This O.P. No. 95/2003 has been filed by the complainant "Bhargava Refrigeration Industrial Pvt. Ltd." against the opposite parties "Unit Trust of India" (in short "UTI") and "Ministry of Finance". O.P. No. 358/2002 has been filed by the complainant "Dr. P.N. Bhaskaran" against the opposite parties "UTI" and "Union of India".

FACTS OF O.P. NO. 95/2003

2.  The complainant purchased US-64 unites from UTI as per the following details:

3. It has been alleged in the petition that in the bulletin issued by Unit Trust of India, they were giving a very rosy picture of the units whereas the fact was that a Committee was already appointed to examine the affairs of the UTI which were in bad shape and the report of the Committee was also under consideration by the Joint Parliamentary Committee (in short "JPC"). Ultimately, sale and repurchase of units was suspended in the year 2001. Thus, clearly the opposite party is guilty of unfair trade practice for attracting investments.

4. At the time of investments, the complainant was not knowing that the picture given in the bulletin is not true picture of the units as prices were not based on Net Asset Value (NAV) and were subjectively announced by the Board of UTI. Even when the complainant came to know that a JPC was already examining the affairs of UTI and they apprehended that prices of units may fall, they could not have withdrawn their amounts before three years which was minimum lock-in period for the units purchased if the benefit of exemption of Capital Gains Tax (CGT) was to be taken.

5. The complainant invested this amount in order to get additional benefit of Capital Gains Tax which was announced by the Government on purchase of units at that time. It has been claimed by the complainant that after year 2001 no dividends were received from the units and ultimately prices of units also fell down, therefore, the complainant had to repurchase the units at a loss. Accordingly, the following prayers have been made in the complaint:-

     (i) The price charged at ₹71,00,00/- by the UTI and paid on the units be paid back by the UTI (successor to the Unit Trust of India as per ordinance no. 5 of 2002) and / or the Government of India to the complainant:-

     (ii) The dividend promised by the Ex-Chairman of the UTI Mr.Subramaniam at 20% for the year 2002 and 2003 be paid at ₹14,20,000/- to the company by the administrator and successor to the UTI and/or Government of India.

    (iii)   That our business has come to stand still and has suffered losses due to the closure of the factory and mental agony suffered by the company and loss of reputation ₹10,00,000/- be paid to the company.

6.  The complaint was resisted by the opposite parties by filing written statement. The opposite party basically stated that following return / benefits have been received by the complainant:-

FACTS OF O.P. NO. 358/2002

7. The complainant purchased units of US-64 for ₹4 crores as per the following details:

                                 UNIT PURCHASED

8. In this complaint also, similar contentions have been raised in the complaint as in C.C. No. 95 of 2003. In this case also, the complainant took benefit of Capital Gains Tax and had to repurchase units at a loss. The following prayers have been made in the complaint:-

(i) Direct the 1st respondent UTI to pay the complainant herein a compensation of ₹2,48,92,070.86 being the difference between the amount of ₹15.30 per unit paid by the complainant at the time of purchase in April / May 1999 and ₹5.81 per unit being the Net Asset Value of the said unit at the same time, calculating on the total number of 26,22,979.016 units;

Or in the alternative

(ii) To direct the first respondent, UTI to allot to the complainant a total number of 68,84,681.583 units at the rate of ₹5.81 per unit covering a total sum of 4 crores which the complainant had originally invested in May and June 1999 w.e.f. May and June 1999;

(iii) To direct the first respondent, UTI to recalculate the dividend payable on the units on the assumption that the complainant was holding 68,84,681.583 units from May and June 1999 and to pay the dividend to the complainant at the rate at which it was being declared from time to time till then; and

(iv) To direct the first opposite party, UTI to repurchase the said 68,84,681.583 units at the present Net Asset Value;

Or in the alternative

(v) To direct the first opposite party, UTI to repurchase the units held by the complainant at the rate at which it was being repurchased when the complainant had originally invested in the same in May and June 1999, namely @₹14.80 and ₹15.00 per unit

(vi) to direct the first opposite party, UTI t pay the complainant the dividends due thereon at the rate at which dividends were being paid at the time of complainant made the investments or interest thereon @ 18% per annum till realisation; and

And

C. to direct the opposite party to pay a sum of ₹10 lacs as compensation of the mental agony and stress suffered by the complainant herein.

D. To award the actual amounts spent by the complainant towards cost of the litigation by way Advocate’s fee and other connected expenses for which the complainant may be given time to produce the receipts; .

9. The complaint was resisted by the opposite parties by filing written statement. The opposite party basically stated that following return / benefits have been received by the complainant:-

                                             BENEFITS

10.   All the parties have filed their respective evidence by way of affidavits which have been taken on record.

11.   Heard the learned counsel for the parties and perused record. The learned counsel for the parties are common in both the complaint cases for respective parties.

12.   The learned counsel for the complainants stated that there is no merit in the argument of the opposite party that the present cases involved complicated questions of facts and law, therefore, matter should be relegated to civil court. In this regard, the learned counsel referred to the following judgments:

(i)  Dr. J.J. Merchat & Ors. Vs. Shri Chaturvedi Nath : (2002) 6 SCC 635

(ii) CCI Chambers Co-op. Housing Society Ltd. Vs. Development Credit Bank Ltd : AIR 2004 SC 184

13. On the basis of above judgments, the learned counsel for the complainants stated that even the complicated questions of facts and law can be decided in summary procedure and the same should be so decided. This Commission is best equipped to decide the cases of unfair trade practice which is the main allegation in the present complaints.

14. The learned counsel for the complainants has alleged that there was internal bungling within UTI and when the complainants repurchased units, they suffered great loss and the complainant in O.P. No. 95 of 2003 only received ₹77,47,850/- for investment of total sum of ₹71 lacs after a period of approximately five years. Sale of unit was made attractive by giving exemption under CGT, however, the UTI knew that prices of units will fall after few years and therefore, this offer was made to befool the investors. Even if the savings in CGT is taken into consideration, as has been estimated by OP-1, the gain comes to roughly 4% per annum only. Every year there was increase in the unit prices and the dividend was also paid, however, the position changed from year 2001 and the price of units fell sharply and the complainants suffered huge losses when they repurchased the units for coming out of the scheme.

15. The learned counsel for the complainants argued that units were not sold on the basis of Net Assess Value (NAV). Sale price of the unit was kept artificially high though it was not supported by the actual net worth of the units. The learned counsel further alleged that there was lot of irregularities in the UTI and to examine these aspects, Joint Parliamentary Committee (JPC) was constituted and on whose recommendation, finally UTI Act was repealed and option was given to the unit holders to repurchase the units at value which was much less than ₹10/- or to get US-64 bonds in lieu of units. In respect of distribution of dividends, the JPC in ‘Chapter XIX’ titled "Role of Trustees" has observed the following:-

"19.2 xxxxxxxx. It has also observed that, "Raising the dividend yield on 1996-97 and 1997-98 as compared with 1995-96 was, in retrospect, not a prudent step and not justified by the results of the scheme." It has also stated, "It is pertinent to note that, during 1997-98, a significant change in the accounting policy was effected. During the year, the investment portfolio depreciated sharply by Rs.3,566.04 crore, which was charged to the ‘reserves and surplus’ account, unlike in early years when depreciation, if any, was charged to the ‘Revenue Account’. As a sequel to this significant change in accounting policy, ‘reserves and surplus’ as at the end of June 1998, tuned negative at Rs.1098.49 crore. Had this accounting practice not been following, net income would have been zero". The Tarapore Committee has also commented that in a non-NAV based scheme like US-64 a certain level of prudential reserves should have been maintained to meet redemption pressures which was not done in all these years."

16. The learned counsel for the complainants also argued that the provision of section 37 of the UTI Act will not be applicable in the present case because the UTI has not taken actions in good faith. Absence of good faith is very much clear from the fact that the Joint Parliamentary Committee has found various irregularities and unhealthy practices prevalent in the UTI. Government was reporting action taken reports to the Parliament. Even some of the officials of the UTI were sent to jail including the Chairman. All these facts clearly imply that everything was not done in good faith in the UTI. Even the inside trading has been alleged which is a recognized evil of the corporate world.

17. On the other hand, learned counsel for the opposite party no. 1 stated that all the investments in the scheme are subject to market risks and the NAV of schemes/ plans may go up or down depending upon the factors and forces affecting securities market. Past performance is not necessarily indicative of the future. There can be no assurance that the objective of the scheme will be achieved. "US-64" is only the name of the scheme and does not in any manner indicate either the quality of the scheme, its future prospects or returns.

18. The learned counsel for OP further stated that the complainants are not ‘consumer’ within purview of Consumer Protection Act, 1986 as they purchased US-64 units for earning profits i.e. for commercial purpose. Learned counsel further stated that the present grievance of the complainants apart from being not based on any legal rights is outside the jurisdiction of this Commission. Learned counsel further stated that the issues involved in the present complaints cannot be settled without leading detailed evidence and production of witnesses, hence, proper forum for adjudication of the present complaints would be civil court.

19. The learned counsel for OP-1 has clarified various aspects of UTI "US-64" units sale and repurchase from year 1999 in their affidavit dated 20.12.2018, wherein the following has been averred:

A.  In this regard, I state that, while announcing various schemes, the Unit Trust of India had made it clear that NAV was not applicable to US-64, which is evident from very first item in Annexures 8, 9 and 10 to the complaint, however, the same was applicable to many other schemes floated by the Unit Trust of India.

B.  It is submitted that other investors who had purchased the units in the months of April-May, 1999 and opted for re-purchase at any time during the period other than period of suspension of Sale and Repurchase in 2001- had all received expected returns.

C.  Purchase and repurchase price of units of US-64 are only available till May 2001, as US-64 scheme was foreclosed thereafter and no sale or repurchase of units was allowed by Unit Trust of India. Finally, Administrator of the Specified Undertaking of the Unit Trust of India decided to foreclose the scheme as on 31^{st May 2003.}

D.  In this regard, I state that, until May, 2001 the units of US-64 scheme were offered for sale and redemption at administered price decided and fixed by Board of Trustees of the Unit Trust of India based on several factors such as returns on units vis-a-vis other competing medium of savings, the flow of funds, possible repurchase etc. I state that the same factors were applied by the Unit Trust of India for past several years.

E.  I say that Deepak Parekh Committee in its report has recommended to apply Net Asset Value (NAV) based price instead of administered price of Unit under US-64 in due course. This report was submitted on 25th February 1999 in the Parliament and was made available to public by Unit Trust of India in the month of May 1999. I further state that the Unit Trust of India had initiated the process to implement the said report and as consequence thereto, a decision was taken in the month of July 2001 to suspend the sale and repurchase of US 64 for a period of six months to enable it to restructure the scheme and make the same NAV based.

F.  Price of units, acquired in the secondary market after 1st July 2001 or units allotted out of income distribution on or after 1st July 2001 or fresh units purchased after 1 January 2002, were fixed based on NAV in compliance with SEBI (Mutual Fund) Regulation 1996 called "US 2002".

G.  Notwithstanding, the Unit Trust of India in consultation with Govt. of India devised a "Special Limited Repurchase, as on June 30, 2001, by providing facility of Repurchase upto 3000 units at any time from August, 2001 to 31 May, 2003 at prices indicated therein or the NAV whichever was higher. This package was modified with effect from 01 January, 2002 increasing the limit for limited repurchase facility from 3000 units to 5000 units. The Unit Trust of India in January, 2003 announced conversion of units of US 64 scheme into 5 year tax-free tradable bonds with effect from 14 June 2003 carrying 6.75% p.a. interest payable half-yearly. In addition, units of US-64 Scheme , issued on or before 30 June, 2001 either held by the original unit holders or by the buyers of these units in the secondary market were made eligible for five year tax-free tradable bonds with effect from 1 June, 2003 maturing on 31 May, 2008 and bonds were issued to such unit holders, who opted for conversion of units."

20. Learned counsel for the opposite party further stated that in sub-clause (f) of section 21 procedure is laid down for determining issue of repurchase price of units by Board. The Board has powers to amend even section 1 which relates to fixing the price of sale and repurchase of the unit. Thus, there is no irregularity or illegality if UTI Board determines the price of repurchase not in accordance with earlier procedure but differently. Clearly, UTI Board accepted recommendation of the Joint Parliamentary Committee and accepted the determination of sale and repurchase price of units on the basis of NAV which was not the earlier procedure.

21. Learned counsel for the opposite party referred to a judgment of the Hon’ble High Court of judicature at Patna in Jan Chokidar (Peoples Watch), through its Convener Basant Kumar Choudhary & anr. Vs. Union of India, CWJC No.4394 of 2004, decided on 5.12.2008, where a public interest litigation has been dismissed by observing the following:-

"10. It needs no emphasis that in the matters of commerce and investment, market decisions are based on market positions and such decisions are not amenable to judicial review. Be that as it may, we find that authorities concerned have taken all necessary actions concerning the scam highlighted by the petitioners and that Actions Taken Reports pursuant to the reports submitted by the JPC are being submitted to the Parliament from time to time, Court’s intervention in the matter is not at all called for."

22. Learned counsel for the opposite party further pointed out that as per section 37 of the UTI Act, jurisdiction of courts is barred, therefore, the present complaints are not maintainable under the eyes of law before this Commission.

Section 37 of the UTI Act, reads as under:-

"37. Protection of action taken under this Act. – No suit or other legal proceeding shall lie against the Trust or a[the Reserve Bank or the Development Bank] or any trustee or any officer or other employee of the Trust or a[the Reserve Bank or the Development Bank] or any other person authorised by the Trust to discharge any functions under this Act for any damage caused or likely to be caused by anything which is in good faith done or intended to be done in pursuance of this Act."

23. I have carefully considered the arguments advanced by the learned counsel for both the parties and examined the record. So far as the objection of the opposite party in respect of complainants not being a consumer is concerned, it is seen that the complainants have purchased the units by paying due consideration to the opposite party. Any financial service is covered under section 2(1)(o) of the Consumer Protection Act 1986. This Commission in Harsolia Motors Vs. National Insurance Co. Ltd. CTJ 141 (CP) has observed the following:

"18. Further, what is commercial purpose is discussed by the Apex Court in various decisions.

19. We would refer to few relevant judgments:

In Regional Provident Fund Commissioner Vs. Shiv Kumar Joshi, (2000) 1 SCC 98, the Court elaborately considered the provisions of ^{Sections 2(1)(d) and 2(1)(o) as well as earlier decisions and held that-}

"The combined reading of the definitions of "consumer" and "service" under the Act and looking at the aims and object for which the Act was enacted, it is imperative that the words "consumer" and "service" as defined under the Act should be construed to comprehend consumer and services of commercial and trade-oriented nature only. Thus any person who is found to have hired services for consideration shall be deemed to be a consumer notwithstanding that the services were in connection with any goods or their user. Such services may be for any connected commercial activity and may also relate to the services as indicated in ^{Section 2(1)(o) of the Act."}

                        21. The aforesaid ratio makes it abundantly clear that services may be for any connected commercial activity, yet it would be within the purview of the Act.

24. From the above observation of this Commission, it is clear that purchase of units of US 64 would be covered under the purview of the Consumer Protection Act 1986. The concept of commercial purpose has stabilized by now and it would have been commercial purpose, had the purchasers been selling these units for some extra payments to some other persons, but the units have been directly purchased by the complainants and also repurchased directly by the opposite party. Thus, clearly the complainants are consumers within the definition given in Section 2(1)(d) of the Consumer Protection Act 1986.

25. On merits, there are two strong contentions of the learned counsel for the opposite party. The first one is that units are linked to market forces and no definite return can be expected or predicted under the scheme and past performance is no indication for the future performance of the scheme. The second important assertion of the learned counsel for the opposite party is that under section 37 of the UTI Act, no suit or legal proceedings can be instituted against the UTI.

26. Coming to the first issue of market risk, it has been admitted by the opposite party that for the relevant period of purchase in these two complaints, the price of unit was not linked to NAV and consequently not directly linked to the market forces rather, it was administered price by the Board of Trustees of the UTI. Had it been on the basis of the NAV, then it could have been said that the price of unit was market linked. Moreover, when exemption of capital gains tax was linked to the purchase of the units, there can be no question of its price being based on the market risks. Thus, in fact, the investments in the UTI were not subject to market risk to that extent as in mutual funds or other related securities. Thus, a purchaser of US 64 units may expect a reasonable return from the scheme based on the past performance to some extent.

27. Now, coming to the issue of section 37 of the UTI Act, it is seen that this section provides that any suit or legal proceedings would not be maintainable against UTI and/or its officers for any damage caused by anything which is in good faith done or intended to be done in pursuance of the Act. Looking at the various observations of the Joint Parliamentary Committee sample of which is already quoted in one of the preceding paragraphs, one can guess that the activities undertaken by the Trust and actions taken by the officials of the Trust may not be under the good faith. In the case Jan Chokidar (Peoples Watch), through its Convener Basant Kumar Choudhary & anr. Vs. Union of India (supra) the Hon’ble High Court has taken note of various action taken reports submitted to the Parliament as follows:

          "6. The joint Parliamentary Committee recommended in its report that Unit Trust of India should conduct a review of instances of investments going into default within a short period of sanction indicting possible deficiencies in the investment decision making process. The Government was also asked to present its Action Taken Report within six months of the presentation of the reports and further reports of progress of Action Taken until action on all recommendations were fully implemented to the satisfaction of the Parliament. The Government submitted to the Parliament first Action Taken Report on 9th May, 2003 and subsequent ATRs are said to have been submitted from time to time. From the affidavit filed by the Central Government, it is apparent that instructions have been issued that wherever instances of irregularities on the part of Unit Trust of India Officials come to the notice of the Government, necessary action be taken. The details of some of these actions as set out in the affidavit are thus:-

"(a) In July 2001, Government of India appointed a committee under the Chairmanship of Shri S.S.Tarapore (Tarapore Committee) to enquire into activities of UTI to inter-alia, ascertain whether investment/disinvestments decisions taken by UTI and in particular in the US-64 schemes in the last ten years were based on commercial or extraneous considerations. The committee identified 89 companies and out of those 89, scrutinized UTI’s investment in 19 companies. The JPC recommended a thorough enquiry of the secondary market transactions of UTI in the shares of these 89 companies. The Government has already handed over these cases to SEBI for investigation and SEBI has already initiated enquiry. If on the basis of the SEBI report, any instance of criminal negligence of UTI officials comes to the notice of the Government further action regarding filing of FIR with the local police or with CBI will be taken, depending on the nature and severness of the criminality involved.

(b) Altogether seven cases have already been registered by CBI and above cases are under investigation. A list of Cases under investigation by the CBI is attached as Annexure ‘Á’.

(c) In addition, in the matter relating to the financing of Sh. H C Biyani, broker at Calcutta Stock Exchange (CSE) by Stock Holding Corporation of India Ltd. (SHCIL) under their Sell-n-Cash scheme, on the basis of a complaint from CSE, Kolkata Police have registered a case and the matter is under."

28. Though none of the parties have filed information in respect of the final action taken either by SEBI or by the Government in the matter, however, from the above, it is clear that the Government also apprehended that everything was not alright in the UTI and there were certain acts or omissions which required inquiry and action against the responsible persons.

29. Thus, it can be very well seen that everything in the UTI was not normal and there were various activities and decisions taken by the Trust which may have been beyond good faith.

30. Now I will examine the issue of unfair trade practice. On the one hand, the deficiencies and other irregularities in the UTI had already come to the fore and they were under scrutiny of Tarapore Committee as well as by the Joint Parliamentary Committee, but on the other hand, still the UTI was showing its bulletins normally and giving the previous results for US 64 scheme and the administered prices for their sale and repurchase till the year 2000. This gave a picture to the investors that the position of the UTI was very robust and their investments would be safe. Thus, the bulletins issued in the year 2000 and 2001 were not the true representation of the real financial position and results and other activities of the Trust. This can be seen as unfair trade practice as defined under Section 2(1)(r)(1)(ii) of the Consumer Protection Act 1986 which reads as under:

            2(1) (r). "unfair trade practice" means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely:-

           (1)(ii), falsely represents that the services are of a particular standards, quality or grade;"

31. Moreover the issue of lock-in period of 3 years for the benefit of capital gains tax is more important from the point of view of unfair trade practice. The opposite party gave benefit of exemption of capital gains tax if units were purchased, however, the condition was that the purchaser should remain invested for at least three years. This is a form of unfair trade practice as defined in Section 2(1)(r)(3)(a) which reads as under:

" (3) (a) Permits-

(a) the offering of gifts, prizes or other items with the intention of not providing them as offered or creating impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged in the transaction as a whole;"

32. Thus, on the one hand, the opposite parties are claiming the scheme to be governed by market forces, but on the other hand, the opposite parties have clamped the scheme for 3 years for the complainants and the complainants cannot take any advantage from market forces. As has been seen above that the scheme was not really linked to market forces, rather, the sale and repurchase prices were administered by the Trust, particularly the complainant who invested in the year 1999 had to remain invested till 2002 though the scheme itself was suspended from May 2001 and ultimately foreclosed finally in the year 2003 and such complainant could not reap the benefit of the scheme for the full lock-in period of 3 years. Due to the lock-in period of 3 years, the complainant could not take advantage of the market forces and could not come out of the scheme when he so desired and had to remain invested compulsorily under the scheme though the scheme itself did not continue for 3 years. No such condition was mentioned in the bulletin in the year 1999 when the complainant made the investment. It was expected that the scheme will continue for 3 years and the purchaser will get the normal dividend and ultimately the repurchase price. It cannot be argued that the scheme was suspended in May 2001 and finally foreclosed in the year 2003 due to directions of the Parliamentary Committee or of the Government, because, from the point of view of the purchaser of units, this is purely unfair trade practice on the part of the opposite party because the scheme was contracted for 3 years but the scheme was suspended midway and finally foreclosed and converted into a new scheme which was not as profitable as the main scheme.

33. For the purchaser of units in 1997, this would not make much of a difference because it was open to the purchaser that he could have withdrawn from the scheme before the scheme was foreclosed because 3 years were completed in the year 2000 which was before the foreclosure of the scheme in May 2001. This investor has invested only rupees 1 lakh in the year 1999 and therefore the unfair trade practice as examined above applies only on rupees 1 lakh for this investor.

34. Based on the above discussion, it is seen that in OP No. 358 of 2002, the units were purchased in the year 1999 and therefore the complainant is affected by the unfair trade practice adopted by the opposite party by foreclosing the scheme within the lock-in period of 3 years. Clearly for an unfair trade practice, it cannot be said that the unfair trade practice has been adopted on good faith. Therefore, The allegation of unfair trade practice as proved above will be outside the purview of section 37 of the UTI Act.

35. As regards the compensation for this unfair trade practice, it is seen that the complainant has not received the dividend for the year 2002 though he was to remain invested due to the condition of lock-in period of 3 years. It is seen that the complainant has received Rs.97,70,596/- as dividend from 1999 to 2001. Clearly the dividend for the year 2002 cannot be given at this rate because by that time, the markets had collapsed and valuation of the units on NAV basis had fallen heavily. In these circumstances, I deem it appropriate to award Rs.8 lacs to the complainant as compensation for the unfair trade practice adopted by the opposite party.

36. Coming to the OP No. 95 of 2003, it is seen that in this case the US 64 units of rupees 70 lakhs have been purchased in the year 1997 and units for rupees one lac have been purchased in the year 1999. Clearly for the units purchased in the year 1997, the complainant had sufficient time to offer units for repurchase after the lock-in period of 3 years. The unfair trade practice will only be applicable on the purchase of Rs. 1 lakh which was done in the year 1999. The complainant can be entitled to a compensation of Rs. 5000/- only.

37. Thus, based on the above discussion, the OPs are allowed as under:

OP No. 95 of 2003

The opposite party UTI is directed to pay Rs. 5,000/- (rupees five thousand only) along with interest @6% per annum from the date of filing of the complaint till actual payment to the complainant as well as Rs.10,000/- as cost of litigation within a period of 45 days from the date of receipt of this order.

OP No.358 of 2002

The opposite party UTI is directed to pay Rs.8,00,000/-( rupees eight lacs only) along with interest @6% per annum from the date of filing of the complaint till actual payment to the complainant along with Rs.10,000/- as cost of litigation within a period of 45 days from the date of receipt of this order.