SAT Confirms That SEBI’s SCORES Acts Like a Post-office. What Next for Investor Grievance Redress?
On 3rd August, the securities appellate tribunal (SAT) issued an interesting order which, finally, nails down what thousands of investors have suspected and complained about—that the market regulator deals with complaints to its grievance redress system like a post-office. It merely forwards cases to the regulated entity against which there is a complaint. If the entity is concerned enough to resolve it, the investor is lucky. Otherwise it provides a legal response which the Securities and Exchange Board of India (SEBI) files and closes the complaint. SEBI’s top brass is perhaps, fully aware of this and hence, is all set to offload most of the responsibility of grievance redress to market infrastructure institutions (MIIs). But not before it received a sharp rap from SAT on this issue.
Here is what happened. KLA Padmanabhasa, a promoter and director of Khoday India Ltd (Khoday), the liquor company known for Peter Scot whisky, holds nearly 20% of the equity in the company. Of this 1.21% (4,36,471 shares) is held directly and another 18.56% (58,11,580 shares) through an Hindu undivided family (HUF) account. It is apparently customary that promoter family share certificates are kept with the company. In this case, they were physical shares, although the rules require all promoter shares to be held in dematerialised (demat) form. But we will come to that later.
On 2 November 2022, Mr Padmanabhasa, 82, asked the Khoday board to dematerialise his shareholding and credit it to his beneficiary account. Instead of doing so, the company wrote to him on 9th November that physical shares would be sent to him and he should submit them to the depository participant (DP) for dematerialisation. The shares never arrived.
On 17th November, Mr Padmanabhasa wrote to the registrar & transfer agent (RTA) of the company seeking duplicate share certificates. Clearly, there is a dispute in the promoter family, which is why a senior board member and a significant shareholder, is getting pushed around. In fact, the board went a step further, and in Mr Padmanabhasa’s absence (at the meeting), passed a resolution on 26 November 2022, refusing to dematerialise his shares on the ground that he would sell his shareholding thereafter and this “was not in the larger interest of the company.” This resolution was conveyed to the RTA who refused to issue duplicate shares.
Since most of these actions were patently illegal, Mr Padmanabhasa did the simple thing of filing a complaint with SEBI’s grievance redress system (SCORES). We are glad he did so, because we now know how SCORES works.
SEBI merely forwarded the complaint to Khoday and, based on the response received from the company, closed the complaint on 19 April 2023. Isn’t it stunning that SEBI officials, in charge of regulating listed entities did not take greater interest in the matter, when one of the parties is a 20% shareholder, director and promoter? How did SEBI officials not verify whether Khoday’s actions were in line with rules framed under its own listing obligations and disclosure requirements (LODR) as well as the Companies Act?
Section 31(2) of the LODR regulations 31(2) says: “The listed entity shall ensure that hundred per cent of shareholding of promoter(s) and promoter group is in dematerialized form and the same is maintained on a continuous basis in the manner as specified by the Board.”
Since this was not a helpless retail investor, the matter went to SAT. His lawyers argued that provisions of the Depositories Act require promoter holding to be dematerialised, whether or not it was a listed entity.
Khoday’s legal team had tried to have the issue delayed and thrown out by making the argument that: a) it was not a listed company, although it was later shown that this was incorrect, since the ministry of corporate affairs’s (MCA’s) website shows its status as a listed entity; b) that an appeal to SAT was not maintainable and Mr Padmanabhasa ought to have approached the national company law tribunal (NCLT); and c) at the very least, he should have approached the National Stock Exchange (NSE) before filing a complaint with SCORES. Another astonishing stand by Khoday was that the articles of association of the company provide ‘absolute discretion’ to its board to refuse to register transfer of shares in “exceptional circumstances where it is felt that the transferor / transferee is not a desirable person from the larger point of view of interest of the company as a whole.”
Yes, the 82-year old shareholder and board director already holds a 20% stake, but this argument (which is part of the SAT order) was used as a reason for refusing to dematerialise his shares. The apprehension was that he would sell his stake to outsiders. Clearly, these were merely delaying and deflecting tactics.
The SEBI lawyer, on the other hand, appears to have ‘conceded’ that SEBI’s communication to the promoter ‘was no happily worded’ and should the matter be remitted back to the regulator, it would pass appropriate orders in accordance with LODR regulations.
SAT did exactly that, but not before rapping the regulator for ‘mechanically’ disposing the complaint without applying its mind as to whether LODR provisions were violated. It also held that refusal to transfer shares does not fall under the specific set of circumstances in which this can be done under Section 58 of the Companies Act, and called the refusal  ‘patently erroneous’ even under the articles of association of Khoday itself—since there was no ‘larger’ corporate interest involved.
Quoting various rules that require both listed and unlisted companies to hold promoter shares in dematerialised form and to facilitate the demat process, SAT set aside SEBI’s communication and directed the regulator to issue a fresh order and direct the company to rectify the violation of securities law that had occurred.
It is embarrassing for SEBI that it has been badly rapped for acting like a post-office, just when it has just made MIIs responsible for doing the job that it had performed so callously. SEBI has called its new move a way of strengthening grievance redress and providing a disaggregated, end-to-end redress solution online, including a mediation process. After a detailed consultation paper in December 2022, SEBI followed up with circular that was issued on 31st July (
The efficacy of the new system will be tested in the coming days when the common online dispute resolution (ODR) portal is set up and the process begins. SEBI wants MIIs to appoint qualified conciliators and arbitrators and has chosen to micro-manage the system by prescribing and capping their fees. But that is the subject of a separate column.
For the moment, suffice it to say that if MIIs take a cue from how SEBI officials handled SCORES, it will only add another layer of delay and distress to the resolution process, since investors can only approach for a review. The regulator has, indeed, set timelines for redress and requires action taken reports (ATRs) from MIIs, but a lot depends on timely action by the regulator if MIIs treat the process with the same callousness that SEBI officials showed in the Khoday promoter’s case.
Moreover, this process will not include complaints relating to insider trading, accounting manipulation or price or volume manipulation in equity, equity derivatives or commodity derivatives. All those are going to be treated as actionable complaints and pushed to a separate portal. Will the regulator be willing to put up a public dashboard with a timeline showing complaints that are taking up for investigation and action after preliminary investigation and those that are dismissed as frivolous, false or non-maintainable?
After all, if SEBI wants MIIs to follow timelines and be strictly accountable, then it has to be held equally accountable. Let us not forget that SAT has recently set aside a SEBI order imposing a Rs25-crore penalty on the Ambani family. The order said that SEBI had acted on a violation that occurred in the year 2000, under provisions that came into existence in 2015! (Read: SAT Sets Aside SEBI Order Imposing Rs25 Crore on Ambani Family & Reliance Promoter Entities).
3 months ago
Tata Tech IPO contravened RHP, Prospectus blatantly thereby putting small investors in a position of not getting allotment.Book building process of price determination results in cut off price far lower than Rs500 as finalized by REGISTRAR.Proof is the finalized advertisement on TTL website.
RHP guidelines for proportionate allotment flouted by arbitrary,unfair draw of lots benefitting favourite investors
List of rejected APPLICATIONS for bids not uploaded at Tata Tech website thus, not transparent allotment.
Allotment result advertisement further increases CATEGORIES in violation of RHP.
Draw of lots not mentioned as allotment criteria in RHP.Morever, draw of lots computer algorithm not disclosed till date.
RHP didn't disclose the Vinfast Auto , Vietnam incurred 90% revenue erosion thus cheating investors.
A lot of small investors rejected before draw of lots by clandestine change of bidding category from Shareholders category to retail investors category thereby rejecting on multiple bids.
List of rejected APPLICATIONS not uploaded on website thereby not transparent allotment.
3 months ago
Till a couple of years ago, one could sell shares in physical form.Thus, one could choose to sell those shares which were bought at a lower price of a given company even though the same share was bought after having bought shares at higher prices!
But now after SEBI directives that Shares can only be sold in demat form.
Every broker FLOUTS THE RIGHT OF SHAREHOLDER, by enforcing FIFO METHOD OF selling shares.One is FORCED TO INCUR LOSSES even when one could make "profit" by selling shares bought at lower price but at a later date! BUT BROKERS AND REGULATORY directives PREVENT IT!
SEBI charges, broker charges, depository charges, stamp duty etc WILL NOT BE COLLECTED on those higher price shares if one sells lower price shares if allowed to choose.
Shakespeare is so true!
Consider , no one objects to this, then why should they crib when SCORES does what it does!
We need to introspect.
Kamal Garg
Replied to zoom2mercury comment 3 months ago
Agree with the observations.
3 months ago
SCORES is such a platform which is designed in a manner that grievance submission is sketchy, without submission of electronic submission thereby prejudiced towards the wrong doer.Acts like a complaint forwarding entity, forwarding to exchange which forwards to the wrong doer entity.There is evidence that shows broker violation of SEBI DIRECTIVES is not punished by the exchange.
It's disconcerting that complaint to SEBI chair is replied anonymously contravening RTI Act 2005 and it "resolves complaint" by directing to file complaint in SCORES.
Who will help?
4 months ago
This is absolutely true. I have consolidate my own experience with SCORES portal of SEBI on Quora at following link: .
SCORES is retty useless and SEBI officers attending to it are extremely arrogant and incompetent.
5 months ago
Unfortunately till date the shares are not alloted inspite of court orders. Though the article would help the family in some way, Many bribing hands have been involved and no relief yet. Sorry to state but There is no fear of law in our country.
5 months ago
It is not just SEBI but almost all Grievance Redressal portals act like post offices. Consider the Govt. of India's grievance portal for lodging complaints against government ministries/departments, public authorities and even PSUs. I have lodged complaints, which were forwarded to concerned authorities/PSUs. Their response was forwarded to me, and grievance was closed, even without verifying whether the grievance had been correctly redressed. I have had same experience with SEBI when I lodged my complaint against an NSE broker.
6 months ago
The country seriously needs a regulator over all existing regulators as all are busy in their own senseless jobs.
In one instance the IRDA kept on informing me to lodge a complaint in the link which is meant for insureds and not agents.
In another instance the SEBI had been absolutely unmindful to a complaint in which a Company had maliciously transferred his equity shares to the IPEF despite having full details of the investors bank account and address in his demat account.
Kis kis ke age rona royen.
God save the hapless citizen from the Bureaucrats, the Police and Politicians and the Judiciary.
6 months ago
Very much true even IRDAI does the same and forwards the same to the organisation and does not follow up with them and customer have to keep on reminding the same
6 months ago
This is so true. Aggrieving entities know it very well. When the aggrieved Indvidual tries telling them they would approach SEBI they just laugh. I heard it so openly from an NSE regional office representative when an unfair margin penalty had been charged by Zerodha. It pains when you pay SEBI charge for each transaction, but are let down when you have to approach it .
6 months ago
Valuable information , investors are opening up .scores should be modified on the basis of grievances of investors or renamed as postoffice .
6 months ago
6 months ago
Bugs is there in there SCORES. You can't seek advice from SEBI from SCORES and if you send on email they will ask you to use SCORES. Just forwarding and giving huge time to RTA. KFIN is on the top as per SCORES to receive complaints. No action and due to that no improvement. Investor Protection Fund is used to just organize events. SEBI depend on RTA's reply and whatever they supply it will be forwarded.
6 months ago
Dashboard adds no value, since they will just blindly close the complaint without making investigation or action, dashboard will simply show that complaint is resolved.
Kamal Garg
6 months ago
Almost all sarkari departments/bodies and also most of the private companies also, act just as a post office when it comes to their stakeholders' complaints and grievances. Nothing new. Plain apathy and no action on ground.
6 months ago
Similar is the case with IRDA. It is also merely a post office and takes satisfaction in just passing the complaint to insurer and feels happy with the action irrespective of whether the insurer addresses the customer's complaint appropriately or not. Private insurers like STAR Health are acting like bully and steadfastly deny any request by customer to have a relook at the settlement of the claims. This system also needs to be revamped.
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