ANANDAPPA vs Regional Manager

THE petitioner here was the complainant before the District Consumer Disputes Redressal Forum, Dharwad (in short, "the District Forum"). THE allegation was that he was a customer/ client of OP 1, which in turn was a Depository Participant and a Stockbroker/ Member of the National Stock Exchange of India Limited (NSE). THE petitioner had opened a Demat Account with the OP 1 for trading in shares and the OP would charge him the agreed amount of fees for rendering services in accordance with the Client-Stockbroker/ Member Agreement. THE petitioner had purchased 600 shares of Satyam Computers Ltd.; 2250 shares of ITC; and 4125 of Gujarat Ambuja Cement through OP 1. THE petitioner"s further claim was that he had credited a sum of Rs.2,40,000/- as margin money with the OP on 22.05.2006. According to him there were usual fluctuations in the share market on 22.05.2006 and, therefore, he had sold the three above-mentioned lots of shares through OP 1 at about 11a.m. on that day by way of "short sale" under F & O (Futures and Options) facilities with the option to cover the sale when the prices of the shares went further down. THE market was closed for one hour from 12.00 noon to 01.00 p. m. on 22.05.2006. When the market re-opened, the petitioner wanted to repurchase the above-mentioned shares through OP 1. However, the trader/ operator concerned of OP 1 did not allow the petitioner to carry out the trade and asked him to contact the officer concerned of OP 1. When contacted, the latter official of OP 1 demanded 100% margin money to cover the re-purchase. By that time it was already 1.30 p. m. THErefore, the petitioner was unable to procure the demand draft towards 100% margin money requirement. According to the petitioner, this demand of 100% margin money for the re-purchase of short-sold shares by him was illegal and against the guidelines of the NSE regarding margin money requirement of F & O segment of the market. Further, the market price of the above-mentioned three shares went further down at about 1.00 p m on 22.05.2006 (Satyam Computers " Rs.541/-; ITC " Rs.146/-; and Gujarat Ambuja Cement - Rs.76/-). Had the petitioner been able to re-purchase the above shares on 22.05.2006, he would have gained considerably as was evident from the prices of these shares on 26.10.2006 (Satyam Computers " Rs.810/-; ITC " Rs.196/-; and Gujarat Ambuja Cement " Rs.130/-). Thus, according to the petitioner, there was deficiency in service on the part of the OPs in demanding 100% margin money on 22.05.2006 for re-purchase of his short-sold shares and causing him loss by preventing him from gaining nearly Rs.6.96 lakh on the sale of the above-mentioned three lots of shares.

ON consideration of the pleadings, evidence and documents brought on record, the District Forum dismissed the complaint and passed the following order: "Therefore, from the factual side of the matter, it is crystal clear that, the complainant had sold three lots of shares on 22.05.2006 at 11.00 a m. ONce the sale is completed the negotiation in respect of that particular repurchase of the shares is another stage, which is totally independent from that of the previous sale. In other words the intention of the complainant to repurchase the shares from the opponent " 1 is altogether a separate and distinct act. The offer made by the complainant to repurchase the shares was not accepted by the opponent " 1 on account of the fact that he wanted 100% margin money to cover the above said shares and he wanted DD for the same. Admittedly, the complainant did not produce as requested by the opponent " 1. When the DD in question was not handed over to the opponent " 1 there was no concluded contract between the parties to enforce any liability against the opponents. In other words, when there was no concluded contract between the parties as regards repurchases of the sale of the shares, the opponents cannot be hauled up for deficiency in service. It is not as though opponents have arbitrarily acted in demanding 100% security through DD. The message flashed to the opponent " 1 branch from its head office clearly goes to show that they should insist for 100% security. The gist of the message received from their head office read as thus: 1. All orders (Speculation and Delivery) should be back with 100% security. In case of buying, we should have clear balance (100%) in the ledger or should be backed by TT, DD or RTGS. In case of selling the shares should be with us on POA or the shares should be transferred to our pool account. 2. Clients with POA would be given limits to sell their holdings.

Client with debits would be allowed only to sell.

The buying limit of each terminal would be limited to Rs. 10 lakh. In case the branch need more buying power based on the client ledger branches, it would be dealt on a case to case basis by making calls to the Risk Management department. Therefore, from this message, it is crystal clear that, on account of steep fall in the equity market share to safeguard the interest of the clients such conditions were imposed by NSE of India Ltd. Therefore, under the circumstances of the case, we hold that, even if there is an increase in the share value, subsequently, that benefit cannot be extended to the complainant. Therefore, we hold that, the complaint is devoid of merits and it is liable to be rejected. Being of that opinion we proceed to pass the following order". 3. Dissatisfied with this order, the petitioner/ complainant went up in appeal before the State Commission. The State Commission also dismissed the appeal with the following observations: "So the dispute between the parties is with regard to the demand made by OP 1 for 100% margin money at the time when he wanted to repurchase of 3 lots of shares which was sold by him on the same day at 11.0 a m. It is not the case of the complainant that at the time when he requested the OPs permitting him to purchase the three lots of shares already sold by him, there was sufficient margin money in his account. On the other hand, it is seen from the complainant averments that since the OP 1 demanded 100% margin money at about 1.30 p m, the Banks were closed and he could not obtain the DD for the said purpose. However, according to him, he had shown his pass book to the OPs to the effect that he had sufficient money in his credit. But, the requirements as per the message issued by the Head Office of the OPs are to the effect that all orders should be backed with 100% security. The complainant has also argued that there was no direction issued by SEBI and it was only to the effect that the margin shall be 5% of the shares and it need not be 100% as required by OP 1. In this connection, the case of the complainant cannot be accepted in view of the message issued by the Head Office of the OPs". 4. It is against this order, that the complainant has filed this revision petition.

AT the request of the petitioner/ complainant, the Commission appointed Ms. Surekha Raman, Advocate (Amicus Curiae) to assist it with the case of the petitioner/ complainant. We have heard Ms. Surekha Raman, Amicus Curiae as well as Ms. Ranjita Das, learned counsel for the respondent/ opposite parties and considered all the documents on record.

AS observed by both the Forums below, there were unusual fluctuations in the share market during the period in question. Even under ordinary circumstances, requiring a client to deposit margin money with the stockbroker is the standard practice and mandatory under the rules, regulations and by-laws of stock exchanges like the NSE which, in turn, are governed by the statutory guidelines and directives of the Securities and Exchange Board of India (SEBI). The relationship between a Member-Stockbroker of the NSE and its clients is governed, according to the NSE rules, etc., by the Client"Member Agreement. A copy of this agreement between the petitioner and the OP/respondent has been placed on record by Ms Raman. In addition, a copy of the Agreement of Pledge of Stocks, Shares/Debentures and Other Securities between the two parties has also been placed on record. Clause 29 A of the Stockbroker " Client Agreement reads as under: "Margins Margins of Purchase a. Geojit may require that the CLIENT deposit interest free requisite margin on the price of the securities proposed to be purchased, unless the CLIENT already has an equivalent credit with GEOJIT". (ii). Likewise clause 3 of the Agreement of Pledge reads as under: "It is agreed by the 1st Party that fixing of margin money and providing trading facility shall be at the sole discretion of the 2nd party and 2nd party or any of its officials shall not be liable for any delay, denial discontinuance in respect of availing of trading facilities, sanctioned to the 1st party".

It is thus amply clear that the extent of margin money required to be deposited by a client wishing to undertake purchase of shares was entirely at the discretion of the stockbroker in this case. Moreover, it is an admitted position (amply supported by independent documentary evidence including the e-mail dated 20.05.2006 circulated by the Head Office of the respondent/OP on 22.05.2006), that there were violent fluctuations in the share market on 22.05.2006 which is also evident from the fact that the market had to be closed for one hour from 12.00 noon to 01.00 p. m. In such a situation, demanding 100% margin money towards the purchase of shares for covering the short sales cannot be said to be deficiency in service on the part of the stockbroker. If at all, it was a prudential measure which the stockbroker was required at that point of time to adopt to prevent the occurrence of far more serious repercussions. Therefore, the allegations in the complaint can only be termed as speculative and misconceived. The figures of likely gains to the petitioner are also questionable as they are predicated, without any reason, on the prices of the shares in question on a specific date In conclusion, we do not see any reason to interfere with the impugned order of the State Commission under section 21 (b) of the Consumer Protection Act, 1986.

BEFORE parting with the matter, we would like to place on record our appreciation of the assistance rendered by Ms. Surekha Raman, Amicus Curiae in this case. The Registry is directed to disburse a sum of Rs.5000/- to her towards out-of-pocket expenses.