PER SHRI.S.S. PATIL – HON’BLE MEMBER
1) This is the complaint regarding the deficiency in service on the part of the Opposite Party as it repudiated the insurance claim of the Complainant on invalid grounds.
2) The facts of this complaint as stated by the Complainant are that the Complainant is a Corporate Stock Broker on BSE & NSE. The Complainant has taken a Stock Broker Indemnity Insurance Policy from the Opposite Party for the um of Rs.3 Crores for a period from 01/07/06 to 30/06/07.
3) Complainant was to provide investment services to its client Mr. Anantha Bhatta as per the agreement between them. This client Mr.Bhatt issued a cheque of Rs.40,000/- to the Complainant as margin money for purchase of shares for the value of Rs.1,10,343/-. It is submitted that, before the Complainant could pass on the shares to the client, the cheque issued by Mr.Bhatt was dishonoured.
4) The Complainant furthers sates that, the shares were in the possession of the Complainant. It caused liquidation/sale of shares. In the course of liquidation, process, the employee of the Complainant wrongly punched a sale order for 50,000 Unitech Shares instead of the correct order which was of 50 shares only. On detecting this error, the Complainant took immediate measures to prevent the loss. The Complainant placed the purchase order for the remaining shares by faxing the letter to BSE seeking cancellation of the transaction due to wrong punching. During this process the Complainant sustained a loss of Rs.9,15,614/-.
5) It is further stated by the Complainant that Opposite Party appointed surveyor (R.G. Verma & Associates) for assessment of loss. Surveyor submitted the report on 16/12/06 stating that the trade in question was a proprietary trade, it was a trading loss and therefore, excluded. It was also a consequential loss and as such, the claim was rejected. However, the Complainant has vehemently stated that it does not do any proprietary trading and it is supported by the affidavit.
The sale transaction of 50,000 shares was temporarily parked into the account code no.1003203 which is for error transaction of the Complainant. The said ledger account no.1003203 is not meant for any proprietary trade of the Complainant.
6) The Complainant further states that the Complainant’s claim falls within the insuring clause of Section II B of the policy which is reproduced as follows –
“Against any pecuniary loss suffered by the insured as direct result of any negligent act, negligent error, negligent commission or commission by their employees taking place in the course of the insured’s business activity.”
7) The Complainant has averred that it suffered a loss due to wrong punching for 50,000 shares instead of 50 shares. Therefore, there is no bad debt recovery. The Complainant has acted with due diligence. It suffered a direct pecuniary loss and not consequential loss. The Complainant also submits that the Opposite Party has relied on the biased and incorrect survey report. Finally the Complainant has prayed for a sum of Rs.9,15,614/- towards the loss sustained by it on account of the wrong punching of the sale transaction alongwith 18 % interest p.a. on the amount. Cost of the complaint, etc. The Complainant has attached the xerox copies of the relevant document s alongwith the complaint.
8) The complaint was admitted and notices were served on the Opposite Parties who appeared through their Ld.Advocate and filed their written statement wherein it is submitted that the claim of the Complainant has been thoroughly investigated by the Opposite Party and when it is revealed that the claim is not maintainable, it was rejected. In such case, a consumer complaint does not lie against the Opposite Party.
9) It is also submitted by the Opposite Party that the case involves complicated issues and intricacies and therefore, it is a matter of Civil Court.
10) It is further averred by the Opposite Party that the Complainant liquidated the Unitech Shares. This liquidation was done to recover the dues from its clients. This amounts to bad debt recovery process. The order to sell Unitech Shares were placed by the Complainant’s client. The risk manager was doing the trade on the behalf of the Complainant. There is no legal liability to the client. As such, it is a case of punching error in proprietary trade. In case of proprietary, loss due to punching error of rates only (and not a quantity) is admissible. As per policy condition for proprietary trade, request for cancellation should be made on system within one minute of discovery of loss. The trade cancellation request to BSE to square up the error within 5 minutes of the discovery of the loss. The Complainant has breached the condition with regard to intimation of loss to BSE and insurer.
11) It is further asserted by the Opposite Party that the sale and purchases of trades were made well within the market rates. So it is a trading loss and not covered under the policy. The rates of shares increased after the sale order was placed for 50,000shares. Loss took place while making purchases. No efforts were made by the Complainant to refer the case to BSE for Arbitration. It is observed that the Complainant did not have checks and limits per terminal, per dealer/per client/ per share/per trade, security margin for orders of high value to avoid errors and early detection. The Complainant did not take reasonable care to protest its legitimate interest.
12) It is also alleged by the Opposite Party that on 08/11/06 the client Mr.Bhatt bought shares worth Rs.1,10,354/- but he gave a cheque for Rs.40,000/- only. The client did not have adequate amount to do the trades. The Complainant had funded the debit balance. It is also stated that the surveyor Mr. R.G. Verma assessed the loss to the tune of Rs.7,48,658/-. Subject to the terms and conditions of the policy. It is also submitted by the Opposite Party that the claim of the Complainant was beyond the scope of the policy and hence, it was rightly rejected under clause 5(a) and 5(c) of the general exclusion clauses. Clause 5(a) reads as “Loss attributable to business or trading losses of assured including non recovery of trade debts.” Clause 5(c) reads as “Consequential loss whatsoever, except to the extent that underwriters agree hereunder to indemnify the assured against legal liability to third parties.”
13) The Opposite Party has further added that the claim is not payable since the Complainant violated the general conditions applicable to the policy vide para II of the reasonable care and further the case being of funding debit balances. In para II of the written statement the Opposite Party has clarified that the claim was not payable on other counts as enumerated in the letter dtd.21/05/07 addressed by the Opposite Party to the Complainant.
14) It is denied by the Opposite Party that the claim is covered under clause Sec. II B of the policy. The contract of insurance is governed by the terms and conditions as stated therein. Any violation of terms and conditions warrants rejection of the claim. Finally the Opposite Party has prayed that the complaint be dismissed with cost.
15) The Opposite Party has attached the xerox copy of the survey report dtd.06/12/06 in support of its written statement.
16) The Complainant has filed its rejoinder and written argument wherein it reiterated the facts mentioned in the complaint and denied the points raised by the Opposite Party. Opposite Party also filed their written argument wherein the facts mentioned in the written statement are reiterated.
17) We heard the Complainant and the Ld.Advocate for the Opposite Party and perused the papers submitted by both the parties and our findings are as follows -
The Complainant has taken a Stock Brokers Indemnity Insurance Policy No.11200/46/06/51/00000588 valid from 01/07/06 to 30/06/07. During the validity of this policy the Complainant sustained a loss of Rs.9,15,614/- because of wrong punching of a sale order for 50,000 shares of Unitech Company instead of 50 shares. It is the contention of lia Complainant that the employee of the Complainant was supposed to punch only 50 shares but he punched 50,000 shares. Therefore, the Complainant was not having sufficient number of shares for this trade. So it purchased/borrowed the remaining shares to comply with the sale order. During this process the Complainant had to purchase the shares from the market at higher price and due to this he suffered financial loss of Rs.9,15,614/-.
18) The Complainant has averred that the client Mr.Anantha Bhatt issued a cheque of Rs.40,000/- to the Complainant as margin money for the purchase of shares. The Complainant has not mentioned for how many shares he put the order. Here the Complainant has not clarified whether Mr.Bhatt had put the order for 50 shares of Unitech. It is not understood as how the Complainant purchased only 50 shares only. The Complainant was also silent on the price of these shares. Even there is no evidence on record to show that Mr.Bhat has instructed to purchase the 50 shares of Unitech. Only issuance of cheque of Rs.40,000/- does not show that he had put an order for 50 Unitech Shares. Thus, the story told by the Complainant is not supported by any cognate evidence.
19) The Opposite Party has appointed a surveyor R.G. Verma who gave his survey report on 16/12/06. He has assessed the loss. In his report he has stated that, “the selling order for 50 Unitech Shares on BSE got mispunched as 50,000 Qty. The trade got executed at 405.70. Total value of the trade was Rs.2,02,85,000/-. Since the order was on bolt, there was no quantity and value restriction for client code 204118. the scrip was at upper circuit (circuit limit for Unitech is 5 % on either side of previous days closing price). The print screen has been taken for the same. This bolt terminal is exclusively used by RMS for liquidation/square off purpose. It also gets use for placing orders when the vast connectivity it branch end is down. Normal liquidation is done by 10.30 a.m. by way of floppy upload in bolt and neat.” The surveyor has not recommended the claim.
20) Clause B of the insuring clause, states that this section subject to policy terms, exclusions, provisions, limitations, and conditions otherwise contained in the policy or endorsed there on, provides an indemnity to the insured – B = against any pecuniary loss suffered by the insured as a direct result of any negligent Act, negligent error, negligent commission, or omission by their employee (s) taking place in course of insured’s business activity. Taking into consideration this said provision this indemnity is provided to the insured as a direct result of the negligent Act of the employee. In the instant case, Rishikesh Parikh wrongly punched 50,000 shares. As a consequence of this act, the Complainant had to purchase the remaining shares. This is another act of the Complainant. Then this act of purchase of shares at an higher rate resulted into loss. Therefore it is clear that the loss is a consequential loss to the act of wrong punching and it is not a direct loss. It is not the case that Mr. Partik punched the figure 50,000 and Complainant lost Rs. 9,15,614/-. Thus for our considered opinion, It is certainly not a direct loss but it is consequential loss.
21) Secondly It is the case of he Complainant that Mr. Bhatta had asked the Complainant to purchase 50 shares and sent a cheque of Rs.40,000/- which bounced and subsequently this lead the Complainant to liquidate the 50 shares and while doing this process the employee wrongly punched sale order of 50,000 shares. The Complainant placed the purchase order for the remaining shares. Complainant had placed the order of these remaining shares ( 50,0000 – 50 ) in Complainant’s own name and not in the name of Mr. Bhatta . Therefore, this transaction of purchase of 49,500 trade done by the Complainant is a proprietary trade done by the Complainant in its own name. As the loss due to punching error of rates only ( and not quantity ) is admissible in proprietary trade, in the instant case the punching error is in respect of quantity of shares and not due to punching error of rates of the shares. Therefore because of these two reasons the claim is not payable.
22) The other reasons, given by the op, as it is a trading loss, absence of arbitration proceeding, recovery of debt balance, etc. do not hold water. However, taking in to account the reasons given is para 20 and 21 above, we are of the considered opinion that this claim is not covered under the policy, Hence we pass the following order.
O R D E R
i)Complaint No.49/2008 is hereby dismissed with no order as to cost.
ii)Copy of this order be furnished to both the parties.
