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Judgment
Tarun Agarwala, Presiding Officer
All the three appeals raise a common issue and accordingly are being decided together. For facility, the facts in the appeal of Rakesh Bhatia is
being taken into consideration.
The appellants are the registered constituents of Anugrah Stock and Broking Pvt. Ltd. (‘Anugrah’ for short) who is a registered broker. On
August 9, 2020 a dispute arose between the appellants and its stock broker Anugrah. It was alleged that Anugrah defaulted in the payment to the
appellant under its Member Client Agreement. The broker remained unresponsive inspite of reminders being given by the appellants to settle the
amount. When no response came forth from the broker the appellant filed a complaint with the stock exchange on August 12, 2020 praying that an
Investor Grievance Resolution Panel (‘IGRP’ for short) be constituted in order to decide the complaint of the appellants. It is alleged that this
complaint was duly received and registered by the stock exchange. Reminders were given on August 19, 2020, August 25, 2020 and August 28, 2020.
Since no steps were taken by the stock exchange to constitute the IGRP the present appeal was filed praying that the stock exchange should be
directed to comply with the circular dated September 26, 2013 and constitute the IGRP for redressal of its complaint.
During the pendency of the appeal the respondent issued a communication dated September 10, 2020 informing the appellants that they are unable
to proceed with the complaint of the appellants in the absence of any response being received from the broker. This communication was brought on
record through an amendment application in which the appellants prayed for its quashing.
Similar is the relief claimed by the appellant Chirag Vinodrai Varaiya in Appeal No. 305 of 2020 praying that respondents should be directed to
comply with the circular of 2013. In the third appeal, Ms. Chandrika Mahendra Mehta and others have prayed for a variety of reliefs and one such
relief is for the quashing of the communication dated September 10, 2020.
In this light we have heard Shri Kunal Katariya, Shri J.J. Bhatt, the learned counsel for the appellants and Shri Pradeep Sancheti, the learned senior
counsel for respondent NSE and Shri Dharam Jumani, the learned counsel for respondent Anugrah. Even though the appellants were aggrieved by the
action / inaction of the stock exchange, SEBI was also impleaded and, on that basis, we have also heard Shri Rafique Dada, the learned senior counsel
for respondent SEBI.
The main contention of the appellants is, that once a complaint is filed and is not resolved within 15 days it is mandatory for the stock exchange to
refer the complaint for redressal to a committee as per the circular dated September 26, 2013. It was further contended that the right to file a
complaint before IGRP is a vested right given to an investor which right cannot be taken away through a subsequent circular of SEBI dated July 1,
2020. It was urged that the appellants has a right to choose a platform whether to file a complaint for redressal of its grievances before IGRP or
prefer arbitration or file a claim under the bye-laws. On the other hand, the contention of the respondent stock exchange is, that once the broker was
disabled or declared a defaulter then no further proceedings relating to IGRP or arbitration could be conducted pursuant to the issuance of the circular
of SEBI dated July 1, 2020. In this regard the learned senior counsel Shri Rafique Dada appearing for SEBI explained that the circular of SEBI issued
from time to time was basically to streamline and make more effective the investor grievance redressal system at the stock exchange. Initially, it was
decided that the stock exchange will constitute IGRP and resolve the issue within 15 days and if a member is unhappy it could opt for arbitration.
These circulars were amended from time to time and ultimately by circular dated July 1, 2020 it was decided that if a trading member is disabled or
declared a defaulter then no further meeting of IGRP or arbitration would be conducted. It was contended that IGRP was a choice given to an
investor to settle the matter with its broker but where the broker becomes a defaulter and a large number of complaints are received then such claims
have to be routed through the Investor Protection Fund and payments are to be made on a pro-rata basis as it would not be possible nor feasible to pay
the amount under the IGRP mechanism where the broker would have a limited fund for disposal by the stock exchange.
In the light of the aforesaid and before proceeding, it would be appropriate to consider some of the circulars that were placed before the Tribunal.
By circular dated September 26, 2013 SEBI streamlined and made more effective the investor grievance redressal mechanism at the stock exchange.
It was decided that the stock exchange would constitute an IGRP and resolve the issue within 15 days and if the member was unhappy with the
decision of the IGRP it would opt for arbitration. By another circular dated February 23, 2017 the redressal mechanism was amended in such cases
where the claim amount was more than the coverage the investor was given the liberty to prefer arbitration mechanism for the balance amount. By
another circular dated November 6. 2020 it was directed that if the complaint is not resolved amicably the matter should be referred to IGRP.
On July 1, 2020 SEBI issued a circular providing Standard Operating Procedure (SOP) in case whether a Trading Member (TM) / Clearing
Member (CM) became disabled or declared a defaulter. Paragraph 7 and 8 of the circular, being relevant, is extracted here under:-
“7. Once the Member is disabled or SCN is issued for declaration of defaulter to TM / CM (whichever is earlier), no further Investor Grievance
Redressal Committee (IGRC) /Arbitration meetings shall be conducted.
Default proceedings shall take place as per bye laws / rules / regulations of the SE / CC. If the member is also a DP, Depositories shall take action
as per its bye laws for termination / transfer of its participant-ship based on record. SEs shall not expel the TM immediately until the default
proceedings are completed.â€
A perusal of the aforesaid clause indicate that if a trading member is disabled or declared a defaulter then no further proceedings of IGRP or
arbitration shall be conducted. Clause 8 provides that such proceedings would take place under the bye-laws / rules/ regulations of the stock
exchange. The bye-laws of the stock exchange provide that the investor could file a claim within a stipulated period which shall be decided
accordingly.
In view of the aforesaid circular dated July 1, 2020 it is apparently clear that the resolution process cannot be carried out under the IGRP where a
trading member is disabled or has been declared a defaulter.
In the instant case we find that the Member and Cor Settlement Guarantee Fund Committee (‘MCSGFC / Committee’ for short) of stock
exchange had disabled the trading member on August 3, 2020 restraining the stock broker from taking any fresh position in the Futures & Options
(F&O) segment, Currency Derivatives (CD) segment and in Commodity Derivative segment (CO). Subsequently, the trading member was declared a
defaulter on November 26, 2020. In view of the fact that the trading member was disabled on August 3, 2020 the complaint of the appellants could not
be referred to for redressal to IGRP in view of the circular dated July 1, 2020. The only option left available to the appellants was to file a claim under
the bye-laws of the stock exchange. In this regard we find that after the trading member was declared a defaulter on November 26, 2020 a notice in
leading newspapers was published on November 28, 2020 inviting the members to file a claim against the trading member within three months from
date of the notice. The said period is still continuing. In the light of the aforesaid, the relief claimed by the appellants directing the stock exchange to
refer their complaint to IGRP cannot be granted. The appeal is, however, disposed of with a direction to the appellants to file a claim pursuant to the
notice dated November 28, 2020 before the stock exchange under its bye-laws within the stipulated period which if filed would be decided in
accordance with law.
In the circumstances of the case, parties shall bear their own costs.
The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor
a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on
behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally
signed copy sent by fax and/or email.