The Securities and Exchange Board of India (SEBI) recently issued a circular[1] on redressal of investor complaints through SCORES (SEBI Compliant Redressal System) and linking it to online dispute resolution platform. This is to enhance efficiency by reducing processing times and implementing automated routing and escalation mechanisms for addressing investor complaints against listed companies, registered intermediaries, or market infrastructure institutions.

The SCORES is a centralised facilitative platform which was introduced in the year 2011 to resolve the investor’s complaints against entities functioning in the securities market. SEBI has subsequently revised and strengthened the grievance redressal system on SCORES. These updated regulations for investor grievances are designed to ensure compliance with the revised SEBI (Facilitation of Grievance Redressal Mechanism) Regulations, 2023.[2]

Grievance Redressal Mechanism

The investors who wish to file a complaint must register on the SCORES portal under ‘Investor Corner’. The investors’ details, including PAN and contact details, are required for effective and speedy redressal communication. Additionally, the investors may complain against any entity within one year of the occurrence of the cause of action. SEBI may reject any complaint filed once the period of limitation is over. Moreover, certain complaints will not be dwelt via SCORES, such as complaints against delisted companies or companies on the Dissemination Board of Stock Exchange (except securities valuation complaints), matters before judicial or quasi-judicial or other dispute resolution forums, complaints under other regulatory bodies purviews, complaints against companies under resolution under the Insolvency and Bankruptcy Code, 2016, companies struck off from Register of Companies, liquidated companies and companies regarding market intelligence.

Complaints Redressal

Starting from December 4, the new framework requires that complaints submitted through SCORES be resolved within 21 days. These complaints are automatically sent to the relevant entity for resolution and designated bodies for monitoring. These bodies ensure that the entities submit an Action Taken Report (ATR) within 21 days, which is auto-routed back to the complainant. If the investor is still unsatisfied, they can request a review within 15 days of receiving the ATR.

First Review

If a review is requested or entities fail to submit the ATR within 21 days, the designated body overseeing the complaint takes charge of the initial review process via SCORES. The entity must submit the ATR within the stipulated time and provide the requested clarifications. The designated body reviews the revised ATR and sends it to the complainant within ten days. Moreover, SEBI shall take cognisance if intermediaries without designated bodies are appointed.

Second Review

Investors can request a second review within 15 days of receiving the revised ATR if they are still dissatisfied or if the designated bodies fail to submit it within ten days. In such cases, SEBI may handle the complaint for the second review via SCORES. SEBI engages with the entity and/or designated body for immediate action and ATR submission. The second review complaint is marked ‘closed’ or ‘disposed’ when SEBI completes its actions in SCORES.

Registration On Scores

SEBI provides an entirely automated procedure for generating a SCORES user ID and password for all SEBI-registered intermediaries and market infrastructure institutions (MIIs) recognised by SEBI post-August 2019. The SCORES user ID and password are sent via email provided in the online registration form and submitted through the SEBI Intermediaries portal. Brokers and Depository Participants are also required to obtain SCORES authentication.

Designated Bodies Authentication On SCORES

Designated Bodies must submit a Schedule IV form by sending it to scores@sebi.gov.in for SCORES Authentication from SEBI. The provided email address will receive the SCORES user ID and password. These Designated Bodies must assign a generic email ID for SCORES authentication and appoint a nodal officer whose details must be updated with SEBI via SCORES or email. Designated Bodies can contact SEBI at scores@sebi.gov.in to integrate their complaint redressal portal with SCORES via the Application Programming Interface (API). SCORES Authentication is required for all Designated Bodies, even API-integrated ones. Designated Bodies must have the infrastructure, systems, and manpower for compliance with the process laid down in this circular. They should also have procedures to prevent SCORES data leaks.

Designated Bodies must also maintain Management Information Systems (MIS) reports and share them with concerned entities to ensure timely Action Taken Reports. SEBI may request MIS reports in a specific format and at specific intervals as needed. SEBI can appoint or remove Designated Bodies for registered intermediaries as required.

Failure To Redress Investor Complaints By Listed Companies

The framework provides the Designated Stock Exchange (DSE) shall levy a fine of Rs.1000 a day per complaint on the listed company for violation to ensure expeditious redressal of investor complaints.[3] Fines will also be levied on companies suspended from trading on the Stock Exchange. The DSE will notify a listed company, informing them of the penalties imposed and directing them to submit ATR on pending complaints and pay fines within 15 days. If the company fails to comply with either, the DSE will notify the company’s promoters to ensure compliance within ten days. Failure to meet these requirements will lead depositories to freeze the promoters’ shareholding and other securities in their demat accounts. The depository will inform the promoters of the non-compliance. The DSE may take further action if the company still doesn’t resolve complaints or pay fines. The fine accrues monthly until the complaints are resolved, or the company is delisted. If there are over 20 pending complaints or the value exceeds Rs. 10 lakhs, the cases are forwarded to SEBI. Stock exchanges can deviate from this procedure with written reasons, and they must inform SEBI about the actions taken. The Stock Exchange must necessarily inform SEBI via SCORES of all actions taken against listed companies for non-compliance.

[1] https://www.sebi.gov.in/legal/circulars/sep-2023/redressal-of-investor-grievances-through-the-sebi-complaint-redressal-scores-platform-and-linking-it-to-online-dispute-resolution-platform_77159.html

[2] https://www.sebi.gov.in/legal/regulations/aug-2023/securities-and-exchange-board-of-india-facilitation-of-grievance-redressal-mechanism-amendment-regulations-2023_75419.html

[3] Regulation 13 (1) of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 (LODR Regulations) read with SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020, https://www.sebi.gov.in/legal/circulars/jan-2020/non-compliance-with-certain-provisions-of-the-sebi-listing-obligations-and-disclosure-requirements-regulations-2015-and-the-standard-operating-procedure-for-suspension-and-revocation-of-trading-of-_45752.html

Several amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations were notified by the Board on September 18, 2023.

Under the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) (Amendment) Regulations, 2023, a unified enrolment and registration application form is to be launched so that a common application form can be filed for both enrolment and registration processes. The unified application for enrolment has to be approved within 60 days and the unified application for registration has to be forwarded to the Board within 30 days.

The Board has also amended the 2016 regulations on insolvency professionals.[1] Before accepting applications for surrender of professional membership or expelling a professional member, compliance with certain requisites pertaining to fee payment, disciplinary order, etc. must be ensured. Further, the insolvency professionals would be permitted to surrender their registration certificate to the Board, through the introduction of Regulation 10A.

The amendment regulations on the insolvency resolution process for corporate persons provide for additional responsibilities of the Authorised Representative (AR) to facilitate the class of creditors, especially home buyers; review of contents of minutes prepared by the Resolution Professional (RP), providing regular updates to the creditors in a class on the progress of the CIRP, etc.[2] Accordingly, the AR’s fee will also be increased. The committee members will be able to get an audit of the Corporate Debtor (CD) done and such audit costs will be included in the CIRP cost. If the debt has been assigned by the creditor to another person, the creditor has to provide the details of such assignment to the RP within 7 days.

[1] https://ibbi.gov.in/uploads/legalframwork/f76838225028debe733984fb02cd2ec3.pdf

[2] https://ibbi.gov.in/uploads/legalframwork/82a0d8c13a4ad67aac73623ca3b22c2f.pdf

The Reserve Bank of India (RBI) has come out with draft master directions on the treatment of wilful defaulters and large defaulters. The directions will come into force after 90 days.

These directions, which have broad consequences for financial institutions, borrowers, auditors, and other stakeholders, are based on important financial regulations. The main goal of these guidelines is to create a fair and just procedure for identifying wilful defaulters, in line with natural justice principles. The RBI aims to make it easier for lenders to consider providing additional financial aid to wilful defaulters by facilitating the exchange of credit information about them.

The document contains important clauses pertaining to its applicability to different financial organizations, such as banks, non-banking financial companies (NBFCs), asset reconstruction companies (ARCs), and credit information companies (CICs). In Chapter II, the concept of wilful default is defined, along with the methods for locating and evaluating wilful defaulters. Additionally, it provides for harsh penalties and processes that are transparent. Chapter III discusses the significance of providing accurate and timely information to credit information businesses and outlines the repercussions of failing to do so. Although the document’s primary attention is on wilful defaulters, it also contains measures pertaining to large defaulters that are in line with the RBI’s prudential standards on income recognition, asset categorization, and provisioning.

The functions of identification and review committees, protections for part-time directors, sanctions against wilful defaulters, and guarantors’ liabilities are a few significant elements. It covers the reporting duties to credit information firms and the handling of compromised settlements. In addition, it recognises the importance of third parties, including statutory auditors, in identifying, preventing, and correcting wilful defaults. When necessary, these parties would be held accountable. It also necessitates the reporting of guarantors and directors connected to the borrower and encourages preventive actions during credit appraisal and monitoring, emphasising the accuracy of reporting.