PER SHRI. S.S. PATIL – HON’BLE MEMBER
1) This is the Complainant regarding deficiency in service on the part of Opposite Party as it did not settle the insurance claim of the Complainant. The facts of this complaint as stated by the Complainant are that the Complainant is a Company dealing in securities. It is a registered member of the Bombay Stock Exchange, National Stock Exchange and Central Depository Service I Ltd. The Complainant has taken a Stock Broker’s Indemnity Insurance Policy bearing No.INB231047433 for a period commencing from 06/09/2000 to 31/05/2001. The Opposite Party has undertaken to indemnify the Complainant in accordance with the policy terms and conditions.
2) The Complainant has further started in his complaint that, on or about 28/02/2001, the employee of the Complainant Mr. Sameer Thakkar, instead of selling the shares on ALBM market, sold them in normal market, for scrip of EQ Adani Exports. This error took place in respect of settlement No.SETT N2001009. The Complainant suffered a loss of Rs.2,77,299.50. The same error was committed by the same employee in respect of settlement No.SETT N2001014 for this scrip name EQ Adani Exports and the loss sustained by the Complainant in this transaction was Rs.90,778.85. According to the Complainant such error committed by the employee of the Complainant is covered by the policy taken from the Opposite Party. The Opposite Party is therefore liable to indemnify the loss sustained by the assured due to the above said error.
3) The Complainant by its letter dated 31/05/2001 communicated the details of loss suffered by it to the Opposite Party in order to indemnify the loss. Accordingly the Opposite Party appointed surveyor – Desai Bhavsar Associates to survey, investigate and assess the loss. The Opposite Party by its letter dtd.18/12/2001 informed the Complainant that on verification of documents and on enquiry by the surveyor, it was noticed that Mr. Sameer Thakkar who was operating the NSE terminal was not the Complainant’s employee. As the transactions done by him were unauthorized, the loss did not fall within the purview of the policy (Letter dtd.18/12/2001).
4) After receipt of the above letter the Complainant informed the Opposite Party that the said Mr. Sameer Thakkar was in its employment since June 1998. He was authorized to transact business on both exchanges. The Complainant also enclosed the appointment letter dated 04/05/1998.
5) The Opposite Party by its letter dtd.18/04/2002 informed the Complainant that the appointment letter of Mr. Sameer Thakkar, was on the letterhead of Shri. Kamalesh Shroff and not of the Complainant and therefore loss suffered due to his acts was not covered by the policy (The Opposite Party reiterated the repudiation of the Complainant’s claim).
6) The Complainant has further averred that Mr. Sameer Thakkar was and is an employee of the Complainant at all relevant times of transactions. Complainant had been regularly paying him salary for which it had maintained journal entries. The complainant therefore averred that the Opposite Party has rejected its claim without application of mind.
7) Finally the Complainant has stated that there is a deficiency in service on the part of the Opposite Party as it has rejected the valid claim of the Complainant and it also suffered a loss due to the deficiency in service on the part of the Opposite Party.
8) The Complainant has prayed for the claim amount of Rs.3,68,079/- alongwith interest, compensation of Rs.50,000/- for mental agony and Rs.5,000/- towards the cost of this complaint.
9) The Complainant has attached xerox copies of the following documents in support of his complaint -
a)Policy No.120000/46/2001/1317 valid till 31/05/2001.
b)Letter dtd.31/05/2007 of the Complainant.
c)Two letter of the Opposite Party dtd.07/06/2001.
d)Surveyor’s letter dtd.14/06/2001.
e)Complainant’s letter dtd.19/06/2010.
f)Repudiation on letter dtd.18/12/2001.
g)Complainant’s letter dtd.07/01/2002.
h)Opposite Party’s letter dtd.17/01/2002.
i)Opposite Party letter dtd.18/04/2002.
10) The complaint was admitted and notice was served on the Opposite Party. Opposite Party appeared before this Forum and submitted its written statementwherein it is admitted that the Opposite Party has issued Stock Brokers Indemnity Insurance Policy bearing No.120000/46/2001/1317 valid from 06/09/2000 to 31/05/2001.
11) It is further stated that, the claim of the Complainant was duly considered by the Opposite Party and after thorough investigation by the surveyor and after application of mind, it was found that Mr. Sameer Thakkar was not the employee of the insured. Thus the transactions done by him are not covered by the policy.
12) It is clarified by the Opposite Party that the transaction s which gave rise to the claims, occurred on 28/02/01 and 04/04/01 (Settlement No.N2001009 & N20011014). The alleged loss suffered by the Complainant is Rs.2,77,299/- in transaction dated28/02/2001 and Rs.90,779/- in transaction dtd.04/04/2001, the total loss being Rs.3,68,079/-.
13) During the investigation Complainant had submitted his letter dtd.19/06/2001 to the surveyor. It revealed number of shares received, Trade cancellation etc. The said letter disclosed the details of a person who committed the error. It is categorically stated in this letter in Para No.9,10 and 12 that the person who was responsible for the error was a relative of one of the directors i.e. Mrs. Priti Shroff. Mr Sameer D. Thakkar is the person who is responsible for the error. He is nephew of the said director. It is also stated in Para No.10 that Mr. Sameer Takkar being the relation of one of the directors there is no question of his appointment letter. “Since the person is not working as an employee, there is no Muster / Register of the concerned person. Therefore the Opposite Party has vehemently asserted that” it is crystal clear that Mr. Sameer Thakkar had committed the errors which resulted in to the alleged loss and that he was never at any given point of time an employee of the complainant.
14) The Opposite Party has further submitted that during the survey it was disclosed that one of the Complainant’s client M/s. Sunfin Securities, bought 25000 shares of M/s.Adani Exports. It (M/s. Sunfin Securities) wanted to carry forward the transaction in ALBM of NSE instead of taking delivery. These shares were required to be sold in ALBM segment of NSE on 28/02/2001. Mr. Sameer Thakkar who was operating NSE Terminal mistakenly executed this order in normal market segment. Order was executed. Mr. Sameer Thakkar realized his mistake and immediately repurchased these shares from normal market on the same day. Complainant suffered an alleged loss of Rs.2,77.299/- due to difference between the sale and purchase prices. The same incident was repeated again on 04/04/2001. The same client bought 50,000 shares of the same company M/s. Adani Exports in ALBM market. It wanted to sale these shares in ALBM segment but Mr. Sameer Thakkar again repeated the same error. He repurchased 10,000 share from normal market on 6th,9th and 10/04/2001. The Complainant had allegedly suffered a loss of Rs.90,700/- due to the difference in the rates in sale and repurchase transactions.
15) The Opposite Party has further stated that the surveyor furnished his report dtd.04/10/2001. This report stated that Mr. Sameer D. Thakkar’s name was not on pay roll/ register of the company as paid employee, No appointment letter was issued to him. There was no specific duty structure or obligation cast on him. He was not registered as a sub broker with the complainant.
16) It is also alleged that there was a gross delay in reporting the loss to the Opposite Party. It is mentioned by the Opposite Party as “The loss is intimated to the insurer on 01/06/2001 vide letter dtd.31/05/2001”. The amount of loss was Rs.2,25,299/- and Rs.58,575/-. The insured become aware of the loss on 28.02.2001 and 04.04.2001 respectively. The first loss was intimated after 62 days to the Opposite Party while the 2nd loss was intimated after 27 days, beyond the period of 30 days.
17) It was also stated by the Opposite Party that, as per the surveyors report, “no indemnity is offered in respect of any claim or liability a rising or contributed by failure by the assured to complete, valid buy and sell transactions caused by clerical errors and omissions. Without prejudice to our remarks in para 7.2 above insurer needs to evaluate properly whether the mistake of punching the transaction in other segment of market (i.e. in normal segment as against ALBM Segment) would amount to clerical error. Infact, the insured has suffered loss due to error on part of one of the persons who executed the transaction in the normal market instead of ALBM Segment of NSE. Therefore, the error or omission referred above would apparently be covered under exclusion clause of the policy.”
18) In reply to the rejection letter of the Opposite Party, the Complainant sent a letter dtd.07/01/2002 stating that Mr. Sameer D. Thakkar is an employee of the Complainant and hence, the claim is payable to the Complainant. Thus, the Complainant made a contradictory statement in respect of Mr. Sameer Thakkar.
19) It is alleged by the Opposite Party that, in order to show that Mr. Sameer Thakkar is an employee, the Complainant manipulated certain documents and they are after thought. Thus, the Complainant after thought tried to establish that Mr. Sameer Thakar is its employee but it vehemently denied that Mr.Sameer is an employee of the Complainant i.e. Omniscient Securities Pvt. Ltd. Company. Finally the Opposite Party has stated that there is no deficiency in service on their part and the Complainant is not entitled to any relief whatsoever in this case. Therefore, it is prayed by the Opposite Party that the complaint be dismissed with cost.
20) The written statement is supported by an affidavit of evidence. The Opposite Party also attached the xerox copies of the following documents to its written statement –
a) Letter of the Complainant dtd.31/05/01 addressed to Opposite Party.
b) Opposite Party’s letter dtd.07/06/01.
c) Surveyor’s letter dtd.14/06/01.
d) Complainant’s letter dtd.19/06/01.
e) Surveyor’s report dtd.04/10/01.
f) Repudiation letter dtd.18/04/02.
g) Complainant’s letter dtd.07/01/02 addressed to Opposite Party.
h) Opposite Party’s letter dtd.16/01/02.
i) Report of the surveyor, dtd.14/03/02.
21) The Complainant and the Opposite Party filed their written arguments wherein they reiterated the facts mentioned in the complaint and written statement respectively. We heard the Ld.Advocates for both the parties and perused the papers submitted by them and our findings are as follows -
The Complainant has obtained a Stock Brokers Indemnity Policy bearing No.120000/46/47/2001/1317, which is valid from 06/09/2000 to 31/05/2001. In this connection it is noted by this Forum that both parties (Complainant and Opposite Party) has stated a wrong number of this policy. The Complainant has stated the policy number in its complaint as INB231047433 and the Opposite Party has stated in its written statement the Policy No. as 120000/46/2001/1317. Thus, it is observed that both the parties are not diligent in their drafting the pleadings.
22) Under this Stock Broker Indemnity Policy the Opposite Party agreed to indemnify the assured, in the manner stated, as set out in the schedule to have been incurred or sustained by reason of any of the following insured events, provided that such indemnification of losses are notified to the underwriter during the period of insurance specified in the schedule or in accordance with special condition 3 in respect of Part I and Part II of the policy and arise only out of or pertain to or resulting from dealings and/or transactions of the assured, including online transactions arising from internet trading, which commenced on or after the retroactive date as defined in policy, through the National Stock Exchange including, the assured’s trade for trade transactions routed on National Stock Exchange.
Subject to the above introductory part of the policy the following events are covered under the policy-
Section 1 : Infidelity of Employees.
Section 2 : Computer Crime Indemnity.
Section 3 : Errors & Omissions :- This Section is to indemnify the assured against their legal liability to third parties to pay compensatory damages, including claimant’s costs, for any claim made against them as consequences of transaction(s) entered by the assured on the NSE during the period of insurance stated in the schedule and notified to underwriters during that period. It is agreed that, the transaction(s) on NSE are extended to include the transactions(s) on the Automatic Lending Borrowing Mechanism (ALBM) Segment of the Exchange and subject to the provisions of Clause (a) under Additional Exclusions in respect of Section 3 – errors & omissions under Part I of the Policy.
Insuring Clause 1 : Negligence –
“As a direct result of any negligent act, negligent error, negligent omission or negligent breach of professional duty owed to clients.”
23) Special conditions in respect of Part I & Part II of the policy.
1 : Cost & Expenses.
2 : Notification of Claim : “The assured shall as a condition to their right to be indemnified under this policy, given to the underwriters as soon as possible and in any event within 30 days after the 1st discovery by the assured, notice in writing of
a) Any claim made against the assured or loss sustained by the assured.
24) Additional exclusions in respect of Section 3 “Errors & Omissions” under Part I of the Policy
“No indemnity shall be offered under Section 3 of Part I of the policy in respect of any claim or liability arising from or contributed by a) any transactions of the insured or by the Assured for or on behalf of those designated employees of the assured responsible for physically executing trades on the NSE terminal and whose names are registered with NSE for this purpose.”
f) “Failure by the assured to complete valid buy or sell transactions caused by clerical errors.
25) Definition. The Assured :- Shall mean, the assured stated in the schedule and/or in the certificate of Insurance, their predecessors in business (not involving any change in the membership of the exchange), their estates and/or legal representatives of any such persons in the event of their death, incapacity, insolvency or bankruptcy, the merged entity in the event of merger between Trading members duly approved by the Exchange and S.E.B.I. but only in the course of their normal business dealing in securities and those other business activities which are normally ancillary to a stock broking business and conducted from premises of the assured.
26) Taking into consideration the above said provisions of the Policy No.120000/46/47/2001/1317, it is clear that, the dealings or transactions done by the assured are covered by the policy.
In addition to the above, under provision of the policy, “such indemnification of losses are notified to the underwriters during the period of insurance specified in the schedule or in accordance with special conditions 3 in respect of Part I and Part II of the policy arise only out of or pertain to or resulting from dealings and/or transactions of the assured.
Therefore, the main ingredient of the provision of policy is that the transaction should be done by the assured. Losses should arise only out of transactions of the assured. Losses should pertain to transactions of the assured. Losses should result from the dealings of the assured.
We perused the definition of “the assured”. Mr.Sameer Thakkar is not covered under this term. Therefore, the losses have not occurred as a result of transaction or dealings of the assured within the meaning of term, “the assured.”
27) Section 3 also deals with the indemnity against the legal liability of the assured, to pay compensatory damages for any claim made against the assured, as consequences of transaction(s) entered by the assured.
In the instance case, as the transaction of selling the shares in normal market, instead of ALBM Market is done by Mr. Sameer Thakkar. This transaction has given rise to the loss to the assured. Mr. Sameer Thakkar is not “the Assured”. Hence, the transaction done by him is not covered under the policy.
Relevant additional exclusion in respect of Section 3 – Errors & Omissions under Part I of the Policy is as follows -
“No indemnity shall be offered under Section 3 of Part I of the policy in respect of any claim or liability arising from or contributed by -
a) any transaction of the assured, or by the assured for or on the behalf of those designated employees of the assured responsible for physically executing trades on the NSE terminal and whose names are registered within NSE for the purpose.
In light of the above provisions, the dispute between the Complainant and Opposite Party, whether Mr. Sameer Thakkar is an employee of the Complainant or not is not material from the liability point of view. Therefore, the contention of the Opposite Party, that Mr. Sameer Thakkar is not an employee of the Complainant and hence, the transactions done by him are not covered under the policy, is not correct.
The correct interpretation of the provisions of the policy is that Mr. Sameer Thakkar is not “the assured” and hence, transactions done by him are not covered under the policy. The Complainant has failed to prove that the transactions done by Mr. Sameer Thakkar, are covered under the policy and hence, the complaint deserves to be dismissed.
28) The Opposite Party has also raised the point regarding the employee. The provisions in respect of employees and the cover of the policy for the act of employees, has been dealt with, in Section I – Infidelity of employee. In the instant case there is no infidelity of employees alleged by either of the party. Therefore, provisions in respect of the employees are irrelevant.
29) As per the special conditions in respect of Part I & II of the policy, it is obligatory on the part of the Complainant to notify his claim in any event within 30 days of its discovery of the loss sustained by him. In this case the loss was discovered on 28/02/01 and 04/04/01. The assured had intimated the insurer (Opposite Party) on 31/05/01 i.e. beyond the stipulated period of 30 days mentioned in the special condition of the policy. Thus, there is a breach of this special condition by the Complainant. Therefore, in view of the above circumstances mentioned in para 27 to 30 above, we do not find merits in this complaint. Therefore, we pass the following order -
O R D E R
i)Complaint No.353/2002 is hereby dismissed for want of merits with no order as to cost.
ii)Copy of this order be furnished to both the parties.
