State Consumer Disputes Redressal Commission
Mohinder Partap Vasudeva vs M/S Almondz Capital Markets Private ... on 17 December, 2012
STATE CONSUMER DISPUTES REDRESSAL COMMISSION,
PUNJAB, DAKSHIN MARG, SECTOR-37A, CHANDIGARH
2nd Bench
FIRST APPEAL NO. 878 OF 2010
Date of Institution: 19.5.2010
Date of Decision: 17.12.2012
Mohinder Partap Vasudeva son of Sh. Uttam Chand resident of 10-E,
Tagore Nagar, Ludhiana.
.....Appellant
VERSUS
M/s Almondz Capital Markets Private Limited, S.C.O. 16 & 17, 3rd
Floor, Fortune Chamber, Feroze Gandhi Market, Ludhiana through its
Branch Manager.
.....Respondent
First Appeal under Section 15 of
the Consumer Protection Act,
1986 against the order dated
27.4.2010 passed by the District
Consumer Disputes Redressal
Forum, Ludhiana.
Before:
Sh. Inderjit Kaushik, Presiding Member
Sh. B.S. Sekhon, Member Present:
For the appellant : Sh. Sachin Vasudeva, Advocate For the respondent : Sh. Atul V. Sood, Advocate BALDEV SINGH SEKHON, MEMBER This is an appeal against the order dated 27.4.2010 passed by the District Consumer Disputes Redressal Forum, Ludhiana (hereinafter called as "District Forum") vide which the complaint of the complainant-appellant (hereinafter called as "appellant") was dismissed.
2. Briefly stated, the facts of the case are that the respondent was a recognized stock broker of Security and Exchange Board of India (hereinafter called as "SEBI") and the appellant was one of the clients First Appeal No. 878 of 2010 Page 2 of 13 of the respondent. The appellant entered into a Member Client Agreement (MCA) with the respondent on an open trading account vide client code No. 140 M 001 for sale and purchase of shares/stocks. Sh. Gaurav Mehra, Authorized Representative of the respondent used to place orders on behalf of the appellant for purchase of shares and to collect cheques for margin money from the appellant after finalization of these on behalf of the appellant. The appellant had always worked in stocks within margin and had been regularly paying margin money to the respondent through cheques drawn on HDFC Bank, Punjab National Bank (PNB) and Oriental Bank of Commerce (OBC), Ludhiana and the cheques were always accepted by the respondent without any objection.
3. On 18.1.2008, the appellant was holding 10310 shares i.e. five lots of shares of Ambuja Cement Limited, 250 shares one lot of shares of TCS and 1200 shares i.e. two lots of shares of Wockpharma, 400 shares i.e. one lot of shares of Hero Honda Ltd., 1000 shares i.e. one lot of shares of Hindustan Lever Ltd., 1350 shares i.e. two lots of shares of Tata Chemical Ltd., 275 shares i.e. one lot of shares of Tata Tea Ltd. On 21.1.2008, the appellant further purchased 275 shares of Tata Tea Ltd. and 250 shares of TCS @ 765 and Rs. 894 respectively. It was pleaded that he had already paid sufficient margin money at the time of purchase of shares on 18.1.2008 as per statement of accounts regularly maintained by the respondent, which showed credit balance in favour of the appellant. The appellant used to give advance cheques to the respondent drawn on HDFC Bank, PNB and OBC towards expected margin money required and these cheques used to be accepted by the First Appeal No. 878 of 2010 Page 3 of 13 respondent without any objection. The appellant also gave cheque No. 905712 dated 19.1.2008 for Rs. 1,50,000/- to the respondent on 19.1.2008, which was duly entered in the statement of accounts of the appellant maintained by the respondent in its regular bank accounts. On 21.1.2008, account of the appellant was showing credit balance. As per agreement executed between the parties, margin money was to be paid at the closing rate and generally before the commencement of the next trading day. However, respondent illegally and to make wrongful gains sold the aforesaid shares on 22.1.2008 without informing the appellant and inspite of receipt of margin money on 22.1.2008 worth Rs. 7,07,000/- through cheques. These cheques were deposited by the appellant with the respondent on 22.1.2008 on coming to know that the market was trading down. The appellant was, however, surprised to know that his aforesaid shares had been sold by the respondent despite receipt of margin money and despite the fact that his account was showing credit balance. On enquiry from respondent, its Branch Manager told the appellant that it was not possible for the respondent to hold the shares of the appellant as it got clearance of cheques of PNB and OBC on 3rd day and, therefore, it had sold the shares of the appellant. The cheque of PNB and OBC had been earlier accepted by the respondent throughout without any objection and none of these cheques was ever dishonoured by the bank of the appellant. The aforesaid cheque of Rs. 7,07,000/- was eventually cleared on 23.1.2008 and again the account of appellant was showing credit balance. It was pleaded that the sale of aforesaid shares of the appellant on 22.1.2008 at the lowest price by the respondent shows that the intention of the First Appeal No. 878 of 2010 Page 4 of 13 respondent was malafide and fraudulent because these were sold by the respondent inspite of receipt of margin money and inspite of the fact that the account of the appellant was showing credit balance on 22.1.2008. It was, therefore, alleged that the respondent was negligent and deficient in service and had duped the appellant for making wrongful gains. Due to this unfair trade practice, deficiency in service and malafide act of the respondent, the appellant suffered a loss to the tune of Rs. 9,64,161.25/- as depicted in the statement of accounts maintained by the respondent itself.
4. Hence the complaint before the District Forum seeking directions to the respondent to pay the appellant an amount of Rs. 9,64,161.25/- with interest thereon @ 18% per annum till realization alongwith compensation for mental agony and harassment to the tune of Rs. 65,000/-.
5. Upon notice, the respondent contested the complaint and filed written statement on 12.2.2009 and also filed additional reply/written statement dated 24.3.2009. The respondent took preliminary objections that the appellant was not a consumer as defined under Section 2 (1) (d) of the Consumer Protection Act, 1986 (hereinafter called as "the Act"), as such, the complaint was not maintainable. Trading of shares of security in stock market is inherently speculative and is purely commercial in nature and is governed by the provisions of the SEBI Act, 1992. Due to that, complaint was not maintainable. Reliance was placed upon the judgment of Hon'ble National Commission in "Unit Trust of India V/s Sabitri Devi Agarwal [ II (2000) CPJ (NC)]". The SEBI Act prescribes various disputes relations mechanism such as First Appeal No. 878 of 2010 Page 5 of 13 arbitration, grievance, sale and OMBDSMAN where the matter is resolved through legal proceedings. Thus, the appellant got other options to approach the aforesaid authorities only. Section 26 (1) of the SEBI Act interalia prohibits entertaining or adjudication by any court upon a disputes covered under the SEBI Act. As per decision of Hon'ble Supreme Court, in the event of any conflict in the general law and the special law, it is the special law which is applicable.
6. The respondent admitted that it was a recognized stock broker of SEBI and the appellant became its client and started trading in "Futures and Options", which was highly speculative and risky segment. It was, however, denied that the respondent firm sold the aforesaid shares of the appellant with malafide intention or to procure unlawful gains or that the sale was an act of unfair trade practice or deficiency in service on its part. It was pleaded that in this scheme the investor could obtain Future Contract (FC) by paying only a small amount of margin (say 15%) equivalent to the value of the FC. On account of this low margin such contracts are "leveraged" or "geared" investment. Their riskyness stems from the fact that any sharp movement in the value of the FC has the ability to either reap huge profit or huge loss relevant to this initial investment. To prevent systematic risk, the stock exchange collect margins in real time from brokers who also seeks margin and likewise from their clients particularly when markets are volatile as was the case on 22.1.2008 when the stock market closed within minutes of opening of amount of a dramatic fall of 10% in the stock value. Coming in the wake of already dramatic fall of 1400 points on the BSE on 21st January, 2008 (which was characterized as possibly worst fall in the First Appeal No. 878 of 2010 Page 6 of 13 Indian trading history), the plummeting stock value brought pressure on margins. At all such times, the client is required to maintain margin requirements in real time just as the broker is also expected to pay higher margins to exchange in real time. If investor does not meet the required margins and the value of FC goes down by an amount i.e. greater that than the margin provided by the investor then the broker is out of pocket and often ends up bearing this loss. It is clearly stated in the MCA between the parties that in case the client pays margin money by way of cheques, then he would be allowed trading only on realization of the cheque. Therefore, the cheque is not considered as equivalent to cash. The respondent relied on the clause 29 (v) of the MCA which stipulates as under:
"Payment through cheque:
In case where the payment by the client towards margin is made through a cheque issued in favour of ALMONDZ, any trade(s) would be executed by ALMONDZ only upon realization of the funds of the said cheque or at the discretion of ALMONDZ. The client agrees to mention his client code along with his name on the reverse of any instrument through which he makes the payment to ALMONDZ."
7. The respondent further pleaded that span of margin and exposure margin levied by the exchange on the margin on 22nd January, 2008 on the above contracts was Rs. 7,81,396.98/- as against this, the appellant had a clear credit balance of Rs. 5,64,194.41/- in his client account with the respondent (this clear credit balance does not take into account the cheques of Rs. 1,60,000/- which was under clearing). On First Appeal No. 878 of 2010 Page 7 of 13 account of large adverse movement in stock prices on 22nd January, 2008, the margin of market loss at 1:46 PM on the FCs of the appellant was Rs. 4,82,767.51/-. The credit balance in the appellant's ledger was clearly inadequate to meet this loss as well as the span margin required. Since the market was on downward spiral from the previous day, the respondent had no option but to terminate the outstanding positions when the market losses were already 85% of the clear credit balance in the appellant's accounts.
8. The respondent had further pleaded that the total fund requirement of the appellant as on 22.1.2008 was Rs. 12,64,164.49/- against the requisite margin while the available credit balance on that date appeared to be Rs. 5,64,194.41/- as per ledger account. A cheque is always considered clear funds only after its realization in the commercial parlance. It was due to this reason that because the cheque of the appellant was still under clearance due to volatility in the share market on 22nd January, 2008 the positions were scared of before availability of clearance of the appellant's cheques/funds in his account that could top up the market to market losses. The degree of risk that a position carries is monitored on an online real time basis and not on an end of the day basis. The position was scared of as there was no sufficient margin available in the accounts of the appellant. Thus, the shares of the appellant were sold neither illegally nor for wrongful gains on to meet initial margin requirements. Dismissal of the complaint was prayed.
9. The parties led their evidence by way of affidavits and documents.
First Appeal No. 878 of 2010 Page 8 of 13
10. The learned District Forum, after going through the pleadings of the parties and evidence on record, dismissed the complaint of the appellant on the ground that the present complaint was not maintainable.
11. Aggrieved by this order, the appellant has come up in appeal.
12. The present appeal is filed on the ground that the appellant has not committed breach of terms and conditions of agreement executed between the appellant and the respondent. The appellant had been depositing cheques drawn on PNB and the same had been accepted by the respondent without any object and no cheque issued by the appellant has ever been dishonoured.
13. It was submitted that the respondent sold the shares of the appellant in utter violation of the terms and conditions of the agreement to make wrongful gains and without even informing the appellant inspite of the fact that the account of the appellant maintained by the respondent was showing credit balance. Selling of shares on 22.1.2008 inspite of receipt of entire margin money on 22.1.2008 amounted to deficiency in service and unfair trade practice. It was further submitted that the clause 2 (A) and 2 (B) of the agreement clearly provides that if the index has moved against share holder then he is required to deposit the amount of loss (notional resulting from such movements) within stipulated time frame generally before commencement of trading next day and if share holder failed to deposit the additional margin by the dead line, broker may liquidate his positions or securities. As per this clause margin money was to be deposited on 23.1.2008 but the appellant deposited the cheque on 22.1.2008 i.e. on the same day when First Appeal No. 878 of 2010 Page 9 of 13 the index had moved down. The finding of the learned District Forum that transactions done by the appellant were speculative in nature and were high risk model of trading was wrong and erroneous. Acceptance of the appeal and setting aside of the impugned order was prayed.
14. Learned counsel for the respondent submitted that there was no merit in the appeal and the same be dismissed.
15. Submissions have been considered. Record has been perused.
16. The admitted case of the appellant is that he had opened a trading account having client code No. 140 M 001. An agreement was executed between the appellant and the respondent regarding the purchase and sale of the shares through the respondent. Sh. Gaurav Mehra, Authorized Representative of the company used to place orders on behalf of the appellant for purchase of shares and used to collect cheques of margin money from the appellant after finalization of deal on behalf of the respondent. The grievance of the appellant is that on 22.1.2008, the respondent illegally and to make wrongful gains sold the shares of the appellant without informing the appellant inspite of receipt of margin money on 22.1.2008.
17. Evidently, the respondent sold the shares of the appellant because the adequate margin money was not available at the time of selling the shares. The respondent had taken a preliminary objection that the appellant was not a consumer as defined in Section 2 (1) (d) of the Act because the trading of shares and securities in stock market is inherently speculative and the same is governed by SEBI Act, 1992.
18. There is no doubt the trading in shares is highly speculative investment and the profits and losses in the trading are unpredictable. First Appeal No. 878 of 2010 Page 10 of 13 The law has been settled by the various State Consumer Commissions as well as by the National Commission that the Act is not for entertaining or compensating speculative transactions or losses. Hon'ble National Commission in the judgment reported as "Unit Trust of India V/s Sabitri Devi Agarwal II (2000) CPJ (NC) 260" had held as under:-
"The consumer Protection Act is not for entertaining or compensating speculative transactions or losses. The complainant took a risk in entering into contract for sale of master shares even before she became the registered owner of them."
19. Hon'ble National Commission, in a recent judgment reported as "Asaithambi V/s Satyam Computer Services Ltd & ors. IV (2012) CPJ (NC) 213", has held as under:-
"8. We are of the considered view that the complainant is not a consumer for the following reasons. Section 2(1)(d) of Consumer Protection Act, 1986, defines the word 'consumer', as follows:
"2(1)(d)--'Consumer' means any person who--
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred First Appeal No. 878 of 2010 Page 11 of 13 payment, when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or
(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promise, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person but does not include a person who avails of such services for any commercial purpose."
[Explanation--For the purposes of this clause, 'commercial purpose' does not include use by a person of goods bought and used by him exclusively for the purposes of earning his livelihood by means of self-employment]."
9. The complainant has nowhere pleaded in the complaint that he is dealing with shares business as "self-employment" for livelihood. Nor it has been alleged that the services provided by respondents were being availed of exclusively for the purpose of his "livelihood", by means of "self-employment", by the First Appeal No. 878 of 2010 Page 12 of 13 complainant. It must be borne in mind that disputes between the parties relating to commercial purposes are excluded under the Act. This view stand fortified by a recent authority of this Commission, reported in Vijay Kumar v. Indusind Bank, II (2012) CPJ 181 (NC).
10. Again, such like question arose for consideration before National Commission in case of Som Nath Jain v. R.C. Goenka & Anr., reported in I (1994) CPJ 27 (NC). In that case, dealing with sale purchase of shares, National Commission expressed serious doubt whether the complaint qua it would be maintainable under the Consumer Protection Act. Because, qua such transactions, elaborate evidence need to be taken regarding purchase and sale of shares, their prevalent price in the market and evidence regarding passing of instructions by client to the broker. Resultantly, the complainants were relegated to get the dispute decided through civil Court.
11. West Bengal State Consumer Disputes Redressal Commission, Kolkata, in case Ramendra Nath Basu V. Sanjeev Kapoor & Anr., reported in I (2009) CPJ 316, qua shares trading has held that transactions between parties do not come under purview of Consumer Protection Act, 1986.
12. Similar view was taken by the Delhi State Consumer Disputes Redressal Commission, New Delhi in case Anand Prakash v. A.M. Johri & Ors., reported in III (2000) CPJ 291, by holding that sale purchase of shares are commercial transactions, so, complainant is not a 'consumer' in such cases. First Appeal No. 878 of 2010 Page 13 of 13
13. For the above said reasons, we see no merit in the revision petition and the same is therefore dismissed."
20. In view of the well settled law, the appellant is held to be not a consumer of the respondent company and the complaint filed by him is not maintainable. Accordingly, the appeal of the appellant is dismissed. The impugned order of the District Forum, which is well reasoned, is upheld. No order as to costs.
21. The arguments were heard on 4.12.2012 and the order was reserved. Now, the order be communicated to the parties.
(Inderjit Kaushik) Presiding Member (Baldev Singh Sekhon) Member December 17, 2012 VINAY