Q10: Write a Note on: (a) Legislation for Unfair Trade Practices/Consumer Protection (b) Investor Protection

Ans:  (a) Legislation for Unfair Trade Practices/Consumer Protection

Meaning of Consumer Protection: Consumer protection is a group of laws and organizations designed to ensure the rights of consumers as well as fair trade competition and the free flow of truthful information in the marketplace.

Need for Consumer Protection:

1. Illiteracy and ignorance:

Consumers in India are mostly illiterate and ignorant. They do not understand their rights. A system is required to protect them from unscrupulous businessmen.

2. Unorganized consumers:

In India consumers are widely dispersed and are not united. They are at the mercy of businessmen. On the other hand, producers and traders are organised and powerful.

3. Spurious goods:

There is increasing supply of duplicate products. It is very difficult for an ordinary consumer to distinguish between a genuine product and its imitation. He pays the price for the original but gets a substandard product. It is necessary to protect consumers from such exploitation.

4. Deceptive advertising:

Some businessmen give misleading information about quality, safety and utility of products. Consumers are misled by false advertisement and do not know the real quality of advertised goods. A mechanism is needed to prevent misleading advertisements.

5. Malpractices of businessmen:

Fraudulent, unethical and monopolistic trade practices on the part of businessmen lead to exploitation of consumers. Consumers often get defective, inferior and substandard goods and poor service. Certain measures are required to protect the consumers against such malpractices. Greedy businessmen indulge in adulteration, boarding, black-marketing and other illegal practices.

6. Freedom of enterprise:

Businessmen must ensure satisfaction of consumers. In the long run survival and growth of business is not possible without the support and goodwill of consum­ers. If business does not protect consumer's interests. Government intervention and regulatory measures will grow to curb unfair trade practices. Thus, consumers need protection against the following:

(a) Unsafe and harmful products,

(b) Unfair trade practices,

(c) False advertising,

(d) Abuse of monopoly power,

(e) Environmental pollution.

Consumer Protection Act, 1986

In the entire world, the needs for consumer’s protection and satisfaction have been widely accepted. The main provisions of the act are as given below:

Main provisions of the Act:

 1. Short title, extent, commencement and application.—(i ) This Act may be called the Consumer Protection Act, 1986.

(ii)  It extends to the whole of India except the State of Jammu and Kashmir.

(iii)  It shall come into force on such date as the Central Government may, by notification, appoint and different dates may be appointed for different States and for different provisions of this Act.

(iv)  Save as otherwise expressly provided by the Central Government by notification, this Act shall apply to all goods and services.

2. Definitions:  complainant" means—

(i)          a consumer; or

(ii)         any voluntary consumer association registered under the Companies Act, 1956 (1of 1956)or under any other law for the time being in force; or

(iii)        the Central Government or any State Government,

(iv)        one or more consumers, where there are numerous consum­ers having the same interest;

(v)         in case of death of a consumer, his legal heir or representative; who or which makes a complaint; 

"consumer" means any person who—

(i)    buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

(ii)   hires or avails of any services for a consideration which has been paid or promised or partly paid and partly prom­ised, or under any system of deferred payment and includes any beneficiary of such services other than the person who 'hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purposes;

"defect" means any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard which is required to be maintained by or under any law for the time being in force under any contract, express or implied or as is claimed by the trader in any manner whatsoever in relation to any goods;

             "deficiency" means any fault, imperfection, shortcoming or inade­quacy in the quality, nature     and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

3. Authorities under the Act

(I) The Central Consumer Protection Council. (i) The Central Government shall, by notification, establish with effect from such date as it may specify in such notification, a Council to be known as the Central Consumer Protection Council (hereinafter referred to as the Central Council). 

(ii)   The Central Council shall consist of the following members, namely:—

(a)     the Minister in charge of the consumer affairs in the Central Government, who shall be its Chairman, and

(b)    such number of other official or non-official members represent­ing such interests as may be prescribed. 

 Procedure for meetings of the Central Council.—(i) The Central Council shall meet as and when necessary, but at least one meeting of the Council shall be held every year. 

(ii)   The Central Council shall meet at such time and place as the Chairman may think fit and shall observe such procedure in regard to the transaction of its business as may be prescribed. 

Objects of the Central Council.—The objects of the Central Council shall be to promote and protect the rights of the consumers such as,— 

(a)     the right to be protected against the marketing of goods and services which are hazardous to life and property;

(b)     the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as the case may be so as to protect the consumer against unfair trade practices;

(c)     the right to be assured, wherever possible, access to a variety of goods and services at competitive prices;

(d)     the right to be heard and to be assured that consumer's interests will receive due consideration at appropriate forums;

(e)     the right to seek redressal against unfair trade practices or restrictive trade practices or unscrupulous exploitation of con­sumers; and

(f)      the right to consumer education. 

(II)  The State Consumer Protection Councils.- (i) The State Government shall, by notification, establish with effect from such date as it may specify in such notification, a Council to be known as the Consumer Protection Council for..................... (hereinafter referred to as the State Council). 

(ii)   The State Council shall consist of the following members, namely:—

(a)     the Minister incharge of consumer affairs in the State Government who shall be its Chairman;

(b)     such number of other official or non-official members representing such interests as may be prescribed by the State Government.

(c)     such number of other official or non-official members, not exceeding ten, as may be nominated by the Central Government.

(iii)   The State Council shall meet as and when necessary but not less than two meetings shall be held every year.

(iv)   The State Council shall meet at such time and place as the Chairman may think fit and shall observe such procedure in regard to the transaction of its business as may be prescribed by the State Government.

(v) Objects of the State Council. — The objects of every State Council shall be to promote and protect within the State the rights of the consumers laid down in clauses (a) to (f) of section 6.

(III) The District Consumer Protection Councils: (i)   The State Government shall establish for every district, by notification, a council to be known as the District Consumer Protection Council with effect from such date as it may specify in such notification.

(ii)   The District Consumer Protection Council (hereinafter referred to as the District Council) shall consist of the following members, namely:—

(a)     the Collector of the district (by whatever name called), who shall be its Chairman; and

(b)   such number of other official and non-official members representing such interests as may be prescribed by the State Government.

(iii)   The District Council shall meet as and when necessary but not less than two meetings shall be held every year.

(iv)   The District Council shall meet at such time and place within the district as the Chairman may think fit and shall observe such procedure in regard to the transaction of its business as may be prescribed by the State Government.

1.      Redressal machinery under the Act

 Establishment of Consumer Disputes Redressal Agencies. - There shall be established for the purposes of this Act, the following agencies, namely:—

(A)  a Consumer Disputes Redressal Forum to be known as the "District Forum" established by the State Government in each district of the State by notification:

      Provided that the State Government may, if it deems fit, establish more than one District Forum in a district.

(B)  a Consumer Disputes Redressal Commission to be known as the "State Commission" established by the State Government in the State by notification; and

(C)  a National Consumer Disputes Redressal Commission established by the Central Government by notification.

(A) "District Forum"

(I)  Each District Forum shall consist of,— 

(a)  a person who is, or  has been, or is qualified to be a District Judge, who shall be its President;

(b) two other members, one of whom shall be a woman, who shall have the following qualifications, namely:—

(i)    be not less than thirty-five years of age,

(ii)   possess a bachelor's degree from a recognised university,

(iii)  be persons of ability, integrity and standing, and have adequate knowledge and experience of at least ten years in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration:

Provided that a person shall be disqualified for appointment as a member if he—

(a)  has been convicted and sentenced to imprisonment for an offence which, in the opinion of the state Government involves moral turpitude; or

(b)  is an undischarged insolvent; or

(c)  is of unsound mind and stands so declared by a competent court; or

(d)  has been removed or dismissed from the service of the Government or a body corporate owned or controlled by the Government; or

(e)  has, in the opinion of the state Government, such financial or other interest as is likely to affect prejudicially the discharge by him of his functions as a member; or

(f)   has such other disqualifications as may be prescribed by the State Government;

 (II) Every member of the District Forum shall hold office for a term of five years or up to the age of sixty-five years, whichever is earlier:

Provided that a member shall be eligible for re-appointment for another term of five years or up to the age of sixty-five years, whichever is earlier, subject to the condition that he fulfills the qualifications and other conditions for appointment mentioned in clause (b) of sub-section (1) and such re-appointment is also made on the basis of the recommendation of the Selection Committee:

Provided further that a member may resign his office in writing under his hand addressed to the State Government and on such resignation being accepted, his office shall become vacant and may be filled by appointment of a person possessing any of the qualifications mentioned in sub-section (1) in relation to the category of the member who is required to be appointed under the provisions of sub-section (1A) in place of the person who has resigned:

Provided also that a person appointed as the President or as a member, before the commencement of the Consumer Protection (Amendment) Act, 2002, shall continue to hold such office as President or member, as the case may be, till the completion of his term. 

 (III) Manner in which complaint shall be made.—(1) A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided or agreed to be provided may be filed with a District Forum by –

(a)  the consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided;

(b)  any recognised consumer association whether the consumer to whom the goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided is a member of such association or not;

(c)  one or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested; or

(d)  the Central Government or the State  Government, as the case may be,  either in its individual capacity or as a representative of interests of the consumers in general. 

(2)   Every complaint filed under sub-section (1) shall be accompanied with such amount of fee and payable in such manner as may be prescribed.

 (IV) Procedure on admission of complaint. — The District Forum shall, on admission of a complaint, if it relates to any goods,—  refer a copy of the admitted complaint, within twenty-one days from the date of its admission to the opposite party mentioned in the complaint directing him to give his version of the case within a period of thirty days or such extended period not exceeding fifteen days as may be granted by the District Forum.

 (V)  Finding of the District Forum. — If, after the proceeding conducted under section 13, the District Forum is satisfied that the goods complained against suffer from any of the defects specified in the complaint or that any of the allegations contained in the complaint about the services are proved, it shall issue an order to the opposite party directing him to do one or more of the following things, namely:—

(a)     to remove the defect pointed out by the appropriate laboratory from the goods in question;

(b)     to replace the goods with new goods of similar description which shall be free from any defect;

(c)     to return to the complainant the price, or, as the case may be, the charges paid by the complainant;

(d)     to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party.

 (VI) Appeal. — Any person aggrieved by an order made by the District Forum may prefer an appeal against such order to the State Commission within a period of thirty days from the date of the order, in such form and manner as may be prescribed:

Provided that the State Commission may entertain an appeal after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not finding it within that period.

(B) "State Commission”

                   (I) Composition of the State Commission. — (1) Each State Com­mission shall consist of— 

(a)  a person who is or has been a Judge of a High Court, appointed by the State Government, who shall be its President: 

Provided that no appointment under this clause shall be made except after consultation with the Chief Justice of the High Court;

(b)  not less than two, and not more than such number of members, as may be prescribed, and one of whom shall be a woman, who shall have the following qualifications, namely:—

(i)   be not less than thirty-five years of age;

(ii)  possess a bachelor's degree from a recognised university; and

(iii) be persons of ability, integrity and standing, and have adequate knowledge and experience of at least ten years in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration:

Provided that not more than fifty per cent. of the members shall be from amongst persons having a judicial background.

(II) The salary or honorarium and other allowances payable to, and the other terms and conditions of service of, the members of the State Commission shall be such as may be prescribed by the State Government.

Provided that the appointment of a member on whole-time basis shall be made by the State Government on the recommendation of the President of the State Commission taking into consideration such factors as may be prescribed including the work load of the State Commission.

            (III) Every member of the State Commission shall hold office  for a term of five years or up to the age of sixty-seven years, whichever is earlier:

           (IV) Jurisdiction of the State Commission. — (1) Subject to the other provisions of this Act, the State Commission shall have jurisdiction—

(a)  to entertain—

(i)   complaints where the value of the goods or services and compensation, if any, claimed exceeds rupees twenty lakhs but does not exceed rupees one crore; and

(ii)   appeals against the orders of any District Forum within the State; and

(b)  to call for the records and pass appropriate orders in any con­sumer dispute which is pending before or has been decided by any District Forum within the State, where it appears to the State Commission that such District Forum has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested or has acted in exercise of its jurisdiction illegally or with material irregularity.

(2) A complaint shall be instituted in a State Commission within the limits of whose jurisdiction,—

(a)  the opposite party or each of the opposite parties, where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides or carries on business or has a branch office or personally works for gain; or

(b)  any of the opposite parties, where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides, or carries on business or has a branch office or personally works for gain, provided that in such case either the permission of the State Commission is given or the opposite parties who do not reside or carry on business or have a branch office or personally work for gain, as the case may be, acquiesce in such institution; or

(c)  the cause of action, wholly or in part, arises.

         (V) Transfer of cases. - On the application of the complainant or of its own motion, the State Commission may, at any stage of the proceeding, transfer any complaint pending before the District Forum to another District Forum within the State if the interest of justice so requires.

          (VI) Appeals.—Any person aggrieved by an order made by the State Commission in exercise of its powers conferred by sub-clause (i) of clause (a) of section 17 may prefer an appeal against such order to the National Commission within a period of thirty days from the date of the order in such form and manner as may be prescribed:

Provided that the National Commission may entertain an appeal after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing it within that period.

(C) “National Commission”

(I) Composition of the National Commission.— The National Commission shall consist of—     a person who is or has been a Judge of the Supreme Court, to be appointed by the Central Government, who shall be its President; Provided that no appointment under this clause shall be made except after consultation with the Chief Justice of India;

The jurisdiction, powers and authority of the National Commission may be exercised by Benches thereof.

 (II) The salary or honorarium and other allowances payable to and the other terms and conditions of service of the members of the National Commission shall be such as may be prescribed by the Central Government.

(III) Every member of the National Commission shall hold office for a term of five years or up to the age of seventy years, whichever is earlier:

(IV) Jurisdiction of the National Commission. — Subject to the other provisions of this Act, the National Commission shall have jurisdiction—

(a)  to entertain—

(i)   complaints where the value of the goods or services and compensation, if any, claimed exceeds rupees one crore; and

(ii)  appeals against the orders of any State Commission; and

(a)   to call for the records and pass appropriate orders in any con­sumer dispute which is pending before or has been decided by any State Commission where it appears to the National Commission that such State Commission has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested, or has acted in the exercise of its jurisdiction illegally or with material irregularity. 

(V)Power of and procedure applicable to the National Commission. — (1) The provisions of sections 12, 13 and 14 and the rules made thereunder for the disposal of complaints by the District Forum shall, with such modifications as may be considered necessary by the Commission, be applicable to the disposal of disputes by the National Commission.

·         (2)   Without prejudice to the provisions contained in sub-section (1), the National Commission shall have the power to review any order made by it, when there is an error apparent on the face of record.

(VI) Transfer of cases - On the application of the complainant or of its own motion, the National Commission may, at any stage of the proceeding, in the interest of justice, transfer any complaint pending before the District Forum of one State to a District Forum of another State or before one State Commission to another State Commission.

(VII) Appeal. — Any person, aggrieved by an order made by the National Commission in exercise of its powers conferred by sub-clause (i) of clause (a) of section 21, may prefer an appeal against such order of the Supreme Court within a period of thirty days from the date of the order:

Provided that the Supreme Court may entertain an appeal after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing it within that period.

Provided further that no appeal by a person who is required to pay any amount in terms of an order of the National Commission shall be entertained by the Supreme Court unless that person has deposited in the prescribed manner fifty per cent. of that amount or rupees fifty thousand, whichever is less.

Ans: (b) Investor Protection

An investor is a person who allocates capital with the expectation of a financial return. The term “investor protection” defines the entity of efforts and activities to observe, safeguard and enforce the rights and claims of a person in his role as an investor. This includes advice and legal action.

Need for Investor Protection: Investor’s protection is needed for the following reasons:

1.      Uncertainty of Returns:

2.      Save Investors from Economic Impact

3.      Protection from Insider Trading Issues

Factors Needed for Effective Investor Protection:

1.      Investor’s Awareness: Although SEBI has introduced a system for investor awareness and protection on its website. Still the investor awareness mechanism is quite limited since very few persons have computers and internet facilities.

2.      Strict Norms for premium Fixation: In December 1996, on the basis of Malegam committee recommendations, the SEBI issued guidelines for justification of premium. These guidelines still leave scope for fixation of relatively high premiums. Therefore, it is desirable to evolve a compact formula on the lines of valuation guidelines under the Capital Issues Control Act.

3.      Safety Nets: It is imperative to provide for safety nets at least in respect of small investors holding shares for atleast one year. The safety net should be honoured by the issuers, merchant bankers and underwriters under a formula normally agreed upon.

4.      Promoter’s Stake: It is necessary to raise the promoter’s stake in new issues from 20% to atleast 40%. This will help in the reduction of malpractices and manipulation of prices.

5.      Punitive Actions: The Department of Company affairs (DEA) should step-up action under Section 209A of the companies act against the fly by the night operators. The powers under this section may be delegated to SEBI for effective functioning.

SEBI and Investor Protection:

Securities and Exchange Board of India (SEBI)

Prior to the setting up of the Securities and Exchange Board of India (SEBI), capital issues in India were regulated by the Capital Issues (Control) Act, 1947. The main objectives of this Act were:

• to ensure that investment in the private corporate sector does not violate priorities and objectives laid down in the Five Year Plans or flow into unproductive sectors;
• to promote the expansion of private corporate sector on sound lines in general, and    further the growth of particular corporate enterprises having sound capital structure; and
• to distribute capital issues time-wise in such a manner that there is no overcrowding in   

a particular period. The task of administering the capital issues control in accordance    with the principles and policies laid down by the Central government was entrusted to the Controller of Capital Issues (CCI). Prior approval of the CCI was necessary for any new issues in the market.

The Narasimham Committee in its Report on the Financial System submitted in 1991 argued that the capital market was tightly controlled by the government and there were a number of restrictions placed by the CCI on the operations of this market. This restrictive environment was "neither in tune with the new economic reforms nor conducive to the growth of the capital market."2 The Committee strongly favored substantial speedy liberalization of the capital market by closing down the office of the CCI. It suggested that SEBI set up in 1988 should be entrusted with the task of "a market regulator to see that the market is operated on the basis of well laid principles and conventions."3 However, SEBI should not become a controlling authority substituting the CCI.
Consequent upon the recommendations of the Committee, the Capital Issues (Control) Act, 1947 was repealed in 1992, and the office of the Controller of Capital Issues (CCI) was subsequently abolished. With the abolition of CCI, prior permission of the government is not now required by the companies to access the capital markets. Companies are free to approach the capital markets without prior government permission subject to getting offer documents cleared by SEBI. Controls over price and premium fixation have also been removed and most issuing companies are free to fix the price of their securities for public as well as rights issues.

Purposes and Aims of SEBI
The Securities and Exchange Board of India (SEBI) set up in 1988 was given statutory recognition in 1992 on recommendations of the Narasimham Committee. Among other things, the Board has been mandated to create an environment which would facilitate mobilization of adequate resources through the securities market and its efficient allocation. The purposes and aims of SEBI are as follows:

• Regulating the business in stock markets and other securities markets.
• Registering and regulating the working of stock brokers and other intermediaries associated with the securities markets.
• Registering and regulating the working of collective investment schemes including mutual funds. 
• Promoting and regulating the self-regulatory organizations.
• Prohibiting fraudulent and unfair trade practices relating to securities markets.
• Promoting investors' education and training of intermediaries of securities markets.
• Prohibiting insider trading in securities.
• Regulating substantial acquisition of shares and takeover of companies.
• Performing such functions and exercising such powers under the provisions of the Capital Issues (Control) Act, 1947 and Securities Contracts (Regulations) Act, 1956, as may be delegated to it by the Central government.

Steps taken by SEBI to improve Stock Market and Capital Market for the Protection of Investors

To introduce improved practices and greater transparency in the stock markets and capital markets in the interest of healthy capital market development, a number of steps have been taken by SEBI during recent years. The important steps are;

1. SEBI has drawn up a programme for inspecting stock exchanges. Under this programme, inspections in of some stock exchanges have already been carried out. The basic objective of such inspections is to improve the functioning of stock exchanges.
2. SEBI has introduced a number of measures to reform the primary market. The objective is to strengthen the standards of disclosure, introduce certain procedural norms for the issuers and intermediaries, and remove the inadequacies and systemic deficiencies in the issue procedures. For example, an advertisement code has been laid down to ensure that the advertisements are fair and do not contain statements to mislead the investors; a system of appointing SEBI representatives to supervise the allotment process has been introduced to minimize malpractices in allotment of oversubscribed issues; prudential norms have been laid down for rights issues, etc.
3. The process of registration of intermediaries such as stock brokers and sub-brokers has been provided under the provisions of the Securities and Exchange Board of India Act, 1992. The registration is on the basis of certain eligibility norms such as capital adequacy, infrastructure etc. According to the SEBI (Stock Brokers and Sub-Brokers) Rules 1992 announced on August 20, 1992, no person can act as a stock-broker for the purpose of buying/selling or dealing in securities, unless he holds a certificate granted by SEBI and conditions for grant of such certificates have been laid down in the rules. SEBI issued regulations relating to stock-brokers and sub-brokers in October 1992 which, inter alia, cover registration of brokers and sub-brokers, their general obligations and responsibilities, procedures for inspection of their operations and actions to be initiated in case of default.
4. Through an order under the Securities Contracts (Regulations) Act, 1956, SEBI has directed the stock exchanges to broad-base their governing boards and change the composition of their arbitration, default and disciplinary committees. The broad basing of the governing boards of the stock exchanges would help them function with greater degree of autonomy and independence so that they become truly self regulatory organizations.
5. Merchant banking has been statutorily brought under the regulatory framework of SEBI. The merchant bankers have to be authorized by SEBI. They will have to adhere to stipulated capital adequacy norms and abide by a code of conduct which specifies a high degree of responsibility towards inspectors in respect of the pricing and premium fixation of issues.
6. SEBI issued regulations pertaining to "Insider Trading" in November 1992 prohibiting dealings, communication or counseling in matters relating to insider trading. Such regulations will help in protecting and preserving the market's integrity, and in the long run inspire investor confidence in the market.
7. SEBI issued a separate set of guidelines for development financial institutions in September 1992 for disclosure and investment protection regarding their raising of funds from the market. As per the guidelines, there is no need for promoter's contribution. Besides, underwriting is not mandatory. Moreover, free pricing is permitted subject to consistent track record for three years and credit rating is compulsory for debentures and bonds of more than 18 months.
8. SEBI has notified the regulations for mutual funds. For the first time mutual funds are governed by a uniform set of regulations which require them to be formed as trusts and managed by a separate asset management company (AMC) and supervised by a board of trustees or trustee company. The SEBI (Mutual Fund) Regulations also provide for an approval of the offer documents of schemes by SEBI. The regulations prescribe minimum amount to be raised by each scheme. A close ended scheme with a fixed size of mutual fund must raise a minimum of Rs. 20 crore and open ended scheme of Rs. 50 crore. The entire subscription amount must be refunded within six weeks of the closure of the scheme in case the amount collected by the scheme falls short of the prescribed amount. There will also be certain investment restrictions for AMCs. The advertisement code prescribes norms for fair and truthful disclosures by the mutual funds in advertisements and publicity materials. The regulations are intended to ensure that the mutual funds grow on healthy lines and investors' interests are protected. On January 30, 1997, SEBI allowed mutual funds to mention an indicative return for schemes for fixed income securities with certain disclosures to draw investors' attention.
9. To bring about greater transparency in transactions, SEBI has made it mandatory for brokers to maintain separate accounts for their clients and for themselves. They must disclose the transaction price and brokerage separately in the contract notes issued to their clients. They must also have their books audited and audit reports filed with SEBI.
10. SEBI has issued directives to the stock exchanges to ensure that contract notes are issued by brokers to clients within 24 hours of the execution of the contract. Exchanges are to see that time limits for payment of sale proceeds and deliveries by brokers and payment of margins by clients to brokers are complied with. For ensuring the fulfilment of deals (safety of the deals) in the market and protecting investors, SEBI has introduced capital adequacy norms for brokers.