DIST. CONSUMER DISPUTES REDRESAL FORUM
NORTH 24 Pgs., BARASAT.
C. C. CASE NO. 360/2015
Date of Filing: Date of Admission Date of Disposal:
23.06.2015 25.06.2015 18.09.2015
Complainant = Vs. = O.Ps.
Anirudh Kanoria, Adult, 1. Motilal Oswal Commodities
Indian Inhabitant, Broker Pvt. Ltd,
2/2A, Burdwan Road, 89, Sapuipara Lane, Manikpur,
3rd Floor, Kolkata- 700079. And
Kolkata-700027. Mumbai office at Motilal Oswal
Tower, Rehmatulla Sayani Road
Opp. Parel Depot, Prabhadevi,
Mumbai- 400025.
2. Motilal Oswal,
Group Promoter Motilal Oswal
Group, 89, sapuipara Lane,
Manikpur, Kolkata- 79, and
Mumbai Office at Motilal
Oswal Tower, Rehmatulla
Sayani Road, Opp- Parel Depot
Prabhadevi, Mombai- 400025.
Advocate Name for the complainant:- Sayan Shome, Abhik Sarkar and another.
Advocate Name for the OPs:-
J U D G E M E N T
Facts of the case, in a nutshell, is that that O.P. No.1 is a Company incorporated under the provision of Companies Act, 1956, having its registered office at the address mentioned at the cause title of the present complaint. The O.P. No.1 is a fully owned subsidiary of Motilal Oswal Financial Services Ltd. It is India’s leading service provider as a Stock Broker. The said brokers namely the O.P. no.1 are, amongst other, the members of the National Spot Exchange Ltd(NSEL).
The complainant stated that O.P. Nos. 2 to 4 are the persons who are totally in charge of and responsible for the day to day affairs of the present
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subject matter of the O.P. no.1 with the complainant. The O.P. Nos. 2 to 4 are
having their addresses more particularly mentioned in the cause title of the complaint.
The complainant further stated that the services of the O.Ps were deficient in quality, nature and manner of performance. The present complaint pertains to unfair trade practice, deficiency and dereliction of services offered by the O.Ps to the complainant. The O.Ps, by their dereliction and conduct, have caused grave harm, loss and injury to the complainant, and have thus violated and attracted the mischief of the provisions of the C.P. Act, 1986.
The complainant also stated that complainant is a self-employed individual, who has been investing in the shares through his broker namely the O.P. no.1, for earning his and his family’s livelihood. The complainant has been pursuing investing activities independently as his career, to earn his livelihood. The complainant is the sole earning member for his family and their livelihood.
The complainant further stated that there were persuasions and insistence by the O.Ps who had represented to the complainant that they shall ensure that the earning of income and livelihood level of the complainant shall raise if he starts making his earnings through his investing pursuits, through the O.P.
The complainant also stated that since the O.P had represented to the complainant that they have got the team of experts who are committed to ensure that the earning of income and livelihood level of the complainant shall increase if he starts and continues his earning through investing pursuits through the O.P, the complainant believing the said representations to be true, opened his account with the O.P. No.1.
The complainant further stated that accordingly the complainant had entered into a ‘Know Your Clients (KYC) Agreement dated 16.07.12 with the O.P. No.1, and had submitted the necessary documents to them. The complainant was allotted trading account No. KC0001 by the O.P. No.1. The copy of the said KYC dated 16.07.12 submitted by the complainant to the O.P. The complainant, at the request and instance of the O.P, also opened a Demat account with the O.P.
The complainant also stated that it is pertinent to mention that the complainant did not have any prior experience or knowledge in executing the commodity exchange transactions, on the platform of NSEL. It was accordingly
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represented to the complainant by the O.Ps that the complainant could never be at any loss and the O.Ps would take whatever action, which was deemed necessary to protect the complainant’s interest and that in the event of any unfavourable circumstances, the O.Ps would step in and immediately address the situation at their cost.
The complainant further stated that on such promises, assurances and representation of the O.Ps, the complainant had agreed to invest his hard earned moneys into commodity transactions, which for the complainant was the only independent source to earn his and his family’s livelihood.
The complainant also stated that the complainant, from time to time executed various transactions, through the O.Ps at National Spot Exchange Ltd. The complainant had executed his last transaction through the O.P. No.1 in or around 11.07.13. Thus, the credit balance of Rs. 17,31,790.83 excluding other credits, was due and payable by the O.Ps to the complainant.
The complainant further stated that the complainant was, however, shocked and surprised to received the Ledger statement dated 30.09.13 from the O.Ps which reflected that there were no moneys due and payable by the O.Ps to the complainant, which zero balance was allegedly arrived at on the basis of alleged entries which were never known to or instructed by the complainant.
The complainant also stated that the complainant, in this situation of confusion, plight and predicaments, called up the O.Ps, to understand and sort this concern which had arisen because of O.Ps’ fraud, misrepresentation, mis-information and dereliction. However, instead of coming to rescue to resolve the concern, the O. Ps , aggravated the whole confusion by speaking to the complainant in high headed and rude manner, and that the concerned officials at the O.P’s office were reluctant to entertain any request or queries made by the complainant.
The complainant further stated that the complainant thereafter visited the office of the O.Ps on various occasions, however, the O.Ps, at its convenience, started avoiding the complainant on one pretext or other. The complainant had to face terrible distasteful behavior pattern from the personnel of the O.P. no.1 and that the officials concerned were quite rude and abrasive throughout, which were indeed a demeaning experience.
The complainant also stated that the complainant stated that even on expiry of several months, the O.Ps deliberately failed and neglected to pay the
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amount due and payable to the complainant, and also compensate the complainant for mental torture, agony and plight, the conditions which were solely attributed to the O.Ps’ dereliction. The complainant, therefore, issued the legal notice dated 11.05.15, through his Advocate, recording true and correct facts of the matter and calling upon the O.Ps to put to rest unnecessary controversies emanating from the alleged illegal entires and pay the sum of Rs.1732790.83. The O.Ps vide their letter dated nil, had indulged in raising specious contention, which was without any substance and basis, and have failed and neglected to pay the amount due and payable to the complainant, not to mention making good their act of dereliction.
The complainant further stated that the services of the O.Ps were deficient in quality, nature, attitude and manner of performance.
The complainant also stated that the complainant has suffered due to unfair trade practice and deficiency in services on part of the O.Ps. Hence, the complainant is entitled to be compensated.
The O.Ps have contested the case by way of filing written argument.
The O.Ps alleged that the O.P. No.1 has carried out the transactions in accordance with the circulars issued by the National Spot Exchange Ltd from time to time.
The O.Ps further stated that complainant is not a consumer of O.Ps and that this Hon’ble Forum has no jurisdiction to entertain the present complaint. Various criminal proceedings are pending before various courts in respect of the subject issue and hence, this Hon’ble Forum has no jurisdiction to entertain such issues. As per the bye laws of NSEL, any dispute between the Client and Broker has to be referred to Arbitration.
The O.Ps further alleged that the O.P. No.2 is nowhere concerned with the present subject transaction; O.P. No.2 was /is not involved in the day to day affairs and business of O.P. No.1. O.P. Nos. 3 and O.P. No.4 are nowhere concerned with providing any services to the complainant. The O.P. No.1 has implicitly complied with the spirit and letters of the said circulars in respect of the obligations in completing the settlement of transactions with NSEL/ other investors. The O.P. No.1 has not induced or invited any individuals including the complainant or any corporate for the purpose of either trading or investing in commodity related instruments or exchange.
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The O.Ps also alleged that the complainant had agreed to and was ready and willing to invest in the NSEL transactions only after having a firm grasp and clear understanding of the rules, regulations, laws, structure and entire transactions of NSEL. It was also incumbent upon the O.P. No.l to execute the transactions in accordance with the circulars issued by the NSEL, and adhere to the letters and spirit of the said Circulars in respect of its liabilities and obligations.
The O.Ps further alleged that the O.P. No. 1 has also not neglected or failed or refused to submit the required returns to the appropriate authorities, nor has made any false or misleading statement on any returns required to be submitted to the appropriate authorities. The O.P. No.1 has provided its services to the complainant in normal course of business and proper due diligence was carried by the O.Ps, and that there is, therefore, no deficiency in service or unfair trade practice, deficiency and dereliction of services offered by the O.P to the complainant.
The O.Ps also alleged that the NSEL deviated from its business model and that there had been no actual physical delivery of commodities. The NSEL was responsible for checking and verifying the quality and quantity of the underlying commodities and goods were required to be compulsorily weighed at the designed weigh bridge/ weigh scale and was monitored and certified by the warehouse supervisor. The NSEL certifying the same, NSEL issued a warehouse receipt which was evidencing proof of ownership of a stated quantity of the underlying commodities and goods were receipt which was evidencing proof of ownership of a stated quantity of commodities of a stated grade and quality by the beneficial owner or the holder of the certified warehouse receipt. The NSEL was the counter party to all trades and guarantees the trade settlement hence investor and broker had absolute confidence in NSEL. The entire trading transactions were based on the warehouse receipt issued by the NSEL and retained by NSEL. The NSEL retained the original copy of the warehouse receipt, the NSEL used to allocate these warehouse receipts through an allocation letter which was given to investors. The allocation letter from the Exchange mentions-‘we confirm that the warehouse receipts are in our custody’.
The O.Ps further alleged that in every allocation letter, reference of – End Client, Warehouse Receipt No.Lot/QC No. and Warehouse Location was mentioned. A copy of the said allocat6ion letter issued by NSEL is produced by the O.Ps in their list of documents. All trading was done based on the warehouse receipts issued by NSEL warehouse and these were allocated to investors by allocation letter of the Exchange.
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The O.Ps also alleged that the O.P. No.1’s (broker) clients have transactions to buy and sell trades based on these commodities based on warehouse receipts, giving them a return of 12% to 15% per annum. The return was dependent on the purchase price and sale price on the NSEL platform and therefore varied from transaction to transaction and day to day. There was no fixed return concept. There was no speculative element in the entire transaction. The contract note which was sent to all the investors expressly indicates that investors were fully aware of paired contracts, buying and selling of the commodity on the same day with little time difference. The investors had full knowledge of the product and hence, there was no question of inducement.
The O.Ps further submitted that the physical handling of goods was always done by the warehouse of National Spot Exchange Ltd and the custody of the goods always remained in the warehouse of the NSEL. The most of the underlying commodities did not exist and the buying and the selling of commodities like steel, paddy, sugar, etc. was being only conducted only on paper. There had been no actual physical delivery of commodities and bogus warehouse receipts were issued by NSEL. The NSEL was actually supposed to trade in commodities, but instead of doing that, it permitted bogus transactions of trading to be introduced and resultantly, in effect, permitted financial transactions of lending and borrowing. The NSEL scam is estimated to be of Rs. 5,600 crores that came out to light after the National Spot Exchange failed to pay its investors in commodity pair contracts after 31 July, 2013.
The O.Ps also alleged that the O.Ps not liable to pay a sum of Rs. 1732790.83 to the complainant as nothing is due and payable by the O.P. No.1 to the complainant and as per records of O.P. No.1, as on 31.03.15, an amount of Rs. 1694113.33 is due and payable by NSEL to the complainant and not payable by the O.P. There is document exhibited by O.Ps evidencing the factum that the said amount is due and payable by the NSEL to the complainant and not by the O.P, at their list of documents.
Point for Decision:-
1.Whether the complaint is maintainable?
2.Whether the complainant is entitled to get any relief as prayed for?
Decision with Reasons
Both the points are taken up together for discussion as the points are inter-linked and can be discussed conveniently.
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Regarding point No.1, we want to rely on decision reported in 2014(2) CPR 572 (NC) wherein it has been held that Consumer Protection Act, 1986- Sections 15,17,19 and 21- Capital Market- Share transaction- Cheating in transfer of shares – Petitioner himself has admitted that he is an investor- DMAT account was opened by petitioners purely for commercial transactions – They were rightly not treated as consumer so as to entitle them to claim compensation by filing complaint under 1986 Act- Revision Petition dismissed.
It has been observed by the Hon’ble National Commission that ‘However, it stands proved that the entire case revolves around the shares. The petitioner himself has admitted that he is an investor. This Bench, vide order dated 01.08.12, in RP No. 1179/2012, titled A. Asaithambi Vs. The Company Secretary and ors, placed reliance on paras 26,27,33, 34 and 35 of Morgan Stanley Mutual Fund –Vs- Kartick Das (1994)4 SCC 225, and dismissed the complaint.
In that case, reliance was also placed on Som Nath Jain –Vs- R. C. Goenka and Anr, West Bengal State Commission, in case Ramendra Nath Basu –Vs- Sanjeev Kapoor and Anr and Delhi State Commission in case Anand Prakash –Vs- A. M. Johri and others, 1(2009) CPJ 316, III (2000) CPJ 291.
For citation 1), ‘ In our opinion the transactions, which took place between the parties, can never be attributed to be a transaction which comes under the purview of the Consumer Protection Act. As we all know that investors who do invest their good money in share trading with the expectancy of earning some favourable profits, at the same time undertake a huge risk of loss for which no one could be held responsible’
For citation 2)-Sudhangsu Bhusan Dutt –Vs- The Joint Managing Director, Mansukh Securities and Finance Ltd and others. By the Hon’ble National Commission New Delhi, 2014 (2) CPR 572 (NC) decided on 16.04.14
‘Share transactions do not come within the ambit of C.P. Act’.
For citation 3) Duggirala Prasad Babu –Vs- M/s. Skoda Auto India Pvt. Ltd represented by Managing Director and Ors, 2014(1) CPR 576 (NC) –‘ If subject goods are purchased for resale or for any commercial purpose, purchaser of such goods is excluded from definition of consumer’.
For citation 4) Mithuna Developers and Builders Pvt. Ltd and Ors –Vs- Ramanand T.V by the Hon’ble National Commission, New Delhi 2014(1)CPR 625 (NC) decided on 26.02.2014-‘Commercial transactions cannot be subject matter of consumer complaint.
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A transaction of the complainant being of speculative nature does not entitle him to be a consumer qua the O.Ps.
From discussions in the foregoing paragraphs and from speaking judgements of above stated higher Forums/ Courts, it is clear that if a person investing money in share trading with expectation of profits, taking risks for which none can be held responsible if the person loses, then the person (here complainant) cannot be a consumer as defined under Section 2(1)(d)(ii) of the Consumer Protection Act, 1986 and the complaint is not maintainable’.
Ld. Lawyer for the complainant contended that it was discovered after the Exchange defaulted on 31.07.13 that most of the underlying commodities did not exist and the buying and the selling of commodities like steel, paddy, sugur, ferrochrome etc. was being conducted only on paper. The pair trades in various commodities were offered in one day forward contracts and such pair trades offered an arbitrage opportunity of about 12-15% return per annum. The investors, who honored the payment obligation, found that the National Spot Exchange neither had the money, nor the commodities, to honour their future dues. Around 24 borrowers were given the funds by the NSEL without any underlying commodities deposited by those borrowers.
Ld. Lawyers for the complainant has argued that economic offences wing (EOW) of Mumbai Police has found evidence of some irregularities on the part of the brokers in the National Spot Exchange Ltd (NSEL) scam and that an interim report on the police’s forensic audit had thrown evidence of hawala transactions, benami trades and client code changes at some of the brokers. The interim report also states some of the brokers were aware of the impending danger at NSEL and the NSEL brokers have been charged by investors with giving away their client’s monies without even securing the title of the goods i.e. the ‘warehouse receipts’ resulting in ‘criminal breach of trust’.
The Ld. Lawyer for the complainant has submitted that most brokers including Motilal Oswal took Power of Attorney to sell / purchase/ pledge commodities on behalf of the investors and also open DMAT account to handle commodities in electronic form and also got an agreement to sign ‘Hold and transact in warehouse receipts’. The brokers had charged warehouse receipt transfer and delivery charges when actually there was no delivery of goods and warehouse receipts. The brokers had also falsely assured the investors of NSEL being a regulated exchange and that their investment was secure.
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Ld. Lawyer for the complainant challenged the defense raised by the O.Ps on the grounds that the NSEL deviated from its business model and there had been no actual physical delivery of commodities, that bogus warehouse receipts were issued, that not only did NSEL permit investors to participate in the commodities contracts, but, in fact, NSEL with active connivance with the O.P. No.1 actively encouraged and induced investors to enter such transactions, that the O.P. No.1 at behest of the NSEL, have sold NSEL products as investment vehicles by promising an assured return to investors including the complainant, that the hO.Ps have also misguided and misled the complainant in respect of opening of account as well as entering the alleged entries in the ledger, in the account of the complainant which was totally illegal on the part of the O.Ps. and that the commodity exchange transactions were not carried in accordance with the provision of applicable laws. He accordingly prays for seeking declaration that the O.Ps are guilty of unfair trade practice, deficiency and derelictions in services towards the complainant and the O.Ps be directed to pay to the complainant.
The Ld. Lawyer for the O.Ps has also filed the affidavit of evidence , documents and brief notes of argument wherein he had raised various grounds of defense against the allegations made by the complainant.
Ld. Lawyer for the O.Ps argued that the complainant had executed various documents upon understanding the risk elements involved in the commodities trading.
Ld. Lawyer for the O.Ps argued that the NSEL was the counter party to all trades and guaranteed the trade settlement, that the entire trading transactions were based on the warehouse receipt issued by the NSEL, that since the NSEL retained the original copy of the warehouse receipt, the NSEL used to allocate these warehouse receipts through an allocation letter from the NSEL mentions- ‘we confirm that the warehouse receipts are in our custody’, and that in every allocation letter, reference of – End Client, Warehouse Receipt No. Lot/ QC No and warehouse Location – was mentioned. A copy of such Allocation letter issued by NSEL was also filed. He contended that in column Warehouse Location the word ‘ National Spot Exchange Ltd- Godown Location and reference to Godown No. etc. was also mentioned. She therefore, submitted that the physical handling of goods was always done by the warehouse of National Spot Exchange Ltd and the custody of the goods always remained in the warehouse of the NSEL.
Ld. Lawyer for the O.P further argued that all trading was done based on the warehouse receipts issued by NSEL warehouse and these were allocated to
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investors by an allocation letter of exchange. The O.P. No.1’s clients have transactions to buy and sell trades based on these commodities based on warehouse receipts, giving them a return of 12-15% per annum. The return was dependent on the purchase price and sale price on the NSEL platform and therefore varied from transaction to transaction and day to day. There was no fixed return concept. There was no speculative element in the entire transaction. The contract notes were sent to all the investors on a daily basis which indicates that investors were fully aware of paired contracts, buying and selling of the commodity on the same day with little time difference. So, from the very first day, the investors had full knowledge of the product and hence, there is no question of inducement. Hence the complainant was fully aware of the scheme of investment in the commodity product.
Ld. Lawyer for the O.Ps further argued that NSEL was inaugurated by the then Finance Minister, Government of India, which established that the said NSEL and its products was endorsed by the government of India, in respect of legality, validity and authenticity of NSEL and its product. The NSEL had also developed website which had clearly communicated to the public at large about the Exchange and its product. The knowledge and features which was in public domain was communicated to the investors by the O.P. No.1 which clearly proves that there was proper due diligence conducted on part of the O.P. No.1 and further that there was no false representations or inducement on the part of the O.P. No.1. There was no violation of any direction of law or any legal contract, on the part of the O.P. No.1.
Ld. Lawyer accordingly submitted that the O.P. No.1 has acted in accordance with and observed the provision of law. Ld. Lawyer for the O.P also submitted that there were no laches on their part by fulfilling their obligations towards the complainant and therefore prayed by complaint should be dismissed.
Byelaws of NSEL:-
2.13- Business Rules means unless the context otherwise, rules and regulations of the Exchange drawn by the relevant authority from time to time for regulating the trading activities and responsibilities of the members of the Exchange and procedure thereof and includes any modification or alteration made therein, as also circulars, orders and notices issued by the relevant authority from time to time and is a part and parcel of Regulation of the Exchange.
2.16- Bye-Laws, Rules and Regulations mean the Bye-Laws, Rules and Regulations including the Business Rules of the Exchange made puersuant to the
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Articles of Association of the Exchange and these Bye-Laws and includes any re-enactment, modification or alteration made thereof, as also circulars, orders and notices issued by the Board or any committee constituted by it and empowered to issue such circulars, orders and notices.
2.17- Certified warehouse receipt means a receipt issued under the authority of the Exchange or any agency approved by the exchange as a certified warehouse, evidencing proof of ownership of a stated quantity of commodities of a stated grade and quality by the beneficial owner or the holder of the of a stated grade and quality by the beneficial owner or the holder of the certified warehouse receipt. Certified warehouse receipt may either be in physical form or in dematerialized / electronic form as may be permitted by law.
2.18- Certified warehouse means a warehouse approved and designated by the Exchange for making deliveries to and taking deliveries from for fulfilling contractual obligations resulting from transactions in commodities.
2.37- Delivery means the tender and receipt of warehouse receipts/ or any other document of title to goods by issue of delivery order in settlement of a transaction.
Reports
11.1- In respect of all trades done by the members of the Exchange, the Exchange will electronically forward reports to the respective members, including settlement obligations relating thereto. All such reports and obligations shall be binding on the members of the Exchange.
31.- The sample Allocation letter has been produced by the O.P. No.1. It would be material to produce the relevant text of the said Allocation letter issued by the NSEL to the O.P. No.1.
As seen from the aforesaid provision from Bye-Laws, it is a law done by the members of the Exchange, the Exchange will electronically forward reports to the respective members, including settlement obligations relating thereto. Also all such reports and obligations shall be binding on the members of Exchange. It is clearly mentioned that the said allocation report that the original warehouse receipts were in custody of NSEL.
In our opinion, the O.P. No.1 was legally bound by the Bye-Laws of NSEL and has acted in accordance therein.
The complainant’s report that the complainant before entering into the transactions did sign KYC as well as the risk factor and understood the transaction
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and even in the entire complaint, the complainant has not alleged that he was forced to enter into the transaction or he was pressurized or influenced to enter into the transactions. The complainant also in its entire complaint has not alleged that since inception, he was induced to invest in the commodity Exchange. It is only after when the alleged fraud came into light, the amount of the complainant was not paid and thereafter, dispute between the complainant and the O.Ps had started. Therefore, we are of the opinion that the complainant was not induced by the O.Ps to enter into the Commodity Exchange Transactions or to invest in the Commodity Exchange.
The complainant further alleged that in one ledger the O.Ps are showing a payment of Rs. 1732790.83 is due and payable by the O.Ps to the complainant. However, by forging the ledger, the O.Ps in another ledger converted the credit balance to zero balance. The O.P. No.1 is a broker at the Commodity Exchange and entitled for the brokerage in respect of the transactions executed at Commodity Exchange. The liability of making payments were of the ultimate customer, though the payment is routed through the broker. Once, the alleged scam of the Commodity Exchange found out and there was no option for the O.Ps except as and when any amounts come to the credit of the complainant, the same is given credit to the complainant’s account. The ledgers also reflect the amount received and amount paid and that no transaction in the commodity is reflected in the said ledger after the said alleged scam. Therefore, we are of the view that the O.Ps have not committed the forgery as alleged by the complainant because the O.Ps were acting as broker in the transactions and were not liable to make any payment from their funds.
Accordingly, after considering all the materials on record and in view of the discussions foregoing herein before, we are of the view that the complaint is not maintainable and the complainant is not entitled to get relief as prayed for.
Hence
Ordered,
that the complaint be and the same is dismissed on contest.
Parties to bear their own cost.
Let copies of the order be supplied to the parties free of cost when applied for.
Member President
Dictated & Corrected by m
