The Protection of Minority Investors and the Compensation of Their Losses: A Case Study of India

29 Pages Posted: 16 Nov 2014

See all articles by Umakanth Varottil

Umakanth Varottil

National University of Singapore (NUS) - Faculty of Law

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Date Written: February 11, 2014

Abstract

Any legal system may potentially deploy two separate but related models to ensure the accuracy of disclosure in the capital markets. First, it may contain legal institutions in the form of regulatory bodies with power to make regulations regarding disclosures and to enforce those regulations through powers of sanction conferred upon them. Second, it may adopt the model that relies upon the courts to grant remedies to investors who are victims of inaccurate or misleading disclosures thereby suffering losses.

This chapter tests the efficacy of the two models in their application to India. The exploration of India is interesting and helpful because India’s capital markets have witnessed exponential growth in the last two decades. At first blush it might be simple to attribute this to India’s legal system through civil liability and its enforcement through the judiciary. Counter-intuitively, India’s common law legal system operating through the judiciary has not played a vital role in the development of the capital markets through a rigorous civil liability regime. Delays in proceedings due to alarming pendency levels in litigation before Indian courts and skyrocketing costs in initiating litigation are some of the factors that have disincentivized investors from relying upon the civil liability regime for enforcing their compensation claims.

At the same time, other factors have been at play. India’s capital markets regulator, the Securities and Exchange Board of India (SEBI) has been instrumental in formulating policies and regulations governing capital markets, and its actions have been rapid and dynamic to suit the needs of the changing markets, by operating through the power of sanctioning various market players.

The chapter concludes with the finding that while the general approach in most common law markets is for courts to play a significant role in the development of the capital markets through the process of compensating investors for losses, the success of India’s capital markets growth has hinged upon the regulatory process rather than the courts.

Keywords: minority investors, shareholder litigation, securities regulation, compensation of losses, India

Suggested Citation

Varottil, Umakanth, The Protection of Minority Investors and the Compensation of Their Losses: A Case Study of India (February 11, 2014). NUS Law Working Paper No. 2014/001. Available at SSRN: https://ssrn.com/abstract=2421098 or http://dx.doi.org/10.2139/ssrn.2421098

Umakanth Varottil (Contact Author)

National University of Singapore (NUS) - Faculty of Law ( email )

469G Bukit Timah Road
Eu Tong Sen Building
Singapore, 259776
Singapore

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