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Court sends notice to Sebi over handling of complaints

As of 31 October, the SCORES platform has more than 4,100 complaints pending. (Photo: Reuters)Premium
As of 31 October, the SCORES platform has more than 4,100 complaints pending. (Photo: Reuters)

The petition alleges that the Sebi Complaints Redress System, or SCORES, violates the principles of natural justice by disposing of complaints in a mechanical way. According to the petition, the system also fails to provide copies of replies sent by the party against whom a complaint has been lodged

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MUMBAI : The Karnataka high court has issued a notice to the Securities and Exchange Board of India (Sebi) after an investor filed a lawsuit against the markets regulator alleging poor handling of complaints through its grievance redressal system.

The petition by Textport Creations and its director Samir Goenka alleges that the Sebi Complaints Redress System, or SCORES, violates the principles of natural justice by disposing of complaints in a mechanical way. According to the petition, the system also fails to provide copies of replies sent by the party against whom a complaint has been lodged.

“Hence, no opportunity is given to the complainant to respond to the reply," it argued.

A spokesperson for Sebi didn’t respond to queries seeking comment.

Goenka had invested a sum of 10 crore in the portfolio management service (PMS) of ASK Investment Managers Pvt. Ltd. His father had committed to invest an additional 25 crore. According to the petition, the petitioner’s father was verbally promised a return of 18% on his investment in 2017.

However, the return was not delivered. Goenka’s father died in 2019, and the petitioner’s family was ultimately paid back the principal amount. The interest component of 4.5 crore was adjusted against the contribution of 10 crore that the petitioner was supposed to invest in the PMS.

However, the petition alleges that the transfer of units from the petitioner’s father to the nominee was delayed and that the family incurred a cost of 30.3 lakh. The petitioners filed three complaints on the Sebi SCORES system, but they were disposed of on the grounds that no documentary evidence had been provided about a promise of 18% return.

According to the petition, a word limit of 1,000 characters and a size limit of 2MB for attachments also prevents aggrieved persons from filing detailed complaints.

Goenka is not alone. There are other instances where the completely automated grievance redressal system has left investors unhappy.

Karthik Sharma, a New Delhi resident, was left frustrated with the lack of resolution of his complaints to the market regulator through SCORES. “I had invested 10 lakh of my hard-earned money in a Yes Bank AT1 bond (additional tier -1 bond). I was sold the bond by a Yes Bank relationship manager as I was a customer of the bank. I complained to Sebi about the incorrect application documentation, and my complaint got forwarded to RBI (Reserve Bank of India), from where I have not got any redressal to date. Later, Sebi initiated adjudication proceedings against Yes Bank executives and imposed a fine on the bank. But all of this money will go to the government when it should actually go to the aggrieved persons," said Sharma.

According to him, the amount involved, even if small, makes a difference to a salaried person.

These instances highlight that while a completely automated system helps in quicker redressal and in clearing the backlog of complaints, some cases may require a little more calibration.

A case in point is the Securities and Appellate Tribunal (SAT) ruling on 15 November 2019, where the tribunal called Sebi’s online complaint management system a mere “eyewash". This was in response to a case filed by a group of investors who alleged that Sebi had converted their complaint into “market intelligence" and refused to investigate or provide satisfactory information on the action taken.

SAT, in its ruling, had said, “We have no hesitation in stating that Sebi as a regulator in the instant case has not performed its duties and has kept the complaint pending for more than six years, which speaks volumes by itself. The tribunal fails to fathom as to why the complaint could not have been decided unless Sebi officials had a vested interest in not deciding the matter."

“Such computer-generated disposal of a serious complaint speaks volumes on the conduct of the respondents in treating the minority shareholders in this shabby manner," SAT added in its ruling.

The case pertains to complaints filed by 22 minority shareholders of Bharat Nidhi Ltd, which held a 24.41% stake in Bennett, Coleman and Co. Ltd (BCCL). PNB Finance and Industries Ltd (PNBF) and Camac Commercial Co. Ltd also own 9.29% and 13.3%, respectively, in BCCL. The minority investors in the case cited incorrect disclosures on promoter shareholding by BCCL, PNBF and Camac.

In a January 2020 order, the Supreme Court said that while Sebi may have been somewhat remiss in acting as a regulator, casting aspersion was not warranted in the facts and circumstances of the case. Thereafter certain observations in the SAT order were diluted.

According to Sebi data, as of 31 October, the SCORES platform had more than 4,100 complaints pending, with 29 pending for more than three months.

On an average, complaints are resolved in 36.8 days. The highest number of complaints pending in the past three months are against investment advisers, followed by those about refund, allotment, dividend, transfer, bonus, rights, redemption and interest. In FY21, the rate of redressal through SCORES rose by 27.3%, according to Sebi’s annual report.

The number of review requests also sheds light on the matter. In FY21, 941 of the 2,159 complaints received by Sebi were pending as of 31 March 2021. Still, they are better than the previous year, when 1,173 of 2,228 complaints were pending.

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