SEBI has only to listen to Vishwanath Poddar of Kolkata to understand why retail investors stay away from the capital market despite the media hype. The SEBI Act puts investor protection ahead of its regulatory and developmental role, but 17 years after it got its statutory teeth, Mr Poddar seems correct in calling it a ‘failed institution’ precisely on this count. He lists a wide cross-section of issues where the regulator failed him.
Grievance Redressal: SEBI’s investor grievance cell merely forwards complaints without going into their merits. It also directs investors to follow up with companies/intermediaries directly. Its own system involves a computerised reminder followed by business reply cards to investors asking if the complaint is resolved. Mr Poddar’s experience shows that this simply does not work.
Delta Industries diverted IPO funds raised in 1994 to a group trading company at Singapore. This became publicly known in 1998. Mr Poddar appealed to the regulator to investigate the company and ensure that it returned investors’ money. Nothing happened. He filed a Right to Information application and was told that the case was closed because he failed to respond to a business reply card asking if his complaint was resolved. Following orders from the Central Information Commission, he went to the SEBI office to inspect the file, only to find that it did not exist.
Clarification: Mr Poddar wrote to SEBI pointing out that PL Agarwal (partner of the law firm Khaitan & Company) was appointed an ‘independent’ director of Dhunseri Tea and Industries, although his firm was the official solicitor to the company. SEBI merely passed his letter of February 2009 to the National Stock Exchange (NSE). Since then, reminders to SEBI as well as the NSE have drawn a blank.
Information: Mr Poddar’s daughter married a citizen of Nepal and acquired that citizenship by virtue of marriage. They have some investments here which are duly assessed for income tax in India. He wrote to SEBI asking if the daughter and her husband are eligible to purchase shares of Indian companies in the secondary market through SEBI-registered stock brokers and in which category they can open demat accounts or apply to IPOs and mutual funds. He got no response.
Policy: Mr Poddar holds shares of Deltron Limited and Vajra Granite, which have no ISIN, so their shares cannot be dematerialised. In a market where secondary market trading is mandatorily in demat mode, how is the investor to sell the shares? He wrote to SEBI in August 2008 for a clarification. In the Deltron matter, he was told that it falls in the territorial jurisdiction of SEBI’s Delhi regional office and the complaint has been forwarded to it. There has been no response since.
Wrongful Charge: Mr Poddar invested in SBI Magnum Global Fund in May 2006 and exited in April 2007. Although the exit load for redemption before 12 months was scrapped in October 2006, he was charged the load that prevailed at the time of investment rather than exit. SEBI merely referred his complaint to SBI Mutual Fund, while a complaint to the Association of Mutual Funds in India did not even elicit a reply. Ironically, every time he writes to SEBI, the investor grievance department merely generates a new registration number while the complaint itself remains unresolved.
He invested in Franklin India Prima Fund in January 2005 and, in May 2006, switched a part of the investment to the Franklin India Opportunity Fund. He was charged an exit load, but protested since no load is applicable in a switch after one year. Neither the fund house nor SEBI has bothered to respond to his complaint filed in September 2008.
If a single investor can have such varied complaints over so many years, when SEBI claims a high grievance redressal record, there is something drastically wrong with the regulatory system. We have forwarded his missive to the SEBI chairman and its entire board of directors and will keep you posted on SEBI’s response,