SECURITIES EXCHANGE BOARD OF INDIA (AID FOR LEGAL PROCEEDINGS) GUIDELINES, 2009

[Mr. M. GOVINDARAJAN]

            Sec.205C of the Companies Act, 1956 provides that the Central Government shall establish a fund to be called as  'The Investor Protection Fund' and there shall be credited to the fund the following amounts, namely:-

Amount in the unpaid dividend accounts of companies;

The application moneys received by companies for allotment of  any securities and due for refund;

Matured deposit with companies;

Matured debentures with companies;

The interest accrued on the amounts on the above;

Grants and donations given to the Fund by the Central Government and State Governments, companies or any other institutions for the purposes of the fund; and

The interest or other income received out of the investors made from the fund.

The fund shall be utilized for the promotion of investor awareness and protection of interests of the investors in accordance with such rules as may be prescribed. It shall be competent for the authority or committee appointed to spend moneys out of the Fund for carrying out the objects for which the Fund has been established.

            The Government is spending considerable amount in conducting programmes in various places especially in remote areas to create awareness among the investors and to educate them in this regard. These programmes are conducted through the professional Institutes such as Institute of Company Secretaries of India, Institute of Chartered Accountants of India and through Investor association registered with the Government.

            On the same line SEBI has also created a Fund called Investor Protection and Education Fund.  For this purpose it framed 'Securities Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009' ('Regulations' for short). As per Regulation 4, the following shall be credited to the Fund:

Contributions as may be made by the Board to the Fund;

Grants and donations given to the Fund by the Central Government, State Governments or any  other entity approved by the Board for this purpose;

Proceeds in accordance with Regulation 28(12) (ii) (e) and 28 (13) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,1997;

Security deposits, if any, held by stock exchanges in respect of public issues and right issues and in the event of de-recognition of such stock exchanges;

Amounts in the Investor Protection Fund and Investor Services Fund of a stock exchange in the event of de-recognition of such stock exchange;

Interest or other income received out of any investments made from the fund;

Such other amount as the Board may specify in the interest of investors.

One of the purposes that the fund may be utilized is aiding investor associations recognized by the Board to undertake legal proceedings in the interest of investors on securities that are listed and are to be listed. For this purpose SEBI make guidelines called as 'Securities Exchange Board of India (Aid for Legal Proceedings) Guidelines, 2009' ('Guidelines' for short).

            An Investors' Association may make an application to the Board seeking aid for undertaking legal proceedings.   Regulation 2(1)(g) defines legal proceedings as any proceedings before any court or tribunal where one thousand or more investors are affected or likely to be affected by:

Mis-statement, mis-representation or omission in connection with the issue, sale or purchase of securities;

Non receipt of securities allotted or refund of application moneys paid by them;

Non payment of dividend;

Default in redemption of securities or in payment of interest in terms of the offer document;

Fraudulent or unfair trade practices or market manipulation;

Such other market misconduct which is in the opinion of the Board may be deemed appropriate;

But does not include any proceedings where the Board is a party or where the Board has initiated any enforcement action.

            Different stages of a case, such as review or appeal before the same or another court shall require separate application from the Investor Association and separate approval from the Board. In case of legal proceedings relates to mis-statement, misrepresentation or omission in connection with the issue, sale or purchase of securities, the application shall establish that-

The investors relied upon such mis-statement, misrepresentation or omission;

Such mis-statement, misrepresentation or omission caused monetary loss to the investors.

The application shall also contain the following:

A tabular statement of investors who are affected, and the number of securities held by each such investor;

A statement containing the details of cause of action and how the investors are affected;

A statement that at least one thousand investors have legally enforceable cause of action;

Name of solicitor/and or Advocate or both who have been or are proposed to be engaged;

An itemized estimate of expenses for the legal proceedings;

An undertaking that aid of the particular proceedings has not been/would not be sought from any other source.

The term 'expenses' has been defined by guideline 3(1)(a) as the expenses incurred  with respect to any or all of the following in connection with a legal proceedings:

Court fees, process fees and other fees/charges payable in the courts as per the law;

The bills of solicitors, advocates and senior advocates for professional services rendered by them;

The clerkage and other miscellaneous expenses charged by the counsels, senior counsels and solicitors as applicable.

The aid for the legal proceedings shall be granted at the discretion of the Board, if it is satisfied that the aid is in the best interests of the investors.  The Board shall not entertain an application for legal aid if the application is incomplete or does not fulfill the conditions laid down under the guidelines or regulations.  Where more than one application for aid is received by the Board on the same day, the investors' association that has filed the petition/suit before the appropriate court, shall be considered for the grant of legal aid.

            The Board shall issue a letter conveying grant of aid for a particular legal proceeding. The aid for legal proceedings shall not exceed Rs.20 lakhs if it is before the Supreme Court of India and Rs.10 lakh before any other forum. The aid for legal proceedings shall be given only by way of reimbursement of expenses incurred.

            The aid provided by the Board is strictly for the purpose of meeting the legal expenses by Investors' Association with respect to specific legal proceedings. The Association shall submit a periodical report of the legal proceedings as desired by the Board. After the completion of the legal proceedings the association shall submit a detailed report statement on the same to the Board along with the self certified statement on the utilization of the fund by it.

            For the payment the association shall submit original bills certified by the Auditor of the Investors' Association. The reimbursement will be not more than 75 per cent of the expenses. The Board will reimburse the expenses within fifteen days from the date of receipt of the claims. If the Board is of the opinion that any particular legal proceedings are not achieving the objective of the investor protection, the Board may discontinue the aid after giving a notice of the same to the Investors' Association.

                        The Board may call for any information, clarification, records and documents from the Investors' Association with respect to the legal proceedings initiated by it, including utilization of aid by it. The Board may inspect or audit of books of any books or accounts or records in respect of legal aid granted by it to the Investors' Association.