National Consumer Disputes Redressal
Punjab University vs Unit Trust Of India on 17 October, 2006
NCDRC
National
Consumer Disputes Redressal Commission
New Delhi
ORIGINAL PETITION NO. 97 OF 2004
Punjab University
Through Its Registrar,
Sector 14,
Chandigarh. . Complainant
Versus
.1. Unit Trust of India,
through Shri L.M. Negi,
Chief
Manager,
Jeevan Prakash
( LIC Building)
Sector 17,
Chandigarh.
.2. The President,
D.B.D.M.,
Corporate
Office,
UTI Mutual
Fund,
Mumbai,
Registered
Office at
13, Sir Vithal Das Thackersey Marg,
(New Marine
Lines),
Mumbai 20.
.3. Manager, Unit
Trust of India,
(Main
Branch), Commerce Centre-I,
29th
Floor,World Trade Centre,
Cuffe Parade,
Colaba, Mumbai
400 005. Opposite Parties
BEFORE:
HONBLE
MR. JUSTICE M.B.SHAH, PRESIDENT.
MRS.
RAJYALAKSHMI RAO, MEMBER.
For the Complainant : Mr.
P.C. Jain, Advocate with
Mr. R.K. Chauhan, Advocate.
For the
Opposite Parties : Mr. Amrendra
Sharan, Additional
Solicitor General with Mr. R.
Shakdhar, Senior Advocate,
Mr. J.N. Patel, Ms. Namita Sood,
Mr. Dinesh
Bhardwaj,
Advocates.
17.10.2006
O R D
E R
M.B.SHAH, J. PRESIDENT
This
complaint is filed by the Punjab University contending that
there are about 4000 employees and Provident Fund and other benefits are
granted to them as per the Rules. The
said amount was required to be invested at a safe place. For this, Unit Trust of India (UTI for short)
made an offer in the year 1993 under the Institutional Investors Special Fund
Unit Scheme 1993 (IISFUS 1993 for short) in which scheme out of the
funds of the Provident Fund of those employees, the complainant invested Rs.9.6
crores because there was protection of original
capital by guarantee and there was assured return of 16% p.a. payable
half-yearly.
That
amount was invested with the reinvestment option of the dividend and the said
amount became Rs.19.78 crores on termination of the
scheme by the UTI on 31.3.1998.
Thereafter, in
the year 1998, another Scheme, i.e. IISFUS-98 was pronounced by the UTI and at
the suggestion of the Chairman, UTI, the
Complainant invested the said amount of Rs.19 Crores,
which was received by it on the maturity
of IISFUS 1993 Scheme with a specific
understanding that dividend which was
receivable during the Scheme period
would be reinvested and it would be
refunded with a minimum interest @ 13.5% per annum.
The
Dispute in this complaint
revolves on the question
as to whether the Complainant is entitled to interest @ 13.5% per annum on the reinvested amount, that is to say, on
the dividend which is reinvested with the UTI.
It is the contention of the Complainant
that they were assured that the dividend income would be
reinvested in further units at NAV (Net Asset Value) and on that units also, in any case, they were
assured that they would get minimum return @ 13.5% as well as
it would be repurchased at
par i.e. @ Rs.10/-. On the said basis, the Complainant has filed
this complaint claiming is as under:
The amount paid to the Complainants by the UTI and its Calculation is as
under:
Date of Investment
Amount Invested
Units/ ADUs
Allotted
'
23.03.1998
19.00
CRORES
10.00
19000000.00
Div. Declaration
@13.50%
Reinvested
NVA
Rate
IST.DIV.(30.06.98)
Rs.7027397.26
9.59
732783.864
IIND DIV. (30.06.99)
RS.26639258.22
9.75
2732231.612
IHRD DIV (30.06.00)
I
RS.
30327770.89
10.36
2927391..013
IVTH DIV.(30.6.01)
RS.34279748.76
7.86
4361291.191
VTH DIV..
(30.06.02)
RS.40167491.87
5.63
7134545.625
Last DIV (30.06.03)
RS.45706049.41
3.8471
11880650.207
Maturity amount
calculated Parent, Units
19000000 @Rs.10.00
per unit
RS.19000000.00
AIU units @Rs.3.8471
per unit on the basis of
NAV
RS.114523910.23
Total amount
RS.304523910.23
As capital
original Units 1.90
Crores
(Rs.19 Crores)
Additional Units purchased on 2.97 Crores
the basis of dividend
-----------------
4.87 Crores ========= It is claimed that the UTI ought to have paid them Rs.48.70 Crores [4.87 Crore Units x Rs.10 (at face value)]. In the alternative, the amount on dividend basis would be Rs.18.41 Crores at the rate of 13.5% secured dividend (plus) original amount of Rs.19 Crores. In all, Rs.37.41 Crores.
As against this, the UTI has paid only Rs.19 Crores for 1.90 Crores of units (original capital) plus Rs.11.45 Crores, on the basis of Net Asset Value (NAV) at the rate of 3.84 per Unit for 2.97 Crores of units purchased from that dividend/return. In all, it has paid Rs.30.45 Crores.
I. Whether investment in a UTI Scheme would be a commercial activity?
At the time of hearing, Mr.Saran, learned Additional Solicitor General (ASG) raised a preliminary contention at the belated stage (we use the term belated stage because the matter was previously heard twice and no such contention was raised) that the complaint was not maintainable under the Consumer Protection Act, 1986, (C.P. Act for brief) as investing amount with the UTI was a commercial activity.
We will deal with the preliminary contention first. The question, therefore, which requires consideration is whether the investment made by the Complainant is for commercial purpose. For this purpose, reliance was placed on the Preamble of the UTI Act, 1963, which is as under:
An Act to provide for the establishment of a Corporation with a view to encouraging saving and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities.
Mr. Saran, the learned Additional Solicitor General, therefore, contended that the Corporation is established to acquire holding, management and dispose of securities. He contended that as soon as the amount is invested, the investor gets units which are in the nature of share certificates and he is entitled to share in profits. Therefore, it is a commercial purpose. For contending that investment by the Complainant is for commercial purpose he relied upon various decisions.
In our view, the aforesaid submission has no force.
Whether a particular activity of a person/complainant is for commercial purpose or not, depends upon the facts of each case. Therefore, the judgments which are sought to be relied upon by the learned Counsel, would have no bearing. We would only state that for years together this Commission has consistently taken a view that investment in the units of UTI cannot be termed as commercial activity. If the contention of the UTI is accepted, the investment in the banks or financial institutions would be required to be excluded from the purview of the Consumer Protection Act, 1986. The Bank or financial institution accepts deposits for carrying out commercial activity, otherwise, there is no basis of giving interest to the depositors.
For this purpose, we would refer to the relevant part of the definition of the word consumer under Section 2(1)(d) is : consumer means any person who hires or avails of any services for a consideration which has been paid .
The exception carved out is - service does not include a person, who avails of such services for any commercial purpose. From the aforesaid definition, firstly, it would mean that Complainant who has availed the services of the UTI for earning income by investing the money, he would be a consumer. The question would be whether by investing money has he availed the services for any commercial purpose? This has to be read along with the meaning given to the word service under Section 2(1)(o) which provides that service means service of any description which is made available to potential users and includes .. facilities in connection with the banking, financing, insurance, transport, processing, supply of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information ... However, it is made clear that this would not include rendering of any service free of charge or under a contract of personal service.
From the aforesaid definitions, it would be clear that - investor would be a consumer because he hires or avails of service which is to be rendered by the UTI - Consideration is deposit or investment of money. Encouraging saving and investment and participation in the income/profit/gains is the object and purpose of the UTI Act, 1963.
A person who invests with the UTI is saving money for getting some return but has no role to play after investment except to receive the return in the form of dividend on the basis of profit and gains accruing to the UTI. He has no role to participate in the management, business or commercial activity of the UTI.
Further, the investment with the UTI is something akin to depositing/investing the funds with a bank or a financial institute.
The bank or the financial institute in turn uses it for commercial activity by disbursing loans, etc. But, a person who invests or deposits with the bank has no other role to play except to deposit the amount. And, that is the reason why, by inclusive definition Section 2(1)(o) specifically provides that service of any description rendered by a bank or a financial institution would be covered by the provisions of the Consumer Protection Act, 1986. If such an investment or deposit is excluded by holding that bank or financial institute is carrying on commercial activity then the inclusive definition of Section 2(1)(o) would be nugatory. The person who invests the amount with the UTI or a bank for earning interest or dividend is not carrying out any commercial activity. He only invests the amount. The bank or the UTI may be carrying on commercial activity with the funds invested by a consumer. But, in such cases, his only participation is investment. The bank or financial institution accepts the deposits for carrying out commercial activities. Otherwise, for them, there is no basis of giving interest to the depositors. The UTI is one of such financial institutions, which, in our view, is covered under Section 2(1)(o) of the Consumer Protection Act, 1986.
Learned Additional Solicitor General, Mr.Saran, in support of his contention referred some of the judgments of the Apex Court. In our view, as stated above, whether a particular activity of a person Complainant is for commercial purpose or not depends upon the facts of each case. Therefore, it is not necessary to discuss all the judgments in detail.
However, we would refer to Laxmi Engineering Works Vs. PSG Industrial Institute (1995) 3 SCC 583. In that case also the Apex Court while discussing similar contention observed that explanation added to Clause 2(1)(o) is only explanatory and is more in nature of clarification. While discussing this aspect, the Court referred to its earlier decision rendered in Lucknow Development Authority Vs. M.K.Gupta (1994) 1 SCC 243 wherein the Court observed as under:
To begin with the preamble of the Act, which can afford useful assistance to ascertain the legislative intention, it was enacted, to provide for the protection of the interest of consumers. Use of the word protection furnishes key to the minds of the makers of the Act. Various definitions and provisions which elaborately attempt to achieve this objective have to be construed in this light without departing from the settled view that a preamble cannot control otherwise plain meaning of a provision. In fact the law meets long-felt necessity of protecting the common man from such wrongs for which the remedy under ordinary law for various reasons has become illusory.
Thereafter, the Court has referred to the dictionary meaning and has arrived at the conclusion that purchase of Universal Turning Central Machine by the Laxmi Engineering Works was for commercial purpose as it was for carrying out commercial activity, and, that the said machines purchased were not goods for use by itself exclusively for the purpose of earning livelihood by means of self-employment. There is no discussion with regard to investment of funds in a bank or a financial institution, such as the UTI.
The next decision which is referred to is Morgan Stanley Mutual Fund Vs. Kartick Das (1994) 4 SCC 225. In that case one of the questions which arose was whether the prospective investor could be consumer within the meaning of the Consumer Protection Act, 1986?
After discussing the mutual fund scheme framed, the Court held that a fortiori, an application made for allotment of shares cannot constitute goods. In that context, the Court observed: Till the allotment of shares takes place, the share do not exist. Therefore, they can never be called goods. The Court held: Therefore, it is after allotment, rights may arise as per the contract (Articles of Association of Company) but certainly not before the allotment. At that stage, he is only a prospective investor in future goods. The Court finally held: the share means a share in capital - The object of issuing the same is for building up capital. To raise the capital means making arrangements for carrying on the trade. It is not a practice relating to the carrying of any trade. Creation of share capital without allotment of share does not bring shares into existence. Therefore, our answer is that a prospective investor like the Respondent or the association is not a consumer under the Act.
In our view, the aforesaid conclusion supports the view which we are taking. In the present case, instead of shares, UTI issues units which form part of the capital/corpus which is to be utilized for making arrangements for carrying on the trade or commercial activity as contemplated by the Act. By investing the money with the UTI the Complainant has only assisted the UTI in raising or arranging for capital which may or may not be used for some time for carrying out the trading activity by the UTI. In that part of the activity, the investor has no say.
The next judgment relied upon is New Delhi Municipal Council Vs. Sohan Lal Sachdev (2000) 2 SCC 494. In that case, landlord let out the premises of first floor and barsati floor to a party for running a guest house. The Court was required to consider whether the premises for running a guest house was appropriately classifiable as commercial and not as domestic user. In that context, the Court observed that there is no definition given to the word commercial, in the Act or the Rules, and, therefore, referred to the dictionary meaning, and held that use for which the building was put by the keeper of the guest house would be for commercial purpose, as the user of the premises is relevant for determination of the question.
The Court also referred to Strouds Judicial Dictionary, 5th Edn., where the term commercial is defined traffic, trade or merchandise in buying and selling of goods. If we apply the said definition, it cannot be said that investment of funds by the Complainant with the UTI is for carrying out any trade by the Complainant. Trading activity is carried out only by U.T.I. Hence, that judgment would have no bearing in the present case.
Finally, if we accept the contention as raised by the learned Counsel Additional Solicitor General, it would mean that we would be excluding the protection which is sought to be given by the Consumer Protection Act, 1986 to the consumers in case of deficiency in service by the banks, financial institutions or Insurance Companies. This would frustrate the main object of the Act.
II. On merits:
In support of the claim for additional amount, the Complainant has relied letter dated 9.3.1998, written by the Chairman, UTI, wherein it was suggested for reinvestment of the said amount with a specific assurance for a return income of 13.5% p.a. under the scheme for 5 years. The complainant has heavily relied upon the following para of the said letter:
IISFUS-93 must have been a rewarding investment experience for you as the returns (16.67% annualized) offered by the fund were very good. I hope this would have reinforced your confidence in UTI and that you would like to continue investing with us.
We are pleased to offer you the option of converting the maturity value of your investment, either wholly or partly, into a new scheme viz. IISFUS-98. We are assuring a return of 13.50% p.a. under this scheme for all five years. The abridged Terms of Offer for IISFUS-98 are enclosed.
Thereafter, for investment the complainant filled in the form on 27.3.1998 wherein the material part is as under:
We are registered holders of above mentioned units under IISFUS-93. We agree to the terms of offer for conversion from IISFUS-93 to IISFUS-98.
We wish to : (please tick)
(i). Convert the maturity amount to IISFUS-98 as follows : (Minimum amount for conversion under each option is Rs.10,00,000/-).
A. Annual Income Option Amount Rs..
[investors can opt for more than one option also, subject to minimum investment per option of Rs.10,00,000/-]
(ii). Reinvestment Option - Amount Rs.19,00,00,000/- (please strike out whichever is not required] _______ the balance Amount Rs.78,26,299.94 (if any) Again the complainant has heavily relied upon the terms of offer by IISFUS 1998. The relevant part of the said terms is as under :
IISFUS-98 is a five year close ended income oriented scheme offering 13.5% payable annually for all the five years of the scheme.
MODE OF INCOME DISTRIBUTION The Trust shall pay an assured return of 13.5% p.a. for all the five years of the scheme. The income for the first year will be paid in July 1998. The income distribution for the subsequent years will be paid in July each year and for the balance period from 1st July 2002 to 31st May 2003 the income distribution will be paid in May 2003.
There is an option for reinvestment of income at the prevailing NAV (without any sales load).
On maturity it is guaranteed that the repurchase price will not be less than the par value of units i.e. Rs.10/-.
However, there is no such guarantee for premature repurchase and the repurchase price will depend on NAV. Income assured under the Scheme and protection of capital on maturity is guaranteed by the Development Reserve Fund of the Trust.
Finally, with regard to the risk factors, it has been stated as under
:
RISK FACTORS All investments in units of the Scheme are subject to market risks and NAV of the Scheme may go up or down depending upon the influence of market forces on the Schemes portfolio. Past performance is not an indication of future results. IISFUS-98 is only the name of the Scheme and does not in any manner indicate the quality of the scheme. Please read the offer document of the scheme before investing and retain the terms of offer for future reference.
Next are the terms and conditions of the offer of document by the UTI upon which reliance is placed. In the said document the objective of the scheme is stated as under:
OBJECTIVE OF THE SCHEME This is a five year close ended Income oriented scheme which allows exit after three years at NAV based price. The scheme is for institutional investors who want to invest large amounts in an exclusive scheme.
One of the highlights is as under:
It is guaranteed that the capital invested in the scheme will be protected on maturity i.e. units will not be redeemed below par. There is no such guarantee for premature repurchases and the repurchase price in such cases will be based on the prevailing NAV.
This document also provides for method of repurchase of units in para-X. Relevant part of the same is as under :
Repurchase of units:
(1)(i) There shall be no repurchase of units during the first three years of the scheme i.e. upto 31st May 2001.
Repurchase price shall be at a discount not exceeding 5% to the historic weekly NAV. The repurchase price valid for Monday to Sunday of a week is based on the NAV of the previous Wednesday. The repurchase price shall be declared once every week commencing from 1st June 2001. It is guaranteed that the capital invested in the scheme will be protected on maturity i.e. units will not be redeemed below par. There is no such guarantee for premature repurchases and the repurchase price in such cases will be based on the prevailing NAV.
One of the controversial terms which requires consideration is para-XXVII which is for reinvestment of income distribution in further units, which reads as under :
Reinvestment of income distribution in further units The unitholder shall while applying for units or thereafter have the option to reinvest the income receivable in respect of the units so held in further units. In the event of an exercise of such an option the whole of the income distributable instead of being paid to the unitholder in the manner provided in Clause XXVI hereof shall, after deduction of tax, if any, be reinvested in further units at NAV (without sales load) prevailing in the first week of July. A statement detailing the income distributable, tax deducted, if any, and the units allotted in lieu thereof shall be forwarded to the unitholder. No unitholder shall be entitled to call for the issue of a Unit Certificate in respect of the units so allotted. A unitholder who has opted for the reinvestment facility as aforesaid shall on an application in writing and on surrender of the last statement issued be permitted to have the units to its credit repurchased at the repurchase price prevailing then. A unitholder who has repurchased the reinvested units may continue to avail of the reinvestment facility in respect of the income distributable for the subsequent years. The units allotted under the reinvestment facility under this clause are not subject to the conditions and stipulations governing the parent units in respect of the minimum holding, repurchase are other matters.
The entire case depends upon the interpretation of the aforesaid clauses.
Submissions:
It is the contention of the learned Counsel for the complainant that the complainant was entitled to have secured dividend at of 13.5% p.a. on the capital investment and also on the income (dividend), which was reinvested by purchasing units.
As against this, it is the contention on behalf of the UTI that the complainant was entitled to receive the guaranteed dividend at the rate of 13.5% on the capital and with regard to the income (dividend), which is reinvested by repurchasing the units, the UTI is required to repurchase the same at Net Asset Value (NAV).
In our view, considering the terms of the offer, the contention raised by the Complainant cannot be accepted. Because, on the dividend which was invested for purchase (repurchase of the units) of the units, there was no guarantee that it would be repurchased at face value. Those units were to be repurchased on the basis of NAV. At the relevant time when the units were encahsed NAV, as stated above, was only Rs.3.8471 and on that basis, UTI has paid Rs.11,86,00,650/- to the Complainant. This would be in consonance with the fact that units which were purchased from the return/dividend were purchased not on the basis of the face value, but on the prevailing market price of the units, i.e. the NAV.
It is true that in the letter dated 9.3.1998 written by the Chairman of the UTI to the Complainant, it is mentioned we are assuring the return of 13.50 per cent p.a. under the scheme for all the five years.
However, there is a further line to the effect that the abridged terms of offer for IISFUS 98 were enclosed.
The terms of the offer specifically provides that the UTI would pay an assured return of 13.5% p.a. for all the 5 years of the scheme. The said return (income) for the first year was agreed to be paid in July, 1998. Thereafter, income for the subsequent years was to be paid in July each year. The balance period from 1st July, 2002 to 31st May, 2003 the income was to be paid in May, 2003.
After this, option is given to the investors to reinvest the income at prevailing NAV. The controversial clause is - on maturity it is guaranteed that repurchase price will not be less than the par value of the units, i.e. Rs.10/-. However, there is no such guarantee for premature repurchase and the purchase price will depend on NAV. Further, income assured under the scheme and protection of capital on maturity is guaranteed by the Development Reserve Fund of the Trust.
With regard to capital invested, admittedly, the units are repurchased at par value of unit, i.e. Rs.10 and not at NAV.
Thereafter, the terms and conditions are provided in offer document. One of the highlights provides that capital invested in the scheme will be protected on maturity and the units would not to be redeemed below par.
The next part provides that there is no such guarantee for premature purchase and the repurchase price in such case will be based on prevailing NAV. However, it is made clear that there is no such guarantee for units purchased from the return/dividend.
The learned Counsel appearing on behalf of the Complainant submitted that in the present case there is no question of premature repurchase; and, therefore, the aforesaid condition will not be applicable.
It is true that there is vagueness in this term. There is no clarification whether the said term is applicable to premature repurchase of the units or repurchase of units purchased from the yearly return, i.e. dividend. However, this is to be read along with para-X which provides method of repurchase of units. In this also, the same phraseology is used as stated above. However, the clause makes it clear that return or dividend at the rate of 13.5% p.a. is to be reinvested on the basis of NAV, that means, if the price of the unit is Rs.9/-, the income would be invested in units and the purchase price for each unit would be Rs.9/- even though its face value is Rs.10/-.
Thereafter, para XXVII provides for reinvestment of income distributable in further units. It specifically provides that: A unit holder who has repurchased the reinvested units may continue to avail of the reinvestment facility in respect of the income distributable for the subsequent years. The units allotted under the reinvestment facility under this clause are not subject to the conditions and stipulations governing the parent units in respect of the minimum holding, repurchase are other matters.
Conclusion:
From the aforesaid documents it can be held that:
(1). The assurance given by the letter dated 9.3.1998 by the Chairman of the UTI was with regard to return of 13.5% p.a. on the capital invested;
At that time also along with the said letter the terms of offer were enclosed.
(2). The said terms gave an option to the investor to receive the amount of 13.5% p.a. in cash or to reinvest the said return by purchasing UTI units;
(3). The terms of offer also provide that the option for reinvestment of income/return would be on prevailing NAV without any sales load;
(4). The terms of offer further makes it clear that on maturity the repurchase price of the units will not be less than the par value of the units, i.e. Rs.10/-, with a specific clarification that there was no such guarantee :
(a) for premature repurchase; and
(b) the repurchase price will depend upon NAV.
This repurchase price is to be read in context of the units purchased out of return/dividend on NAV basis.
(5). The offer document makes it clear that:
(a) the scheme was income oriented and it allows exit after three years at NAV based price, i.e. premature repurchase of units by the UTI.
(b) One of the highlights makes it clear that guarantee was given only with regard to the capital invested in the scheme by stating that units will not be redeemed below par;
(c) It also makes it clear that for premature repurchases and the repurchase price, i.e. to say, repurchase of the units which were purchased from the return/dividend would be on prevailing NAV.
(6). The last clause XXVII makes it further clear that the units allotted under the reinvestment facility are not subject to the conditions and stipulations governing the parent units (units purchased from the capital amount) in respect of the minimum holding, repurchase and other matters.
This, undoubtedly, would mean that for reinvestment of the dividend/return the conditions and stipulations governing the parent units (units purchased by investing capital) are not made applicable.
Hence, from the aforesaid documentary evidence for the scheme of investment, it can be held that the UTI was required to return the capital invested by the Complainant, i.e. Rs.19 Crores; and, the UTI was required to pay return on the said units at the rate of 13.5%. However, in case where the return is reinvested by purchasing units at NAV, its repurchase price would be only on the basis of NAV price. That has been undisputedly done in the present case.
In view of the above discussion, we hold that (a) the complaint under the Consumer Protection Act, 1986 against the UTI for deficiency in service by it, is maintainable; and (b) on merits, the complaint requires to be dismissed.
In the result, the complaint is dismissed. There shall be no order as to costs.
Sd/-
.J. ( M.B. SHAH ) PRESIDENT Sd/-
...
(RAJYALAKSHMI RAO) MEMBER