SEBI to empower investors to sue errant companies

01 June 2009

The Securities and Exchange Board of India (SEBI) is framing regulations in line with the US class action suit to address public grievances against erring companies, according to the recent notification issued by the board.

This is to restrain companies from duping investors of their assets as the suits of this nature will have a bad reputation on the company, which may have to spend considerable amount of time and money to settle the issue, say experts.

In its notification Investor Protection and Education Fund Regulations, 2009, issued on 19 May SEBI said that the Fund will be utilised for the purpose of protection of investors and promotion of investor education and awareness in accordance with these regulations.

It said the Fund can also be used for aiding investors' associations recognised by the Board to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed.

This will enable investor associations to get financial assistance from SEBI's investor protection fund to meet legal expenses to safeguard investors' interests.

However, SEBI has stipulated that, ''the aid shall not exceed 75 per cent of the total expenditure on legal proceedings; and such aid shall not be considered for more than one legal proceeding in a particular matter.