In a recent Mint article, Mr. Sumit Agrawal, Founder of Regstreet Law Advisors and former SEBI officer, examined a long-standing regulatory gap: the lack of direct and meaningful compensation to retail investors affected by securities fraud.
Despite SEBI’s growing disgorgement actions and the ballooning size of the Investor Protection and Education Fund (IEPF), investor restitution remains elusive. Mr. Agrawal remarked:
“𝘚𝘌𝘉𝘐 𝘮𝘢𝘪𝘯𝘵𝘢𝘪𝘯𝘴 𝘵𝘩𝘢𝘵 𝘪𝘵 𝘭𝘢𝘤𝘬𝘴 𝘵𝘩𝘦 𝘢𝘶𝘵𝘩𝘰𝘳𝘪𝘵𝘺 𝘵𝘰 𝘪𝘥𝘦𝘯𝘵𝘪𝘧𝘺, 𝘷𝘦𝘳𝘪𝘧𝘺, 𝘰𝘳 𝘤𝘰𝘮𝘱𝘦𝘯𝘴𝘢𝘵𝘦 𝘢𝘧𝘧𝘦𝘤𝘵𝘦𝘥 𝘪𝘯𝘷𝘦𝘴𝘵𝘰𝘳𝘴, 𝘢𝘳𝘨𝘶𝘪𝘯𝘨 𝘵𝘩𝘢𝘵 𝘪𝘵 𝘪𝘴 𝘯𝘰𝘵 𝘢 ‘𝘊𝘰𝘶𝘳𝘵’ 𝘦𝘮𝘱𝘰𝘸𝘦𝘳𝘦𝘥 𝘵𝘰 𝘢𝘥𝘫𝘶𝘥𝘪𝘤𝘢𝘵𝘦 𝘤𝘭𝘢𝘪𝘮𝘴 𝘰𝘳 𝘢𝘸𝘢𝘳𝘥 𝘳𝘦𝘴𝘵𝘪𝘵𝘶𝘵𝘪𝘰𝘯.”
Even in high-profile matters like the Jane Street case, where SEBI impounded ₹4,840 crore citing alleged expiry-day index manipulation, there is no statutory clarity to return the proceeds to affected investors.
“𝘛𝘩𝘦 𝘍𝘪𝘯𝘢𝘯𝘤𝘦 𝘔𝘪𝘯𝘪𝘴𝘵𝘳𝘺 𝘢𝘯𝘥 𝘚𝘌𝘉𝘐 𝘤𝘰𝘶𝘭𝘥 𝘤𝘰𝘯𝘴𝘪𝘥𝘦𝘳 𝘢 𝘜𝘚-𝘴𝘵𝘺𝘭𝘦 𝘍𝘢𝘪𝘳 𝘍𝘶𝘯𝘥 𝘮𝘦𝘤𝘩𝘢𝘯𝘪𝘴𝘮 𝘵𝘰 𝘱𝘰𝘰𝘭 𝘥𝘪𝘴𝘨𝘰𝘳𝘨𝘦𝘥 𝘢𝘮𝘰𝘶𝘯𝘵𝘴 𝘧𝘰𝘳 𝘪𝘯𝘷𝘦𝘴𝘵𝘰𝘳 𝘳𝘦𝘧𝘶𝘯𝘥.”
According to Mr. Agrawal, rare exceptions such as the Roopalben Nareshbhai Panchal IPO scam and the Sahara refund were only possible when the Supreme Court or special committees intervened and directly authorized repayments to victims. The Panchal IPO scam involved thousands of fake demat accounts, including those created using photographs from matrimonial websites like Shaadi.com, to invest in various IPO allotments in a booming market. SEBI was able to identify genuine investors who were denied allotment and facilitate refunds. Without such intervention, the current legal framework offers little hope for market-wide restitution.
As India’s capital markets continue to deepen, the need for a transparent, rights-based compensation mechanism becomes critical. Amending the SEBI Act, SCRA and Depositories Act could provide a statutory foundation for investor restitution, beyond mere discretion.
The full article is available at https://lnkd.in/d9-g35qP
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