This appeal has been filed by the appellants Franklin Templeton Asset Management (India) Pvt. Ltd. & anr. against the order dated 21.05.2014 of the State Consumer Disputes Redressal Commission, Punjab (in short ‘the State Commission’) passed in CC No.33 of 2011.

2.      Brief facts of the case are that in the year 2007-2008 respondent no.1 on her own free will and discretion approached and availed services of appellants for creation and management of the investment she had intended to do, for which she entered into the Discretionary Portfolio Management Agreement (hereinafter referred to as the Agreement) pursuant to which she invested an amount of Rs.25 lakhs.  Vide notification dated 11.08.2008, published in the Gazette of India, Securities Exchange Board of India (hereinafter referred to as SEBI) notified “SEBI (Portfolio Managers) (Amendment) Regulations 2008” (hereinafter referred to as PM Regulations) inter alia substituting sub-regulation (8) of Regulation 16 of PM Regulations.  Vide circular dated 27.02.2009, SEBI extended the time for compliance of the aforesaid notification by three months i.e. till 10.05.2009.  On 22.12.2008, 14.03.2009, 22.04.2009 & 25.4.2009, the representatives of the appellants regularly requested the broker of the complainant, respondent no.1 herein, for completion of formalities regarding the opening of separate demat account within the specified time.  Since the same were for forthcoming, the appellants vide their letters dated 22.12.2008 and 22.04.2009, received at the residence of respondent no.1 by Mr. Zahir and Ms. Tahira on 14.03.2009 & 25.04.2009 respectively requested the complainant to comply with the directives issued by SEBI otherwise the account would be liquidated. On 11.05.2009, i.e. post dead line SEBI vide circular dated 11.05.2009 gave directions to the portfolio managers regarding the manner in which the accounts of non-complying clients were to be handled which could not have been foreseen by the appellants hence the appellants had in compliance of mandatory law acted in good faith and liquidated the account of the complainant.  Vide circular dated 10.09.2009,SEBI issued an advisory to portfolio managers relating to discontinuing service to those clients who were not cooperating for opening separate clients accounts.  In the year 2010 the respondent No.1, upon liquidation of her securities account, through an advocate sent an undated legal notice to the appellants.  On 30.4.2010, vide their reply letter dated 30.04.2010 the aforesaid legal notice was duly replied by the appellants.  Respondent no.1 on 29.04.2011 filed consumer complaint no.33 of 2011before the State Commission. 

3.      The complaint was contested by the opposite parties by filing the written statement.  The main ground of contest was that due to guidelines received from SEBI there was no alternative, but to liquidate all the instruments of the complainant in the account because the complainant did not come forward to open the demat account, which was the requirement put by the SEBI and the same was to be implemented before April, 2009.  The two notices were sent to the complainant and the last on 22.04.2009 which was received by the complainant on 25.04.2009.  However, the complainant did not fill the form for operating the demat account.  Thus, there was no deficiency on the part of the opposite parties.  Accordingly, it was requested to dismiss the complaint.

4.      The State Commission vide its order dated 21.05.2014 allowed the complaint and passed the following order:-

 “19.    In view of the above discussion and findings, we hold the opposite parties squarely responsible for deficiency in service and for adopting unfair trade practice in causing financial loss of 17.07 lacs to the complainant.  Since the opposite parties have not supplied the details as to how amount deposited by the complainant with opposite party No.1 was invested, we are not in a position to restore to her D-mat account the assets that stood in her account prior to the date of liquidation. Accordingly, the complaint of the complainant is allowed and the opposite parties are directed jointly and severally to pay Rs.17.07 lacs to the complainant alongwith interest @ 7.5% per annum from the date of liquidation i.e. 13.5.2009 till realisation. They are further directed to pay a consolidated amount of Rs.2 lacs to her for causing mental and physical harassment and for unwarranted litigation.  These directions be complied within one month from the receipt of copy of this order.”

5.      Hence the present appeal.

6.      Heard the learned counsel for the appellants as well as for respondent No.1/complainant. Other respondents were proceeded ex-parte vide order dated 02.11.2017.

7.      Learned counsel for the appellants stated that SEBI vide its circular dated 11.08.2008 issued certain guidelines for implementation vide P.M. Regulations 2008.  The SEBI vide its letter dated 27.02.2009 extended the time by three months beyond 10^th February, 2009.  Thus, the period for compliance was extended upto 10^th May, 2009.  Learned counsel for the appellants stated that the appellants sent two letters, one dated 22.12.2008 and other dated 22.04.2009 to the complainant for complying with the provision of the SEBI Regulations and to submit the relevant papers.  However, the complainant did not responded to any of these letters. Ultimately, responsibility was coming on the appellants as per circular no. IMD/CIR No.1/155740/2009 dated 27.02.2009 of the SEBI, which is reproduced below:-

“ In this regard, the portfolio managers shall furnish a compliance report to SEBI within a week of expiry of the above deadline.  Any noncompliance after the extended period i.e. after May 10, 2009 may attract penal action under the provisions of the SEBI Act, 1992, and the regulations framed there under.

8.      Therefore, the account of the complainant was liquidated by selling all the shares and instruments in the portfolio of the complainant in order to avoid penal action on the appellants by SEBI  and an amount of Rs.7.93 lacs was transferred to the account of the complainant on 08.05.2009.  In fact, the complainant has not suffered any loss because the market value of the shares keep on changing and at that time the value of Rs.25,00,000/- was only Rs.7.93 lacs in terms of the securities held by the complainant.  If shares go up, the profit is of the investors and if shares go down, the loss is also of investors. In the present case, by the way, the shares have gone down and therefore, total amount came to Rs.7.93 lacs.  Thus, there is no justification for awarding Rs.17.07 lacs to the complainant by the State Commission as the complainant is not entitled to get her initial amount of Rs.25,00,000/-. Portfolio Manager has not to bear the risk, rather, the investor has to bear the risk of investing in market linked securities.

9.      Learned counsel for the appellants stated that though SEBI letter had clarified the issue in respect of those investors who do not want to comply with the SEBI circular  dated 11.08.2008 vide its circular dated 10.09.2009, but this circular came much later than the last date given by circular  dated 27.02.2009 of SEBI. The appellants could not have taken the risk on the assumption that SEBI would send some other circular in respect of those investors who do not wish to comply with the directions of SEBI given under circular dated 11.08.2008.  Thus, it was necessary for the appellants to liquidate the total portfolio of the complainant.

10.    Learned counsel for the appellants stated that State Commission has also awarded compensation of Rs.2,00,000/- for mental agony, which is not justified as the interest is also in the shape of compensation and interest has been awarded on the amount ordered by the State Commission.  The order relating to compensation of Rs.2,00,000/- should be set aside.  

11.    On the other hand, learned counsel for the respondent/complainant stated that SEBI vide its circular No.IMD/DOF-1/PMS/CIR-6/2009 dated 10.09.2009 has clearly given the process for dealing with customers of the Portfolio Managers.  In fact the SEBI circular reads as under:-

“3.   The portfolio manager may discontinue the services to those clients who are not co-operating for opening separate client accounts, after serving at least three notices, and return the securities/funds to the client.  The portfolio manager shall maintain such client-wise records for a period of eight years.”

12.    It was further argued by the learned counsel for the complainant that the alleged letter dated 22.12.2008 has reached to the complainant on 14.03.2009 and second letter dated 22.04.2009 reached to the complainant on 25.04.2009 and the material/forms were to be supplied within 2-3 days, which was not possible at that time.  Thus, the complainant could not comply with the directions of SEBI in that period.  It was further argued by the learned counsel that SEBI circular was issued on 11.08.2008 and allegedly first letter was sent on 22.12.2008, which was back dated as it was received on 14.03.2009.  Thus, the actual letter was issued on 22.04.2009 before expiry of the extended period for compliance on 10.05.2009.  It is clear that initial 6-7 months have been wasted without any communication to the complainant and suddenly the communication is sent for compliance and for sending application form etc. to the portfolio manager urgently within a period of 2-3 days.  Clearly, this is a deficiency in service as clearly period of six months has been wasted by the appellants herein.  Moreover, when the period for compliance was extended vide circular dated 27.02.2009 and three months time was given, the appellants herein did not make any effort to reach out to the customers/portfolio holders even within the initial major period of this extension.  The appellants only approached when 15 days were left for compliance.

13.    I have given a thoughtful consideration to the arguments advanced by the learned counsel for both the parties and have examined the record.  The deficiency on the part of the appellants is clear as the appellants did not take any action from 11.08.2008 till April, 2009 for seeking information from the investors in compliance of the SEBI circular dated 11.08.2008. Even in the extended period of three months, which was extended vide circular dated 27.02.2009, the appellants did not take any reasonable action to get the response and compliance from the investors.  The order of the State Commission is based on the fact that the complainant is entitled to get back Rs.25,00,000/- even on the date when the total portfolio was liquidated by the appellants.  This presumption may not be justified as portfolio may have different shares and other securities as well as some other funds, or debentures with total value of Rs.7.93 lacs on 08.05.2009.  Thus, in a way, the State Commission has recouped the loss suffered by the complainant since the time of investment till 08.05.2009.  On the other hand, it is also true that had the appellants not liquidated the total portfolio of the complainant, there was a possibility that these investments may have grown more than Rs.25,00,000/- at a later date.  Thus, the doors of this opportunity for the complainant have been closed by the appellants herein.  It is seen from the record that the appellants did not make any effort to get clarification from SEBI or some other Government offices in this regard as to what should be done to those investors who were not complying with the direction given by the SEBI in circular dated 11.08.2008.  Thus, one thing is clear that the appellants liquidated total portfolio of the complainant without consent of the complainant though according to the appellants there were pressing circumstances under which the portfolio was liquidated.  Clearly, there was no direction from SEBI to liquidate the portfolio of those persons, who did not send filled up form in compliance of circular dated 11.08.2008.  The only direction of SEBI was that Portfolio Manager will have to pay penalty if the compliance was not reported within the stipulated time.  In my view, clearly, appellants have liquidated the total portfolio to an amount of Rs.7.93 lacs, which becomes the value of Rs.25,00,000/- on 08.05.2009, which was invested initially as the value of portfolio is related to the market behaviour and there is no justification in the order of the State Commission for compensating the complainant to the tune of Rs.17.07 lacs.  However, it is also true that on many occasions, the appellants have been deficient in service and therefore, the complainant is entitled to compensation for deficiency in service.  In my view, the total amount of loss suffered by the complainant in liquidation of the portfolio from the initial amount of investment cannot be compensated, rather, the complainant is entitled to appropriate compensation for deficiency in service on the part of the appellants as they have liquidated the portfolio without any consent from the complainant.  In the facts and circumstances of the case, I deem it appropriate to quantify this compensation as Rs.10 lacs only.

14.    The State Commission has awarded Rs.2,00,000/- for compensation for mental agony as total amount of investment has been recouped by the State Commission to the complainant and an interest has also been asked to be paid on this amount, the compensation of Rs.2,00,000/- for mental agony and physical harassment seems to be very high.  In my view an amount of Rs.50,000/- (rupees fifty thousand only) shall be sufficient in the facts and circumstances of the case.

15.    On the basis of the above discussion, the first appeal no.1191 of 2014 is partly allowed and the order dated 21.05.2014 of the State Commission is modified to the extent that an amount of Rs.17.07 lacs shall be reduced to Rs.10,00,000/-( rupees ten lacs only), which is compensation for the deficiency in service on the part of the appellants.  Similarly, the amount of compensation awarded by the State Commission is also reduced from Rs.2 lacs to Rs.50,000/- (rupees fifty thousand only).   With these modifications, the order of the State Commission is upheld. The appellants are directed to comply with the order of the State Commission as modified by this order within a period of 30 days from the date of receipt/ service of this order.