In this blog post, Rahul Ranjan, a Third Year student studying at Vinoba Bhave University, Hazaribagh, Jharkhand and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, lists and describes the provisions provided under the Companies Act, 2013 for the protection of the investor. 

Introduction

Investors are the backbone of the securities market, and they play a vital role in the activity of stock market along with enhancing the level of activity in the economy. Earlier the Companies Act 1956, was unable to assure the investor’s interest and overcome corporate crime. It didn’t compete with the needs of changing business environment. The 2008 Satyam fallout was one of the important failure of the Companies Act 1956 regarding investor’s protection. The Satyam incident increases the debates to reform the corporate structure, i.e., the corporate system & processes need to be credible & transparent so that the interest of the investors may be a safeguard in a manner to make an independent or safe decision. Therefore, this particular fall out of Satyam computer led to a significant focus on Companies Act 2013 on establishing adequate investor protection measures. This Act was equipped with or embedded with the new provision and regulation for ensuring transparency and accountability in company’s management and for safeguarding investor’s interests. The Companies Act 2013 was enacted with the main aim to attract or in enhancing penalties for breaches & non-compliances.

The Satyam incident increases the debates to reform the corporate structure, i.e., the corporate system & processes need to be credible & transparent so that the interest of the investors may be a safeguard in a manner to make an independent or safe decision. Therefore, this particular fall out of Satyam computer led to a significant focus on Companies Act 2013 on establishing adequate investor protection measures. This Act was equipped with or embedded with the new provision and regulation for ensuring transparency and accountability in company’s management and for safeguarding investor’s interests. The Companies Act 2013 was enacted with the main aim to attract or in enhancing penalties for breaches & non-compliances.

Categories of Investors

An investor is a person who is an individual or legal corporate entity investing his capital in another venture. The investor has no role to play in the day-to-day management of the business or its control except under certain conditions recognized by law. Investor protection is very popular phrase where everyone is connected with the regulation of SEBI, Stock Market, Capital or Securities Market or different Corporates. The investor protection is legally drafted provision of law to protect the investor from mal-practices of companies, merchant bankers, depository participants & other intermediaries.

The investor is a heterogeneous group as they may be large or small, reach or poor, expert or lay & all investor need an equal degree of protection for their invested amount in different corporates. The concept of investor’s protection needs to be looked at from different angles taking into account the requirement of various kind of investor-

• Investor in Equity
• Large Institutional Investor (FIIs)
• Foreign Investor
• Investor in Debentures
• Small Investor

Regulation to Govern Investor’s Interest

There are mainly five regulations or legislation framed in India to regulate the interest of investors in Corporate Sector. They are –

• SEBI Act 1992
• Companies Act 2013
• Securities Contract (Regulation Act) 1956
• The Depositories Act 1996
• The Prevention of Money Laundering Act 2002.

Regulations Regarding Investor’s Protection Under Companies Act, 2013

The Companies Act, 2013 is enacted with the main aim to assure maximum protection to every section of investors irrespective of their classes. The Companies Act, 2013 has been embedded with several new provisions in regards to the protection of investor’s interest. Some of the provisions to protect investor’s interest under the Companies Act, 2013 are discussed hereunder.

• Acceptance of Deposits: The acceptance of deposit from the general public is not permitted under the Act, and violation of any of the provision is a punishable offense. Section 73 of the Act provides that no company shall accept or review deposit under this Act from the public except in a manner recognized under Chapter V of the Act and Companies (Acceptance of Deposit) Rule 2014.
• Misstatement in Prospectus: The prospectus is a written statement issued by the company to the general public containing brief information regarding companies profile and their investment proposals. Section 34 of the Act deals with the criminal liability for miss statement in the prospectus issued by a company. The prospectus issued, circulated or distributed, include any statement, which is untrue or misleading in form or context to induce people to make an investment, shall be liable for action u/S 447.
• Fraudulently Inducing Person to Invest Money: Section 36 of the Act deals with the punishment of the person who intentionally or recklessly induces the investor to make the investment through any agreement for the purpose or the pretended purpose of which to secure a profit. This kind of deliberate concealment of fact shall be liable for punishment u/s 447.
• Non-Payment Of Dividend: Declaration of the dividend is usually one of the items of agenda of every AGM. The dividend is nothing but profits earned by the company and divided among shareholders in proportion to the amount paid-up shares held by them, i.e., return on the investment made by shareholders. The Section 125 of the Act provides for the establishment of investors education and protection fund by the central government. This fund is credited with the unpaid/unclaimed amount of application money/matured money or mature deposits. Such accumulations of the fund are to be utilized for promotion of investor’s awareness and protection of investor interest. Section 123 of the Act state that the dividend should be credited in investors account within in five days after the declaration.
• Right to Demand Financial Statements: Section 136 of the Act provides for the right of a member to obtain copies of Balance-Sheet and Auditors Reports. In the case of default complying with this requirement, the company shall be liable for a penalty of twenty-five rupees and the authorized officer who is in default shall be liable for a penalty of five thousand rupees. Besides, this investor has the option to proceed against the company or its authorities in a court of law under the guidelines determined under Section 436 of the Act.

Conclusion

Therefore, it can be summarized that the enactment of Companies Act, 2013 is proved to be a transitional reform in Indian corporate sector especially with emphasizing focus on regulation regarding protection of investor’s interest and creating transparency in working environment from the top to bottom level of management and by eliminating different hidden hurdle which directly or indirectly hinders the functioning of a company. To afford adequate protection to investor’s interest, the company law has to operate with the different legal legislations.