Arcadia Securities Pvt. Ltd vs R.K.Pandey

VINAY KUMAR, J.

THIS appeal is against the order of Karnataka State Consumer Disputes Redressal Commission in CC No.96 of 2001. The matter concerned allegations of deficiency in service, in sale and purchase transactions of shares, made against the appellant by the Complainants Mr. R.K. Pandey and Mrs. Chandra Bai Pandey. The State Commission allowed the complaint and directed payment of Rs.409,400/- to the Complainant with 9% interest. Before the State Commission, the Complainants had alleged following lapses on the part of the appellant/OP:- a) Shares of 13 companies, purchased from time to time on behalf of the Complainants, had remained with the respondent for inordinate periods of time, even after payment for these purchases had been made. The total value of these shares is Rs.409,400/-, approximately. b) On 9.4.2001, the Complainants asked the OP to sell 5,000 equity shares of Satyam Computers. The OP bought 5000 shares, instead of selling. This exposed the Complainants to a liability of Rs.11.90 lakhs approximately. c) On the following day i.e. 10.4.2001 OP sold shares again without authority, exposing the Complainant to "a notional and imposed loss of Rs.409400/-.

For the lapses above, the Complainants prayed for award of the following amounts to him: 1) Rs.409,400/- being the values of the shares of 13 companies. Alternatively, transfer these shares back to the Complainants and pay the difference in value of the shares "as it existed on the day the sale was executed or the highest value that prevailed prior to the transfer of the share pursuant to the order of this Hon?ble court, whichever is higher." 2) Rs.496000/- being the notional loss suffered on account of deficiency of service. 3) Rs.1 lakh for execution of wrong order. Thus, the complaint relates to two matters. First, the shares of 13 companies. Secondly, purchase and sale of 5000 shares of Satyam Computers.

THE response of the OP before the State Commission was that the trading account of the Complainants with them was opened on 14.5.2000 and closed on 10.4.2001. According to them, the Complainants had bought 17,000 shares of Satyam Computers at an average rate of Rs.243/- and sold 17,300 shares (including 300 shares held by the OP as security) at an average price of Rs.226.26 per shares. The Commission has noted that the only difference is that the complainant claims to have given authorization to sell 5000 Satyam shares on 9.4.2001 but the OP sold them on 10.4.2001. But, the complainant did not produce any specific evidence to show the rates of this share on these two dates. Therefore, this part of the claim was rejected by the State Commission. The State Commission has also rejected the plea of the OP that the Jurisdiction is of courts in Mumbai and not Bangalore.

AS for the shares of 13 companies, the State Commission has noted that the shares of 13 companies mentioned in the complaint were purchased in the month of March 2001, through OP. Instead of transferring these to the de-mat account of the Complainants, the OP sold them on 10.4.2001 and got the sale proceeds adjusted towards the loss incurred in the sale of other shares. The Complainant allegedly had not given his consent for sale of these shares. The Commission has held that this is not specifically denied by the OP. Nor has OP produced any material to show that complainant had consented to their sale. Therefore, sale of these shares has been held to be unauthorized. The appeal was filed with a delay of 28 days. The explanation for the same has been considered and the delay condoned. During the course of pendency of this appeal, the appellant/OP has paid the respondent/complainant Rs.70,000 in addition to travel cost of Rs.4000, as per orders of this Commission. Coming to the grounds for appeal, in brief, the main grounds are? a. The State Commission failed to notice that the trading sub broker?client agreement of 14.5.2000 is itself the consent under the rules, regulations and bye laws of the NSE. b. In the case of sale of 5000 shares of Satyam Computers, there was a delay of one day in carrying out the complainant?s instructions. However, the State Commission did not consider the prevailing rates on 9.4.2001 and the actual sale rate on 10.4.2001 in order to determine the loss, if any. No documentary evidence was produced by the complainant in support of his claim of loss from this sale.

ACCORDING to the appeal memorandum the settlement day was 10.4.2001. Under the byelaws/regulations of the NSE, the broker has to settle the account as on settlement day. "On the said settlement day, positions are to be squared off and Margin positions should be settled on the same day as per the NSE Bye Laws and Capital Market Regulations. As the respondent failed to settle the claim, the appellant sold all the shares standing in the de-mat account of the respondent and squared off the account." (Ground XIII)

AT another place (Ground VII) the appeal memorandum says? "As the respondent had failed to arrange the margin money, the appellant taking due diligence and in good faith to save the respondent?s account from suspension had sold the shares and squared off the account according to the rules, regulations and byelaws of NSE." In support of the above claims/admissions, the appellant refers to his written response before the State Commission. The first thing that emerges from a perusal of the written response is that it relates to transactions of the 6th ,9th and 10th of April 2000. The shares of the 13 companies mentioned in the complaint petition, were all admittedly from transactions of March 2000. As for these shares, the only comment in the response of the OP was that the averments are "not fully correct". Therefore, on 20.10.2009, this Commission had directed the appellant to file an affidavit to clarify as to why shares purchased on behalf of the complainant were not transferred to his de-mat account.

Responding to the above direction, the OP filed an affidavit (Annexure A-3) in August 2010. The value of the shares involved is admitted as approximately Rs.4 lakhs.The complainant had claimed and the State Commission has awarded a sum of Rs.409,400/- for it.It is claimed that the volume of trading by the complainants had risen to about Rs.41 lakhs for which they were required to keep a margin of 15% with the OP. Interestingly, this affidavit also refers to Chapter X-3 of the byelaws of the NSE which required OP to seek such deposit of margin before executing purchase orders. No evidence has been produced to show such a demand was raised by the OP and failure of the complainant to pay, within the stipulated time. Moreover, if margins were a precondition to executing purchase orders, we fail to understand why a series of purchase orders were executed by the OP between 4.4.2001 and 10.4.2001. (Vol.III, pages 59-85).

LEARNED counsel for the appellant/OP strongly argued that SEBI guidelines had been followed but could not throw any further light on these transactions. He also argued that trading in shares was for profit and therefore, commercial. As such, the complainants were not consumers within the meaning of Section 2(1)(d) of the Consumer Protection Act, 1986. Counsel for the respondent rightly argued that these transactions pertain to period prior to the amendment of 15.3.2003, which introduced the exclusion clause in the provision. We therefore, hold that the complainants are consumers, within the meaning of the Act. In the background of the admitted fact that shares were sold by the appellant on 10.4.2001 without any instructions from the complainant, the appellant was required to file an affidavit to show how the margin money was unavailable and to show the SEBI guidelines, which gave him the right to sell without instruction. An undated affidavit has been filed with this Commission on 22.9.2011 (Vol. V of the Paper book). As per this affidavit, the outstanding balance in the account of the complainant is shown as Rs.60709. This is misleading as it does not show the position of outstanding marginbefore 10.4.2001 for which these shares were ostensibly, sold. On the other hand, the affidavit of 12.9.2011, filed by the respondent/complainant in this Commission states that the margin was available in the form of cash/securities/shares in the last six weeks preceding 9.4.2001. Else, the appellant/OP could not have carried out buying/selling instructions of the complainant.

IN the background of details examined above, we hold that the appeal is devoid of any merit. It is therefore dismissed. The appellant shall also pay Rs.20,000/- to the respondent/complainant towards costs, within a period of one month.