Tamil Nadu

StateCommission

FA/214/2017

M.r. V.Sundaraman - Complainant(s)

Versus

M/s.Kotak Securities Limited, Rep.by its Managing Director, - Opp.Party(s)

M/s.K.Subramanian and others

10 Apr 2023

ORDER

IN THE TAMILNADU STATE CONSUMER DISPUTES REDRESSAL COMMISSION, CHENNAI.

 

Present:   Hon’ble THIRU. JUSTICE R. SUBBIAH  :     PRESIDENT

THIRU R  VENKATESAPERUMAL    :      MEMBER

 

F.A. No. 214 of 2017

[Against the order passed in C.C. No.250 of 2009 dated 14.03.2016 on the file of the D.C.D.R.F., Chennai (South)].

 

Monday, the 10^th day of April 2023

 

 

1.  Mr. V. Sundararaman

2.  Mrs. Uma Sundraraman

 

Both residing at

No.21/30, 2^nd Main Road

Kottur Gardens

Chennai – 600 085.                                    ..Appellants/Complainants

 

- Vs –

 

1. M/s. Kotak Securities Ltd.,

    Rep. by its Managing Director

    5^th Floor, Nirlon House

    Dr. Anne Besant Road

    Orli Mumbai – 25.

 

2. The Branch Manager

    Branch Office at

    GRR Business Centre

    New No.36, Vaidyaraman Street

    T.Nagar, Chennai – 600 017.                  ..Respondents/

Opposite parties

 

For Appellant /Complainant                      : Uma Sundararaman

                                                                        Party – in person

 

Counsel for the Respondents/Opposite Parties  : M/s.K. Harish

 

 

This appeal came before us for final hearing on 28.02.2023, and on hearing the arguments of the 2^nd Appellant in person and the counsel for the respondents/opposite parties and on perusing the material records, this Commission made the following :-

 

ORDER

R.SUBBIAH J., PRESIDENT

 

                This appeal has been filed under Section 15 of the Consumer Protection Act, 2019 as against the order dated 14.03.2016 passed by the District Consumer Disputes Redressal Forum, Chennai (South) in C.C. No.250 of 2009, dismissing the complaint filed by the Appellants herein.

 

        2.  The 1^st appellant is the husband of the 2^nd appellant.  It is the case of the appellants/complainants that regarding their personal investments available with them, for avenues having good investment potentials of returns on investment, they were looking out for a good investment consultant with integrity and well versed in equity market operations and who were making investment decisions on their behalf which required committed and devoted personnel.  Whileso, persuaded by the canvassing made by the Managers of the opposite parties, their glossy advertisements published in commonly circulated newspapers, pamphlets and in the internet about their highly experienced portfolio management in general, with commendable track record and about its select portfolio series I, 2007 in particular, the complainants decided to engage the services of the opposite parties.  Hence, they agreed to make their personal investments through the avenue of Portfolio Management Scheme known as Select Jan Scheme formulated by the opposite parties.  While explaining about the frame work within which they would act, the opposite parties had stated that they are bound to and will act in terms of SEBI guidelines and other laws if any, governing the Portfolio Management Schemes scrupulously and honestly and always in the best interest of their investors in the Portfolio Management.  The representative of the opposite parties had also stated that given the paucity of time faced by the complainants in researching and investing in the equity market they would be better under the regulations governing portfolio management schemes to invest under ‘Discretionary Schemes’, as the onus shifts unequivocally to the Portfolio Manager to make the investment choices on behalf of the complainant and will also entail the Portfolio Manager to act in a responsible manner in handling the portfolio without detriment to the clients, like the complainant.  Thus, the complainants were induced to invest their monies in the “Select Jan Scheme” instead of investing their hard earned money, elsewhere. Based on the aforesaid representations and on a bonafide belief that the opposite parties are having years of experience in stock market investments, taking into consideration the ups and downs in its movement that requires considerable expertise and research, which ordinary investor like the complainants do not have time or manpower and are not well equipped to handle to manage their portfolios.  Hence, the complainants initially invested a sum of Rs.25 lakhs, in two instalments of Rs.15 lakhs and Rs.10 lakhs on 17.02.2007 and 10.03.2007 respectively.  Pursuant to the above decision of the complainants for making investments to the extent of Rs.25 lakhs, the opposite parties took signatures of the complainants at Chennai on 12.03.2007, in numerous printed forms and sheets and agreed to make available the copies of the same subsequently, but, this was never done.  The opposite parties made available to the complainants only few forms selectively that also after a demand was made, in July 2008.  On perusal of the same, it was seen that the following agreements/letters, purported to have been entered into on 22.02.2007, namely,

I.   Account Opening Form

II.  Portfolio Management Agreement dated 22.02.2007 containing the 

      following clauses, namely,

1. Appointment of Portfolio Manager
2. Participation
3. Scope of services to be provided by Portfolio Manager
4. Functions of the Portfolio Manager
5. Responsibility of the Portfolio Manager
6. Portfolio Manager’s Powers, Duties and Obligations
7. Investment Objectives and Guidelines
8. Amount
9. Period and Termination
10. Death and insolvency
11. Repayment
12. Fees and Charges
13. Transfer, Registration and Custody
14. Accounts and Returns
15. Risks and Losses
16. Protection of act done in good faith
17. Portfolio Manager may rely on advice
18. Client’s rights and liability
19. Indemnity to Portfolio Managers
20. Alteration
21. Assignment
22. Tape Recording of conversations
23. Correspondence
24. General
25. Disputes
26. Grievance Redressal System

The various forms signed by the complainants including the Power of Attorney granted to the opposite parties, clearly establishes that the complainants had fully reposed confidence on the opposite parties and the opposite parties were required to act in a honest and diligent manner in its dealings with the complainants and not to change it in any manner, more so being a discretionary agreement as compared to non-discretionary agreement. On 03.10.2007, based on the representation from a local representative of the opposite parties, some additional letters and forms were also signed which purported to amend certain clauses in the existing agreement, with regard to the period of termination and extension, for the scheme participation Select II with an investment of Rs.15 lakhs.  Further, it was also agreed by the opposite party to furnish statement on investments, for every quarter commencing from 31.12.2007.   The Portfolio Management fee was also amended to the effect that it would be a return based fee.  According to the statement of opposite parties, it was represented that the portfolio of the complainants had earned a profit of about 75% but subsequently there seems to have been a dip, for reasons best known only to the opposite parties.  An e-mail dated 11.05.2008, sent by the Relationship Manager of the opposite parties, informed that the opposite parties have foreclosed its Select Jan Portfolio Scheme and hence based on the suggestion of the opposite parties, the complainants instructed it to close and settle the balance during May 2008 itself, when there was a balance of Rs.32 lakhs.  In spite of the foreclosure by the opposite parties and instruction from the complainants, in total negation of its fiduciary duty the opposite parties not only failed to settle the amount, but have transferred the cash and securities due to the complainants and had also proceeded to liquidate the portfolio at throw away prices.  Finally, on 29.07.2008, as against the initial investment of Rs.25 lakhs, the opposite parties settled the account by paying a sum of Rs.26.16 lakhs, thereby resulting in a loss of about Rs.18 lakhs and the second investment of Rs.15 lakhs in Select II which is not due for redemption, shrunk to nearly 50% of original investment of the portfolios held hitherto with the opposite parties.   Hence, the complainants called upon the opposite parties at Chennai, with regard to the heavy loss caused to them, due to their mishandling of the portfolio of investments and its liquidation.  No concrete reply was given by the officials of the opposite parties, excepting profuse apologies.  Not being satisfied with the apology, a meeting was convened by the complainants, on 25.07.2008 at their residence at Chennai, with the aforesaid three persons.  In the said meeting it was agreed by the opposite parties to furnish to the complainants all the necessary information requested by them and signed the minutes of the meeting, to that effect.  But the complainants have not received any information sought for.  On the contrary they had received a structured format, workings based on NAV, which is against the regulations, with selective information which does not fully and truly disclose the transaction details and handling of the portfolio by the opposite parties and thus had failed to satisfy the query raised by the complainants.  Hence, with the little information provided by the opposite parties, the complainant engaged the services of a Chartered Accountant to review the transactions and to submit a report to ascertain as to how much loss had been caused to them, due to the unfair/inept handling of the portfolio by the opposite parties.  The study by the Chartered Accountant had revealed more serious and unfair actions of the opposite parties.  According to the said report, prima facie, there seemed to be a loss of about Rs.18 lakhs, subject to verification of detailed records. A perusal of the structured and sketchy accounts provided by the opposite parties shows that the opposite parties had not maintained a separate portfolio account indicating each and every sales made on behalf of the complainant.   Instead the opposite parties have indulged in purchase and sale from a pool account, which is contrary to SEBI guidelines.  Hence, the complainants issued a legal notice on 31.08.2008 calling upon the opposite parties to compensate the loss caused to them, due to their negligent services.  The said notice was received by the opposite parties and vide their reply dated 23.09.2009, they denied the liability.  Hence, alleging deficiency of service, the complainant had filed the complaint, seeking the following directions to the opposite parties:

1. To pay a sum of Rs.18,00,000/- towards pecuniary loss suffered by the complainants;
2. To pay sum of Rs.1,00,000/- towards mental agony suffered, due to non-production of accounts as well as not properly accounting for the monies invested by the complainants with the opposite parties;
3. To reimburse the legal and other incidental costs incurred or to be incurred till the disposal of the complaint, for which accounts will be rendered by the complainant on actual basis.

 

 

                3.  Resisting the complaint, the opposite parties have filed a written version stating that by virtue of the Agreement signed by both the parties, it has been agreed to resolve all disputes and differences through arbitration mechanism as prescribed under the relevant provisions of Arbitration and Conciliation Act, 1996.  The complainants have not exhausted the said remedy.  The complainants have failed to make out a case against the opposite parties and the alleged loss amount as claimed by the complainant is notional, hypothetical and imaginary in nature and not the real loss suffered by the complainant as alleged in  the complaint.  The complainant has failed to provide any breakup or calculation, as to how the latter has arrived at an amount of Rs.18 lakhs, alleging to be the loss suffered.  The opposite party is a Registered Portfolio Manager of Securities and Exchange Board of India (SEBI).  As per the SEBI Portfolio Manager Regulations, 1993 an investor entering into an agreement with a Portfolio Manager has the option to place his funds in Non-discretionary Portfolio Management Service (NDPMS) or Discretionary Portfolio Management Service (DPMS).  In case of NDPMS, all transactions in the client’s account will be with the concurrence of the client and the client enters into an agreement with the Portfolio Manager for the same.  In the case of DPMS the client enters into an agreement with the Portfolio Manager to independently manage the funds of the client.  In the case of DPMS, pursuant to the client entering into the said agreement, they have to agree to invest in Schemes of the portfolio manager after understanding the investment objectives of the scheme.  For this purpose they have to enter into a separate supplementary letter, which is pursuant to the main agreement.  The said supplementary letter would explain to the client the terms pertaining to the objective of the scheme, period of the scheme, the fees charged to the client for rendering service etc..  The complainants, vide agreement dated 22.02.2007 appointed the opposite parties as a discretionary portfolio manager to provide Portfolio Management services for the funds/securities deployed by them in accordance with the provisions of the agreement.  In clause 15 of the said agreement, inter alia, the complainants have acknowledged that, they are aware of the risks involved in respect of investing the funds’ in equities, by reading the Risk Disclosure document and that the portfolio manager will not be responsible for any loss or damage occasioned due to market conditions.  Pursuant to the said agreement, the complainants by executing supplementary letter dated 22.02.2007, had availed Select Portfolio January 2007 and had invested Rs.25 lakhs.  Subsequently, by executing another supplementary letter dated 03.10.2007 had availed Select Portfolio Series II and invested an amount of Rs.15 lakhs.  Admittedly, the alleged dispute of the complainants is only with regard to Select Portfolio January 2007.  The complainants as on date are continuing with the other scheme namely Select Portfolio Series II against which the complainants have no dispute whatsoever against the opposite parties.  The grievance of the complainants from their lawyer’s notice dated 31.08.2008 appears to be that they had instructed the opposite parties to close Select Portfolio January 2007 and settle the balance as of May 2008 when there was balance of Rs.32 lakhs.  However, the opposite parties allegedly failed to settle the account as instructed by the complainants and settled the account on 29.07.2008 pursuant to which they received a sum of Rs.26.16 lakhs.  Further, it appears that the complainants are referring to their mail dated 23.05.2008, wherein Mr.Sundararaman the first complainant has written that he is inclined to exit and had also asked to credit the amount to his Kotak Bank account.  The opposite parties had responded to the mail vide its reply mail dated 29.05.2008, by mentioning about the other avenues of investment and had also asked the 1^st complainant to revert for any clarifications.  But the 1^st complainant never reverted anything with regard to exit and several mails were exchanged between the 1^st complainant and the opposite parties with regard to the other avenues of investment and finally vide mail dated 24.06.2008, the 1^st complainant confirmed and gave instructions to withdraw.  Pursuant to the same, on 01.07.2008 the opposite parties forwarded the form for closure of account to the complainants.  The complainants had served a legal notice dated 31.10.2008 upon the opposite parties, whereby the complainants had claimed Rs.15 lakhs from the opposite parties for the alleged loss suffered by them.  But, the complainants in the application filed before this Forum had revised the claim amount from Rs.15 lakhs to Rs.18 lakhs raising identical allegations as stated in the legal notice.  This itself would prove that the claim raised by the complainants is totally inconsistent.  No loss has been caused to the complainants due to any commission or omission whatsoever by the opposite parties.  The complainant had on his own volition opted to invest an amount of Rs.15 lakhs in Select Portfolio Series II, for which they had executed a supplementary letter dated 03.10.2007.  The allegation that it was for amending certain clauses in the existing agreement, is totally misleading and the same is denied.  Further, all the fee related information and the other conditions of the scheme were explained to the complainant in the letter dated 03.10.2007.  The Power of Attorney which the complainants were referring to, was given for the purpose of operating the Depository Participant and bank account opened with the opposite parties at the time of operating the DPMS account.  It is pursuant to the said Power of Attorney the opposite parties effected movement of securities and funds pursuant to the trades executed as a Discretionary Portfolio Manager.  The opposite parties cannot be held responsible for market price movement of securities whereby the complainant may make profit and incur loss resulting in variation of NAV.  Hence, absolutely there is no deficiency of service on the part of the opposite parties and thus sought for dismissal of the complaint. 

 

                4.  In order to prove the case, both the parties have filed their proof affidavits and on the side of the complainant, 10 documents have been marked as Exhibits A1 to A10 and 3 documents were filed on the side of the opposite parties and marked as Exhibits B1 to B3.

 

                5.  The District Forum, after analyzing the entire evidence on record had come to the conclusion that the issue involved in this case relates to share transaction, which is commercial in nature.  Further, the complainants in their complaint have nowhere stated that they are doing share trading for self employment nor it has been pleaded that the service provided by the opposite parties are being availed exclusively for the purpose of earning their livelihood, by means of self employment.  Therefore, the disputes raised by the complainants in this complaint against the opposite parties relates to commercial purpose, which are excluded under the provisions of Consumer Protection Act, 1986 and thus dismissed the complaint as not maintainable.  Aggrieved over the same, the present appeal has been filed by the complainants.

 

                6.  It is the submission of the 2^nd appellant/ 2^nd complainant that she is a house wife and that her husband is a senior citizen and had invested their surplus funds in shares and stocks through the portfolio manager to meet their livelihood.  They chose the respondents/ opposite parties to manage their surplus funds in its Portfolio Management Scheme, which is discretionary and that they have no control over it, so far as method of investment, number of transaction etc.  The appellants/ complainants do not have any hallmark of trade whether in terms of frequency or volume of transaction.  The Portfolio Manager had not sold the securities lying on them, when the market conditions were conducive to sell instead had sold and closed the account of the appellants/ complainants resulting in a net loss of over Rs.18 lakhs.  Thus, the opposite parties had committed deficiency in servicing the complainants/customers to that of commercial activity. 

 

                7.   Per contra, it is the submission of the learned counsel for the respondents/ opposite parties that the appellants/complainants are not consumers as defined under Section 2(i)(d) of the Consumer Protection Act, 1986 and hence the complaint is not maintainable and the District Forum had passed a well reasoned order, by rightly dismissing the complaint. 

 

                8.  Keeping in mind the submissions made by the 2^nd appellant/2^nd complainant in person and the counsel for the respondents/opposite parties, we perused the entire material available on records. 

 

                9.  In view of the submissions made on either side, the short question that arises for consideration is whether the issue involved in this case will fall within the ambit of the Consumer Act.  If the answer is affirmative, then only the question of dwelling into the factual aspects of the case would arise.  As observed by the District Forum, this is not a simple case of deficiency of service.  The entire issue involved in this case is share market trading.  In this regard, it would be appropriate to rely upon some of the judgments referred by the counsel for the respondent/ opposite parties. 

        In Vijayakumar Vs. Indusind Bank, reported in II (2012) CPJ 181 (NC) it has been stated by the National Consumer Disputes Redressal Commission, New Delhi that share market trading is a commercial transaction and as such not a consumer u/s 2(1)(d)(ii) of the Act.  This was also laid down in Anand Prakash Vs. A.M.Johri & Ors., reported in III (200) CPJ 291, that the sale and purchase of shares are commercial transactions and as such the Appellants/Complainants would not fall within the purview of Consumer.  When it is a commercial transaction, the District Consumer Commission, is not an appropriate forum.  Since the complaint has been dismissed by the District Forum as not maintainable, we are not traversing into the other aspects of the case. Moreover, there are disputed question of facts involved in this case.  When there are disputed question of facts, the same cannot be decided in a summary manner by the Consumer Commission, merely based on the pleadings put forth by the parties, particularly when these types of complicated issues need elaborate evidence, in the form of examination/cross examination of witnesses and marking of wholesome documents.  But, the complainants have chosen to file only a complaint before the Consumer Forum.  Merely by going through the pleadings and few documents marked on both sides, the Consumer Commission cannot come to any fruitful conclusion.  Therefore, we do not find any infirmity in the order passed by the District Forum and the appeal is liable to be dismissed.               

 

 

                10.   In the result, the Appeal is dismissed.  No order as to costs.

 

 

R VENKATESAPERUMAL                                                                                                  R.SUBBIAH

         MEMBER                                                                                                                       PRESIDENT

 

 

Index :  Yes/ No

 

AVR/SCDRC/Chennai/Orders/April/2023