Sebi to exclude class action suits from legal aid fund

Investor associations can appeal to MCA for financial support

The Securities and Exchange Board of India (Sebi) has decided to stop providing financial assistance to class action suits.

From now on, investor associations wishing to file class suites should approach the Centre through the Ministry of Corporate Affairs (MCA), according to the minutes of the Sebi board meeting on February 13.

“Some have commented that since the class action suits would be supported by MCA as well, it may result in misuse of funds. Therefore, Sebi may refrain from introducing such a provision,” said the minutes of the board meeting.

According to experts, Sebi’s move might make it difficult for investors looking for legal aid. “Getting funding from the government may not be very easy unless the applicants have sufficient clout… Sebi will not be that bureaucratic, although it may take time,” said a person who works with investors and deals with issues of malpractices in listed firms.

Sebi had introduced the regulation in 2009 by which its Investor Protection and Education Fund could be utilised towards “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”.