COMPLAINT FILED: 27.06.2009

DISPOSED ON: 19.02.2011

BEFORE THE DISTRICT CONSUMER DISPUTES REDRESSAL FORUM AT BANGALORE (URBAN)

DATED THIS THE 19^TH FEBRUARY 2011

  PRESENT:-  SRI. B.S. REDDY                             PRESIDENT

                     SMT. M. YASHODHAMMA                MEMBER                   

                     SRI. A. MUNIYAPPA                         MEMBER                         

       COMPLAINT NO.1526/2009

O R D E R

SRI. B.S. REDDY, PRESIDENT

The complainants filed this complaint U/s. 12 of the Consumer Protection Act of 1986, seeking direction against the Opposite Party (herein after called as O.P.) to make good of the losses amounting to Rs.17,18,858.25 together with interest at 24% p.a. and for damages of Rs.2,75,000/- towards mental agony etc., with litigations costs on the allegations of deficiency in service on the part of the OP.

2.      The case of the complainants is to be stated in brief is that:

The complainants opened a Demat and trading account with OP. The complainant No.1 was initially trading by visiting OP, subsequently from January – 2008 he started to trade from his residence. The complainant No.2 being the wife of complainant No.1, both are joint holders of said D.P. and Trading account with OP. From 03.08.2008 to 16.11.2008, the complainants were at UK with their daughter. The complainant informed about the UK visit to Branch Manager of OP Kormangala Branch prior to their departure well in advance. Further he had given Rs.1,00,000/- through cheque dated 04.08.2008 for FAO reserve margin (Derivative Margin) for short position of one lot / one contract (Quantity of 5,000 shares as per NSE) of Renuka Sugar FUTSTK 28.08.2008 at the rate of Rs.128/- including India Infoline brokerage Rs.127.95 (Net Rate) on 01.08.2008. As on 01.08.2008 his ledger balance including bill dated 01.08.2008 Rs.2,50,750.61 Dr. (NSE Exposure Margin Rs.54,317.38, NSE SPAN Margin Rs.1,57,750/- & bill amount of Rs.77,925.22 (Renuka Sugar NSE settlement price on 01.08.2008 was Rs.134.95) and as on date his cash holdings worth Rs.16,00,000/- (Aprox) with India Infoline Ltd., DP.ID-10491818. The cheque amount credited to his account on 04.08.2008 thereby his ledger balance will become Rs.1,50,750.61 on above said date. At the end of the month i.e., 28.08.2008 once the Renuka Sugar contract expires, it should have got back the margin amount of Rs.2,12,067.38 (NSE Exposure Margin Rs.54,317.38 NSE SPAN Margin Rs.1,57,750/-) and profit of Rs.1,05,000/- (Stl. price on 01.08.2008 Rs.134.95 – 113.95 Stl. Price on 28.08.2008 as per NSE) from above said contract should have been credited back to his account. As on 29.08.2008 his ledger balance should have been Rs.4,17,067.38 credit (Rs.2,12,067.38/- + Rs.1,05,000/- + Rs.1,00,000/-). They returned to India on 16.11.2008 and complainant No.1 visited OP on 18.11.2008 to verify and to update his account. He noticed that outstanding ledger balance was nearly Rs.6,86,852.30 Dr., he also noticed lots of malpractice occurred in his trading account. There were number of transactions with NSE & BSE Cash Market and NSE FAO (Derivative Market) without any instructions and communications from complainants to OP. As a result ending up with insufferable loss of Rs.13,99,307.25 i.e., (Rs.4,17,067.38 + Rs.6,86,852.30 (Ledger balance on 18.11.2009) + Rs.2,95,387.87/- shares sold from DP holdings (Areva 25 shares @ 870.07 = 21,751.74, Hindustan Unilever 923 shares @ 242.06 = 2,23,425.89 & ITC 309 shares @ 162.49 = 50,210.24). Total malpractice done by India Infoline Ltd., without consent of complainants.

On perusing the malpractice complainant asked for clarification with OP and he had not received any communication till date for the huge loss caused by OP to sum of Rs.13,99,307.25. Further he has sold all his holdings of Rs.10,83,227/- on 18.11.2008 and 21.11.2008 and cleared the debit balance of Rs.6,86,852.30 and withdrawn balance amount of Rs.3,38,986/- from OP trading account to prevent further malpractice / loss. OP has to make good all the losses that as carried out i.e., sum of Rs.13,99,307.25 and holding value appreciation on 27.04.2009 Rs.3,19,551/- (Market appreciated by 29.5% from 19.11.2008) total of Rs.17,18,858.25 along with interest at the rate of 24% p.a. Since OP failed to refund the amount, legal notice dated 29.04.2009 was issued, OP received the said notice. But failed to pay the amount, hence the complainant was advised to approach the Forum seeking necessary reliefs.         

2.      On appearance, OP filed version stating that the complainants become members with OP to do stock trade business by the entered into agreement of broking and depository services, combined risk agreement, GPA etc., The details of the transaction (contract notes) from 04.08.2008 to 14.11.2008 has been sent to the complainants and also through e-mail and informed over phone to know about the day to day transaction and to confirm the same, which he has never disputed. OPs produced the details of transaction (ledger extract) from 04.08.2008 23.03.2009 the same has been sent to the complainants and also through e-mail and to their unique client ID. The complainants studied the terms and conditions of the said agreements, GPA and other documents signed the same and have agreed the profit and loss of the transactions in the share market. The complainants know that if any dispute arises in transaction, the dispute may be settled by sole arbitration at Mumbai as per the Arbitration Act. The same is clearly mentioned and clause 18 page 13 of the client broker agreement (NSE). The complaint has to be dismissed for want of jurisdiction by this Forum, as the parties agreed the jurisdiction of Courts in Mumbai for the purpose of giving effect to the provisions of the rules, byelaws and regulations of the exchange, no cause of action arisen to seek reliefs before this Forum. The complainants have agreed to digital contract notes through internet to their unique client ID. Further they also agreed to confirm all the transactions if the same has not been objected within 24 hours to OP. The complainants have agreed to take responsibility for all the transactions conducted by OP. Complainants have agreed to avail the services of OP based on the terms and conditions contained in the agreements. Complainants have agreed and consented with OP to sell stock or share in their account, if he fails to deposit the additional margin amount by deadline or if an outstanding debt occurs in their account. The same is clearly stated under the combined risk disclosure document for capital market. The complainants have not clearly specified what is the loss that has occurred, what is the mental harassment occurred to them.

With refers to allegation at para – 3 of the complaint, it is admitted that the complainant used to visit the OP office at Koramangala on daily basis and most of the coming with relative Mr. Robert Lobo, whom the complainant No.1 introduced as brother in law, till this alleged incident occurred, even after that alleged incident the complainant has visited to the office on June recently. OP never did any act amounting to malpractice in doing the business with complainants investments. The averments made at para – 5 are denied as false. OP is not aware the complainants visit to UK. It is admitted that complainant had given Rs.1,00,000/- through cheque to clear his debit balance of Rs.2,50,550.57 (Dr). It is not true to state that the said one lakh is to clear his FAO reserve margin (Derivative Margin) for short position of one lot / one contract (Quantity of 5,000 shares as per NSE) of Renuka Sugar FUTSTK 28.08.2008 at the rate of Rs.128/- (Rs.127.95 after deducting brokerage of just Rs.0.05) as alleged by the complainants. It is submitted that the complainants account is always on debit, just to clear his debit balance he has deposited Rs.1,00,000/- to his account and it cannot be related to FAO reserve margin. It is denied that after crediting of Rs.1,00,000/- to the complainants account, the balance will become Rs.1,50,750/-, the complainants admits the debit balance of Rs.2,50,750.61 before he deposited cheque of Rs.1,00,000/-. Therefore after crediting Rs.1,00,000/- to the account, the debit balance will decrease to Rs.1,50,750.61 (Dr). At the time of depositing Rs.1,00,000/- OP has warned that his account is on debit and he needs to pay remaining amount. The complainants then told that his brother in law will come and trade and settle the said balance within the contract expiry date and stated that his brother in law Mr. Robert Lobo has the password. It is submitted that as the person whom, the complainant has permitted to trade on his behalf, has covered the said contract before the expiry of the contract, so the complainants will get profit / loss based on the selling price and covering price i.e., 134.95 – 134.90 as stated in the complaint. The complainant No.1 along with Mr. Robert Lobo his brother in law visited OP office on 18.11.2008 and started quarreling and abusing each other responsible for bringing the account to debit. Both left office of OP stating that they settle this issue themselves. After that legal notice was issued, OP spoke to the complainant and made him to understand the situation, after that complainant has assured not to act upon said notice. OP has filed complaint with jurisdictional Police with this regard and the same has been registered under crime No.0373/2009. It is submitted that an auto generated e-mail and SMS will be sent daily after trading hours to the auto generated e-mail ID provided from the customer to the mobile number provided from the customer / complainant i.e., 9449635536 at the time of opening of account with OP. The complainants account transactions details will be available in his unique client ID with the OP, which the complainants can view 24 hours at any part of the world. Hence the question of not providing any information does not arise at all. The complainants have authorized Mr. Robert Lobo his brother in law to do transactions. However now the complainants are alleging of losses, malpractice etc., But all the details of his transactions daily made available in his unique ID and mails sent to his e-mail ID and SMS to his mobile number daily, which he never disputed. As per clause – 10.1.1 of the broker client agreement all information contained there shall be binding upon the client, if the client does not object in writing to any contents of such trades, confirmation, contract notes, bills, statement of accounts within 24 hours to the member broker. The loss as alleged by the complainants are illusionary and imaginary figures and it is baseless. There is no malpractice from the OP, the complainants are not suffered any loss. The complainants are talking about appreciation in the market, as the share market is highly speculative in nature; nobody can predict about appreciation or fall in market. It all depends on performance of company where the complainants invested amount, Government policies and demand in the share market. OP has nothing to do with appreciation or fall in market; it is purely a broker acting as a bridge between the BSE, NSE, SEBI and the client / complainant. The complainants are not entitled for any compensation. The complainants have not explained the reason for not approaching arbitration, as he agreed in the agreements. The complainants are to approach the proper court of law, not this Forum. OP has not even a single time traded without consent of the complainants. The complaint is barred by limitation. As per the norms of SEBI, any transaction has to be disputed within 6 months from the date of occurrence. The complainant is disputing transactions held one year back i.e., August to November – 2008. It is submitted that it is no where mentioned in the document that the trading can be done only with the written acceptance of the demat account holder. Only on the instructions and powers given under the agreements, GPA and other documents, the OP performed the transactions following the terms and conditions under the said agreement and GPA. The complainants are not entitled for any reliefs claimed; the complaint is to be dismissed with exemplary costs.                             

4.      In order to substantiate the complaint averments, the complainant No.1 filed affidavit evidence and produced documents. The Associate Vice President of OP filed affidavit evidence in support of defence version and produced documents.

5.      Both the parties filed written arguments. Arguments on both sides heard. Point for consideration is: “Whether the complainants are ‘Consumers’ as defined under Section 2(1)(d) of the Consumer Protection Act, 1986 and complaint is maintainable”?  

6.      We record our findings in “Negative”.

R E A S O N S

7.      At the out set it is not at dispute that the complainant Nos.1 and 2 being husband and wife are the members and joint holders with OP opened a Demat and Trading Account at Kormangala Branch of OP during October – 2005. The first holder (complainant No.1) is the sole signatory and authorized to operate the trading account. Complainant No.1 used to visit OP for share trading since 15.10.2005 upto January – 2008. Subsequently he started online trading from his residence. The grievances of the complainants is that on 03.08.2008 they left to United Kingdom to visit their daughter, complainant No.1 informed to Territory Manager of OP about their UK visit well in advance. They returned to India from UK on 16.11.2008, complainant No.1 visited OP on 18.11.2008 to verify and update the account. The complainant noticed that outstanding lodger balance was nearly Rs.6,86,852.30 debit and further he noticed lots of malpractice occurred in their Trading Account. The outstanding balance amount was very high as against cash value of Rs.10,83,227/- of holding shares market was weak on 18.11.2008. To avoid further loss by OP covering holding share and charged at the rate of 24% interest i.e., (charged day to day basis) on outstanding balance, the complainants were forced to sell their majority shares amounting to Rs.6,86,852.30 on 18.11.2008 (i.e., to cover outstanding balance) and some more holding share amounting to Rs.3,38,986/- on 21.11.2008, since the complainant has lost faith about credibility of OP.

The complainants claims that there were large number of transactions with NSE and BSE Cash Market and NSE FAO (Derivative Market) without consent of the complainants. Major portion of their shares were sold and brought on 20^th, 21^st, 28^th of October – 2008. On 21.10.2008 following shares were sold in cash market from their D.P. holding, resulting in additional loss of Rs.2,95,387.87 a) Areva 25 Nos. @ Rs.870.07 = Rs.21,751.74 b) HUL 923 Nos. @ Rs.242.06 = Rs.2,23,425.89 c) ITC 309 Nos. @ Rs.162.49 = Rs.50,210.24, total Rs.2,95,387.24. As a result ending up with insufferable loss of Rs.13,99,307.25 i.e., (Rs.4,17,067.38 + Rs.6,86,852.30 (ledger balance on 18.11.2009) + Rs.2.95.387.87 shares sold from DP holdings. Total malpractice done by OP without complainant consent.

Further it is stated that the complainant No.1 has not done any online trading from any part of the world during 03.08.2008 to 16.11.2008. Complainant No.1 had agreed for e-broking services, they have not shared trading password with any person. OP provided online trade software (Trader terminal Advance) to the complainant and has authentication for system lock with software. Complainants password of online trading prevailed as on 01.08.2008 should have been lapsed by 12.08.2008 and not revived till their return on 16.11.2008 having high level security system in their organization. OP allowed to misuse complainant No.1 Demat and Trading Account causing huge losses. All these transactions carried out without complainants knowledge, due authorization and directions, OP is solely responsible for causing loss and hardship; in order to earn brokerage and hefty interest at 24% outstanding amount. OP instead of functioning like professional firm has carried out shares business in casual manner and on arbitrary assumption and presumptions. OP failed to give proper services and done malpractice, acted without due diligence for nearly 3½ months and caused loss and hardship.

In addition to loss of Rs.13,99,307.25 and holding value of market appreciation as on 27.04.2009 of 29.5% (By date of legal notice) amounting to Rs.3,19,551/-, total of Rs.17,18,858.25. Due to deficiency of service, complainants filed complaint before this Forum claiming the loss of Rs.17,18,858.25 together with interest at the rate of 24% p.a.

8.      The main defence of the OP is, the complainants have not informed to Territory Manager about their UK visit. The complainant No.1 introduced his brother in law Mr. Robert Lobo to look at his portfolio and has authorized him to do transactions. It is admitted that the complainants had given Rs.1,00,000/- through cheque to clear their debit balance of Rs.2,50,550.57 and same is not to clear their FAO Reserve Margin (Derivative Margin) for short position of one lot / one contract (Quantity of 5,000 shares as per NSE) of Renuka Sugar FUTSTK 28^th August – 2008 at the rate of Rs.128/- (Rs.127.95 after deducting brokerage of just Rs.0.05) as alleged by the complainants. The complainants account is always on debit, just to clear debit balance they have deposited Rs.1,00,000/- and the same cannot be related to FAO reserve Margin. The complainants have not given any letter to keep the account in suspense during 03.08.2008 to 16.11.2008 as claimed by complainant that he is not in country. The OP has not done any malpractice in the complainants account or its employees will not do any transactions without permission from the client / complainant. All the details of the transactions daily made available in his unique client ID Shrinnay and mails sent to e-mail ID and SMS to his mobile which is never disputed. There is no consumer dispute between the parties; there is no cause of action for this complaint. Mr. Robert Lobo who was very much aware of the password and was visited the OP office in the period as mentioned above. On the instructions and powers given under the agreement GPA and other documents, OP performed the transactions following the terms and conditions under the said agreement and GPA.

9.      In the written arguments submitted at para – 35 it is contended that from the averments of the complaint and also the evidence affidavit of the complainants, it is very much clear that the complainants hired the services of OP for purchasing and selling of shares. It is very much clear that the averments of the complaint and the affidavit evidence that the complainants hired the services of the OP for the commercial purposes, which the same is not come under the purview of definition of the ‘Consumer’ as defined under the Consumer Protection Act.

Further the loss as alleged by the complainant shown in para – 9 is illusionary and imaginary figures and it is baseless. OP is a just broker between the SEBI and Demat account holder not a servant of the customer, the share business is highly speculative in nature and the share business is totally depending on the performance of company which has issued shares and also depending on the bullion market and it is nobody can predict anything earlier.

10.    The learned counsel for the OP contended that OP has produced the details of transaction (contract notes) from 01.08.2008 to 14.11.2008 and the details of transactions (ledger extract) from 31.03.2007 to 28.03.2009 which goes to show that the complainants have invested huge amount in share business and large scale of sale and purchase of shares had been done through the account of the complainants for earning huge profits. This activity is commercial in nature and therefore the complainants are not ‘consumers’ as defined under the Consumer Protection Act 1986 and the complaint is not maintainable. Per contra, the learned counsel for the complainants contended that the share trading by the complainants was for earning their livelihood by means of self-employment. Under explanation to Section 2(1)(d) of the Act, the services availed for the purpose of earning livelihood by means of self-employment does not include for commercial purposes, as such the complainants are ‘consumers’ as defined under Section 2(1)(d) of the Act and the complaint is maintainable.

Sub-section (d) of Section 2(1) of the Consumer Protection Act, 1986 reads:

“(d) “Consumer” means any person who:

(i) buys any goods ……..; or

(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purpose;

Explanation-For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment;”

          From the perusal of the aforesaid provision, it is evident that a person who avails such services for any commercial purpose, has been excluded from the definition as per amendment added by Act 62 of 2002 with effect from 15.03.2003. In the explanation, it is clarified that if the person purchases the goods or avails the services exclusively for the purpose of “earning his livelihood by means of self-employment” then such goods or services would not amount to have been purchased or availed for commercial purpose. In the complaint there is no whisper what so ever to attract the explanation to the effect that the complainants have been doing share business to eak out their livelihood by means of self-employment. When the complainants were engaged in purchasing and selling of shares in large scale as evident from the details of transactions (ledger extract) produced by the OP for the period from 31.03.2007 to 28.03.2009 for earning huge profits, this activity is definitely commercial in nature and therefore the complainants are not ‘Consumers’ within the meaning of Section 2(1)(d) of the Act.     

11.    In 2010 CTJ 1092 (CP) (SCDRC) Raghubir Singh Vs. India Bulls Securities Ltd., and Others wherein Complainant opened demat account with the opposite parties – Transactions in shares made by the opposite parties through the account allegedly without the complainant’s permission – Loss of as much of Rs.3,45,000/- caused to him – Complaint dismissed by the District Forum – Appeal – Evidently large scale trading in shares done through the account for earning huge profits – Definitely a commercial activity – Complainant held to be not a consumer under the Act – Whether the opposite parties committed any fraud as alleged, the question could not be gone into by the Consumer Forums under their summary jurisdiction – Impugned order upheld. At para – 11 of the judgement it is observed that: 

“However, we are of the view that main issue involved is whether the complainant is a consumer or not and whether the allegations of fraud can be adjudicated upon under the CPA, 1986. From the record it is evident that large scale of sale and purchase of shares had been done through the account of the complainant for earning huge profits. This activity is definitely commercial in nature and therefore the complainant is not a consumer as defined under the CPA, 1986. Further there are allegations of fraud committed by the OPs and these cannot be gone into by the Consumer Fora under its summary jurisdiction as per the settled law. In view of the above, we are of the considered view that the complaint is not maintainable before the Consumer Fora”.

          In 2010 CTJ 1194 (CP) (SCDRC) Anand Rathi Securities Ltd., and Others Vs. Smt. Rajshri Verma and Another it was held that Undoubtedly the share trading is a commercial activity and the services availed for that purpose are obviously to be considered to have been availed for commercial purpose. As such a person availing such services cannot invoke the jurisdiction of the Consumer Protection Act.

In the above case the complainant deposited Rs.3,00,000/- for trading in share market and also opened a trading account for that purpose with OP. When she made a request for refund of the amount with such profit as earned as it, she was told that she had suffered loss and that she has to pay Rs.1,49,824/-. The District Forum allowed the complaint, in the appeal the State Commission held that share trading is a commercial activity, the complainant invested money without there being any ‘self-employment’ element involved in it – Services availed for commercial activity are obviously to be considered to have been availed for commercial purpose – Hence, the complainant could not be said to be a ‘consumer’ – Impugned order not sustained - Set aside – Appeal allowed.

The principles laid down in the above rulings are aptly applicable to the facts of the case. Under these circumstances we are of the view that the complainants are not ‘consumers’ as defined under Section 2(1)(d) of the Consumer Protection Act, as such the complaint is not maintainable. Accordingly we proceed to pass the following:

O R D E R

The complaint filed by the complainants is dismissed as not maintainable. Considering the nature of dispute no order as to costs.

Send the copy of this order to both the parties free of cost.

(Dictated to the Stenographer and typed in the computer and transcribed by him, verified and corrected, and then pronounced in the Open Court by us on this the 19^th day of February – 2011.)

PRESIDENT

MEMBER                                                      MEMBER 

 Snm: