This article has been written by Sharanya Ramakrishnan, pursuing the Certificate Course in Capital Markets, Securities Laws, Insider Trading and SEBI Litigation from LawSikho.

Introduction 

The operations in the securities market play a pivotal role in the economic growth of our country. It thus becomes essential to ensure that the security market operations are productive, transparent and secure. In this context, investor protection constitutes an important factor in making the securities market more efficient by means of redressing their grievances. 

There would be several occasions where an investor wants to raise a complaint against a listed company or a Securities and Exchange Board of India (SEBI) registered intermediary. In order to provide an efficient platform to investors to raise their complaints pertaining to the securities market, SEBI Complaint Redress System (SCORES) was designed.  It is an online platform which enables aggrieved investors to redress their grievances against listed companies or intermediaries registered with SEBI. It is a centralised database of investor complaints and can be accessed online 24/7. It enables online lodging of complaints at any time with no geographical restraints. 

In its efforts to improve ease of doing business, SEBI on March 5, 2020 launched a Mobile Application for the benefit and convenience of investors to lodge their complaints on SCORES. The mobile app is more user-friendly to the investors as they would be able to access SCORES with the comfort of their smartphones. This is a commendable effort by SEBI to enhance digitisation in securities market. The app has all the features of SCORES that is available electronically via the internet medium. Investors will receive acknowledgements of their registration numbers, have the ability track their complaint status and can also key in reminders for their pending grievances. SCORES is therefore a platform which is specifically designed to assist the investors to get their grievances resolved in a time bound manner.

Genesis of SCORES 

SCORES was launched in 2011 by SEBI through a Circular dated June 3rd, 2011. SEBI thereafter issued several Circulars which were ultimately superseded by a master Circular dated December 18th, 2014 under which investors aggrieved by complaints unresolved by listed companies or SEBI registered intermediaries, could utilise SCORES after adopting a direct approach. As per the Circular, all the listed companies and the intermediaries registered with SEBI (apart from stock brokers, sub-brokers and Depository Participants) were required to obtain SCORES authentication within a time limit of 30 days from the date of issue and resolve any pending grievances. The aforesaid exception from authentication to stock brokers, sub-brokers and Depository Participants was made as complaints against them would ultimately be routed through the platforms of concerned stock exchanges/depositories.

Direct filing of complaints and the limitation period 

Prior to 2018, it was found that investors were frequently filing complaints on SCORES without actually seeking recourse directly from the concerned listed company/intermediary. It was therefore considered prudent to first approach the concerned listed company or registered intermediary consisting of designated persons to handle official complaints received from investors before utilising SCORES. Subsequently, SEBI vide Circular dated March 26th, 2018 stated that SCORES could also be used to submit complaints directly to the concerned listed company/intermediary which shall then be forwarded to the respective entity for resolution. A time limit of 30 days was given for redressal of grievances failing which the complaint would be registered on SCORES. The Circular also provided a limitation period to lodge complaints on SCORES starting from 1st August, 2018. Accordingly, an investor can file his complaint on SCORES within 3 years from the date of cause of complaint, where:

• Investor first approached the concerned listed company/intermediary for complaint redressal and,
• The concerned listed company/intermediary rejected the complaint or,
• The concerned listed company/intermediary failed to respond to the complaint or,
• The response received or the redressal action taken by the concerned company/intermediary was not to the satisfaction of the investor.

If the investor fails to file a complaint within the aforesaid period, he/she may directly take up the complaint with the concerned entity or approach the competent court of law.

Procedure for lodging complaints on SCORES

Starting from 1st August 2018, it has become mandatory for an investor to first register himself on SCORES for filing a complaint. Following is the procedure to be followed by investors for lodging complaints:

1. To become a registered user of SCORES, click on “Register here’ under ‘Investor Corner” visible on the homepage of SCORES portal. 
2. Fill the registration form by typing down the following mandatory details:

• Name
• Address
• E-mail address
• PAN and
• Mobile number 

3. Once registered, a username and password will be sent to the concerned email-id.
4. After becoming a registered user, login by entering the aforesaid username and password.
5. Once logged in, click on “Complaint Registration” under “Investor Corner”.
6. Select the accurate complaint category, entity name and nature of the complaint.
7. Provide details of the complaint in a concise manner (up to 1000 characters).
8. There’s also an option to attach a PDF document as a supporting document to the complaint.

On submission of the complaint, a system generated unique registration number will be exhibited on the screen which can be taken down for future correspondence. An email as well as a text consisting of the complaint registration number will also be sent to the registered email-id and mobile number. 

There is also an option to view the status of the complaint by logging in the unique complaint registration number. Both the concerned entity and the investor can seek and provide clarifications to each other. It is pertinent to note that every complaint has an audit trail. 

Procedure for handling the complaints

Prior to 2020, complaints which were unable to be redressed by the concerned entities or were redressed inadequately were forwarded to SEBI. However, SEBI vide Circular dated 13th August, 2020, changed the procedure by which the role of SEBI in handling the complaints switched to a Designated Stock Exchange (DSE) starting from 1st September, 2020. Given below is the mechanism for handling complaints in two scenarios.

Where complaint has not been directly filed with the concerned listed company/registered intermediary

1. Complaint will first be routed to the concerned entity.
2. A time limit of 30 days is given to the concerned entity to respond directly to the investor.
3. If the concerned entity fails to reply to the investor within 30 days, the complaint shall then be forwarded to the DSE through SCORES portal.
4. If the investor is not satisfied with the redressal of the complaint, he can seek review of the complaint through the “Complaint Review Facility” provided by SCORES, within 15 days from date of receipt of the response and the complaint will then be escalated.
5. If the investor is satisfied with the redressal mechanism adopted by the concerned entity or fails to file a review within the aforesaid 15 days, the complaint shall be closed.

Where the complaint has been filed directly with the concerned listed company

Under the new mechanism, while the process of filing of application by the investor remains the same, the turnaround timelines for have been relaxed for the listed companies.

1. All the details of the earlier complaint filed directly shall be submitted, i.e., period of cause of event, date of grievance taken up by the concerned listed company, address where the correspondence was last made, etc. Such complaints shall be forwarded to the DSE.
2. The DSE shall then take up the complaint to the concerned listed company. After the receipt of the complaint, a period of 30 days is given to the concerned entity to redress the complaint and submit an Action Taken Report (ATR).
3. DSE shall issue a reminder to the listed company through SCORES calling for expeditious redressal of the complaint within a further period of 30 days in cases where:
4. The listed company does not submit the ATR within the stipulated 30 days period or,
5. As per the opinion of DSE, the complaint has not been adequately resolved and has been pending for a period beyond 30 days.
6. In case the complaint is resolved and satisfactory, the DSE shall forward the ATR to SEBI.
7. In case the complaint is not resolved even after the expiry of 60 days, the DSE shall take necessary action against the listed company.

Actions that can be taken for non-resolution of investor grievances

As per the aforesaid Circular dated 13th August, 2020, the following Standard Operating Procedure (“SOP”) was devised for actions to be taken against a listed company in the event of their failure to resolve investor grievances:

1. DSE shall levy a fine of Rs 1000 per day for every complaint.
2. DSE shall submit a notice to the concerned company specifying the fine levied and requiring it to submit ATRs on the pending complaints and pay fines within a time limit of 15 days from date of such notice.
3. If the listed company fails to resolve investor grievances and/or pay fines within the aforesaid 15 days, DSE shall in turn notify the promoter(s) of such company to redress unsolved grievances and/or pay fines within a further period of 10 days from date of such notice.
4. In case the listed company fails to comply with the aforesaid requirements, the DSE shall inform the concerned depositories to freeze the entire shareholding of the promoters along with all other securities held in the demat account of the promoter(s).
5. After freezing the aforesaid accounts, the concerned depositories shall also notify the promoter(s) the reasons for the same.
6. Even after taking the aforesaid actions, if the listed company neither redresses the investor complaints, nor pays the fines levied, the DSE shall carry out any other action as deemed fit by it.
7. The DSE shall thereafter intimate the actions taken by it to SEBI and forward the complaint for any further action to be taken by SEBI once all the avenues are exhausted by the DSE.

If the listed company resolves the investor grievances and pays the required fine, it is deemed to be compliant. Any frozen shareholdings of the promoter(s) shall be unfrozen from the date of such compliance.  However, if the company redresses the grievances but fails to pay the fine levied, the shareholdings of the promoter(s) shall remain frozen till the accrued fines have been paid. On the other hand, if the company pays the accrued fines but fails to redress the investor grievances, DSE shall continue to levy fines and may take any other action as deemed fit by it.

Nature of complaints under the purview of the Circular 

The following are some of the complaints can be handled by the DSE:

1. Failure to receive dividends.
2. Failure to receive bonuses.
3. Failure to receive duplicate debt securities certificate.
4. Failure to receive duplicate share certificate.
5. Non-receipt of fractional entitlement.
6. Failure to receive interest for delay in distributing dividend.
7. Failure to receive interest on debentures, redemption amount of debentures or interest due to delayed payment of interest on debentures.
8. Failure to receive securities after public or rights issue.
9. Failure to receive shares after transfer or transmission.
10. Issues concerning dematerialisation or dematerialisation.

Nature of complaints not under the purview of the Circular

The DSE however is not authorized to handle the following types of complaints and shall forward it to the following authorities:

S. No.	Grievances pertaining to	Process for handling complaints
1.	a) Deposits under Sections 73 & 74 of Companies Act, 2013. b) Nidhi Companies. c) Dividends and securities transferred to Investor Education and Protection Fund.	Forward the complaint to Ministry of Corporate Affairs (MCA) under intimation to the complainant.
2.	Pension funds	Forward the complaint to Pension Fund Regulatory and Development Authority (PFRDA) under intimation to the complainant.
3.	Monopoly and anti-competitive practices	Forward the complaint to Competition Commission of India (CCI) under intimation to the complainant.
4.	Chit funds	Request complainant to approach Registrar of Chit Funds of the concerned State.
5.	Insurance Companies	Forward the complaint to Insurance Regulatory and Development Authority of India (IRDAI) under intimation to the complainant.
6.	Housing Finance Companies	Request complainant to approach National Housing Bank.
7.	a) Companies against whom moratorium order is passed under insolvency proceedings.  b) companies under liquidation and official liquidator is appointed.	Request complainant to approach National Company Law Tribunal or official liquidator.

Matters not considered as complaints 

1. Complaints not pertaining to SEBI Act, 1992, Securities Contract Regulation Act, 1956, Depositories Act, 1996, and their rules and regulations as well as Companies Act, 2013.
2. Complaints received anonymously (except whistle-blower complaints).
3. Complaints containing incomplete or un-specific information.
4. Complaints containing baseless allegations.
5. Information consisting of suggestions or informal guidance.
6. Complaints pertaining to unsatisfactory trading prices.
7. Companies arising out of private agreements with companies/intermediaries.
8. Complaints involving matters of fake/forged documents.
9. Complaints not relating to investment in securities market.
10. Complaints regarding unregulated activities.
11. Complaints that are associated with cases which are sub-judice.

Types of companies against which complaints cannot be filed on SCORES

1. Companies that are delisted or placed on the Dissemination Board of the stock exchanges.
2. Companies against which a moratorium order is passed in insolvency/winding up proceedings.
3. Companies whose names are struck off by the Registrar of Companies.
4. Vanishing Companies according to the list published by the MCA.
5. Companies that are suspended or under liquidation, etc.

SEBI and SAT judgments concerning SCORES

The sanctity of SCORES should be maintained at all times

The Hon’ble SAT in the matter of S. S. Forgings & Engineering Limited & Others v SEBI held as under:

“This Tribunal has consistently held that redressal of investors’ grievances is extremely important for the Regulator to regulate the capital market. If the grievances are not redressed within a time bound framework, it leads to frustration among the investors’ who may not be motivated to further invest in the capital market. Hence the importance of complaints redressal system initiated by SEBI in June, 2011 cannot be undermined and its sanctity has to be maintained by all the listed companies.”

Determination of penalty on failing to obtain SCORES authentication

The Hon’ble SAT in the matter of M/s. Vidarbha Industries Ltd. vs SEBI held that in cases where a listed company fails to obtain SCORES authentication within the time stipulated in SEBI Circulars, it shall amount to violating the directions of SEBI and would attract penalty under Section 15HB of SEBI Act, 1992. As per the Section, the penalty can range between Rs 1 lakh- Rs 1crore.The same was reiterated by the Tribunal in the matter of Port Shipping Company Ltd. vs. SEBI.

Reduction of penalty imposed under Section 15HB of SEBI Act, 1992

SEBI imposed a penalty of Rs 8 lakhs against the appellant Shikar Consultants Ltd (Noticee) for failing to obtain SCORES authentication with the time prescribed in SEBI Circulars. As per the SEBI Circular dated August 13, 2012, it was obligatory to obtain authentication by September 14, 2012. The Noticee had applied for SCORES authentication belatedly on July 16, 2017 and the same was granted to it on July 31, 2017. Aggrieved by the quantum of penalty imposed, the Noticee preferred an appeal to SAT on the following grounds:

1. Trading in the shares of the company remained suspended since February 12, 2003.
2. In 2016, new Board of Directors took over the company to revive it from financial crisis.
3. On receiving a show cause notice on June 20, 2017, the new Board of Directors applied for SCORES authentication on July 26, 2017.

Hon’ble SAT after carefully considering the aforesaid circumstances observed that apart from the mitigating factors stated by the appellant, in several similar cases, the Adjudicating Authority of SEBI thought fit to not impose a penalty at all despite the fact that the minimum penalty is 1 lakh under Section 15HB of SEBI Act, 1992. Consequently, it deemed it proper to reduce the penalty to 1 lakh.

Pending investor grievances is not a prerequisite to obtain SCORES authentication

SEBI observed that Rencal Chemicals India Ltd (Noticee) failed to obtain SCORES authentication thereby disobeying the provisions of SEBI Circulars and imposed a penalty of 6 lakhs. Aggrieved by the quantum of penalty imposed, the Notice filed an appeal to SAT contending that delay in obtaining SCORES authentication did not affect the investors in any manner as there was no pending investor grievances at that time. The appellant also contended that the penalty of 6 lakhs imposed by SEBI was exorbitant, given that in several cases the minimum penalty imposed was only 1 lakh. Rejecting those contentions, SAT observed that, the fact that no investor grievances was pending at the relevant time cannot be a ground for the appellant to disobey the Circulars issued by SEBI from time to time. The Tribunal also explicitly stated that quantum of penalty varies from case to case depending on the concerned facts and the appellant’s contention holds no merit. 

Failing to file a reply to show cause notice and appearing for personal hearing shall be deemed to be admission of charges levelled

The Hon’ble SAT in the matter of Sanjay Kumar Tayal & Others vs SEBI observed that:

“…appellants have neither filed reply to show cause notices issued to them nor availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted charges levelled against them in the show cause notices…”

Conclusion 

Filing complaints physically against listed companies and intermediaries is a time-consuming process. Introducing an online platform as well as the recently launched mobile application namely SCORES, has brought significant comfort and convenience to the investors. Investors can view their complaint status as well as initiate follow-ups on their complaints in a simple and cost-effective manner. As a result of SCORES, speedy redressal of investor grievances is being achieved in a rapid manner. Consequently, all complaints concerning the securities market can be addressed by this one-stop portal.

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