus standi to file a case in their own right, and for and on behalf of aggrieved investors, individually or collectively or as a class, as in the case of consumer courts.

SEBI has placed a draft scheme for Investor Ombudsman on its website, inviting people’s suggestions.

Responding to the scheme, CERC said that every investor may not be competent enough to make effective representation, while the other party may be. But consumer or investor protection groups may have acquired, through the years, the expertise and experience to represent the complainant effectively.

The scheme, according to CERC, should also provide for the award of adequate cost to the investor and the investor group, as in the case of consumer courts, CERC added.

CERC suggested that the Ombudsman should be given the authority to declare a contract between two parties illegal, if it is seen to be unilateral and unfair to the investor. The Ombudsman should have the following powers to deliver quick and effective remedy:

The Ombudsman should be empowered to treat similar complaints against a single respondent as one complaint. Such class action suit will reduce the number of proceedings. The group of complainants will get the same award.

In complaints about false and misleading advertisements, the court normally restrains the party from continuing such advertisements. But, through a massive campaign the particular advertisement would have already created an impression on people’s minds. Therefore, corrective advertisements should have some co-relationship with the earlier advertising campaign in terms of the number of the media, frequencies and the overall budget. The Investor Ombudsman should have the same kind of authority as the courts vis-a-vis such complaints.

CERC added that the SEBI scheme appears to provide for the Ombudsman to move from place to place and have a kind of mobile office, in the absence of which he/she will hold hearings at regional stock exchange offices. Here, the question of support to the Ombudsman arises since the regional stock exchanges are almost on their way out. Hence the office and the jurisdiction of the Investor Ombudsman should be made clear for the facility of the Ombudsman as well as the investor.

Also, the Ombudsman, who will be an independent authority, has to depend upon the services and support of the stock exchange. In the case of any complaints against the exchanges or their office bearers, a situation of conflict of interest will arise.

There should be provisions in the Investor Ombudsman which say that the complainant investor has the right not to accept the award given by the Ombudsman, as is provided in the case of Banking Ombudsman and Insurance Ombudsman.

In the case of appointment of retired high court judges, according to CERC, care should be taken that they are comfortable with the nuances of the capital market. This criteria may be included in the selection process under the regulation.

CERC has further suggested that SEBI may establish contact with the Financial Ombudsman at London, who deals with many financial services, including banking, insurance, investment and complaints arising out of it. CERC has sent the Annual Report of Financial Ombudsman at London to SEBI for its ready reference. SEBI may also acquire Annual Reports as well as monthly reports from it and exchange information regularly.

CERC has requested SEBI to place its suggestions on the latter’s website for ready reference by interested parties.

Date :23 June 2003
Pritee Shah
Editor INSIGHT - The Consumer Magazine
Place : Ahmedabad

Opinions, test results and research findings issued through this Press Release cannot be used in any form directly or indirectly for advertising, promotional or commercial purpose.

CONSUMER EDUCATION AND RESEARCH CENTRE
“Suraksha Sankool”, Thaltej, Ahmedabad-Gandhinagar Highway,
Ahmedabad-380 054 (INDIA)
Phone : 079 - 7489945-46, Fax : 079 - 7489947,
E-mail: cerc@wilnetonline.net, Web Site: http://www.cercindia.org