Ms. Chandrika Mahendra Mehta & Ors. vs Sebi

Order Reserved on : 13.01.2021

Date of Decision : 19.01.2021

Appeal No. 288 of 2020

1.

Rakesh Bhatia B 1604, Oberoi Woods, Mohan Gokhale Road, Mumbai - 400 063.

2. Manju Bhatia B 1604 Oberoi Woods, Mohan Gokhale Road, Mumbai - 400 063. ...Appellants

Versus

1. National Stock Exchange of India Limited Exchange Plaza, C-1, Block G, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051.

2. Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051.

3. Anugrah Shares and Stock Brokers Pvt. Ltd. Anugrah, 103, 1st , Besant Road, Above Sarasvat Bank, Vile Parle (West), Mumbai - 400 056. ...Respondents

Mr. Kunal Katariya, Advocate with Mr. Ravi Vijay Ramaiya, Chartered Accountant and Mr. Sahebrao Wamanrao Buktare, Advocate i/b Shah & Ramaiya Chartered Accountants for Appellants.

2

Mr. Pradeep Sancheti, Senior Advocate with Mr. Sachin Chandarana, Mr. Rashid Boatwalla and Mr. Pruthvi Dhinoja, Advocates i/b MKA & Co. for Respondent No. 1.

Mr. Rafique Dada, Senior Advocate with Ms. Nidhi Singh, Ms. Kinjal Bhatt and Mr. Hersh Choudhary, Advocates i/b Vidhii Partners for Respondent No. 2.

Mr. Dharam Jumani, Advocate with Mr. Suraj Iyer, Mr. Mihir Nerukar and Mr. Jenil Shah, Advocates i/b Ganesh & Co. for Respondent No. 3.

WITH Appeal No. 305 of 2020 Chirag Vinodrai Varaiya 33, Jayanti Apartment, 3rd floor, J.D. Road, Mulund (West), Mumbai - 400 080. ...Appellant

Versus National Stock Exchange of India Limited Exchange Plaza, C-1, Block G, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Pradeep Sancheti, Senior Advocate with Mr. Sachin Chandarana, Mr. Rashid Boatwalla and Mr. Pruthvi Dhinoja, Advocates i/b MKA & Co. for the Respondent.

AND Appeal No. 325 of 2020

1. Ms. Chandrika Mahendra Mehta

2. Mr. Kaushal Mahendra Mehta

3. Sachin Mahendra Mehta (HUF)

1005/1006/1007, Siwah Building, Skyline Oasis, Premier Road, Ghatkopar (West), Mumbai - 400 086. ...Appellants 3

Versus

1. National Stock Exchange of India Limited Exchange Plaza, C-1, Block G, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051.

2. Anugrah Stock & Broking Pvt. Ltd.

(Anugrah) 1st Floor, Nisarg Apartment, Above Saraswat Bank, Besant Road, Vile Parle (West), Mumbai - 400 056

3. Teji Mandi Analytics Pvt. Ltd. (Teji Mandi) 25/B, Udadhi Tarang, Juhu Tara Road, Mumbai - 400 049.

4. Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondents

Mr. J.J. Bhatt, Advocate with Ms. Rinku Valanju, Mr. Pratham Masurekar, Ms. Hetal Jain and Mr. Aditya Shah, Advocates i/b R V Legal for Appellants.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Sachin Chandarana, Mr. Rashid Boatwalla and Mr. Pruthvi Dhinoja, Advocates i/b MKA & Co. for Respondent No. 1.

Mr. Dharam Jumani, Advocate with Mr. Suraj Iyer, Mr. Mihir Nerukar and Mr. Jenil Shah, Advocates i/b Ganesh & Co. for Respondent No. 2.

Mr. Rafique Dada, Senior Advocate with Ms. Nidhi Singh, Ms. Kinjal Bhatt and Mr. Hersh Choudhary, Advocates i/b Vidhii Partners for Respondent No. 4.

4

CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member

Per: Justice Tarun Agarwala, Presiding Officer

1. All the three appeals raise a common issue and

accordingly are being decided together. For facility, the facts in

the appeal of Rakesh Bhatia is being taken into consideration.

2. The appellants are the registered constituents of Anugrah

Stock and Broking Pvt. Ltd. ('Anugrah' for short) who is a

registered broker. On August 9, 2020 a dispute arose between

the appellants and its stock broker Anugrah. It was alleged that

Anugrah defaulted in the payment to the appellant under its

Member Client Agreement. The broker remained unresponsive

inspite of reminders being given by the appellants to settle the

amount. When no response came forth from the broker the

appellant filed a complaint with the stock exchange on August

12, 2020 praying that an Investor Grievance Resolution Panel

('IGRP' for short) be constituted in order to decide the

complaint of the appellants. It is alleged that this complaint was

duly received and registered by the stock exchange. Reminders

were given on August 19, 2020, August 25, 2020 and August

28, 2020. Since no steps were taken by the stock exchange to 5

constitute the IGRP the present appeal was filed praying that the

stock exchange should be directed to comply with the circular

dated September 26, 2013 and constitute the IGRP for redressal

of its complaint.

3. During the pendency of the appeal the respondent issued a

communication dated September 10, 2020 informing the

appellants that they are unable to proceed with the complaint of

the appellants in the absence of any response being received

from the broker. This communication was brought on record

through an amendment application in which the appellants

prayed for its quashing.

4. Similar is the relief claimed by the appellant Chirag

Vinodrai Varaiya in Appeal No. 305 of 2020 praying that

respondents should be directed to comply with the circular of

2013. In the third appeal, Ms. Chandrika Mahendra Mehta and

others have prayed for a variety of reliefs and one such relief is

for the quashing of the communication dated September 10,

2020.

5. In this light we have heard Shri Kunal Katariya, Shri J.J.

Bhatt, the learned counsel for the appellants and Shri Pradeep

Sancheti, the learned senior counsel for respondent NSE and 6

Shri Dharam Jumani, the learned counsel for respondent

Anugrah. Even though the appellants were aggrieved by the

action / inaction of the stock exchange, SEBI was also

impleaded and, on that basis, we have also heard Shri Rafique

Dada, the learned senior counsel for respondent SEBI.

6. The main contention of the appellants is, that once a

complaint is filed and is not resolved within 15 days it is

mandatory for the stock exchange to refer the complaint for

redressal to a committee as per the circular dated September 26,

2013. It was further contended that the right to file a complaint

before IGRP is a vested right given to an investor which right

cannot be taken away through a subsequent circular of SEBI

dated July 1, 2020. It was urged that the appellants has a right to

choose a platform whether to file a complaint for redressal of its

grievances before IGRP or prefer arbitration or file a claim

under the bye-laws. On the other hand, the contention of the

respondent stock exchange is, that once the broker was disabled

or declared a defaulter then no further proceedings relating to

IGRP or arbitration could be conducted pursuant to the issuance

of the circular of SEBI dated July 1, 2020. In this regard the

learned senior counsel Shri Rafique Dada appearing for SEBI

explained that the circular of SEBI issued from time to time was 7

basically to streamline and make more effective the investor

grievance redressal system at the stock exchange. Initially, it

was decided that the stock exchange will constitute IGRP and

resolve the issue within 15 days and if a member is unhappy it

could opt for arbitration. These circulars were amended from

time to time and ultimately by circular dated July 1, 2020 it was

decided that if a trading member is disabled or declared a

defaulter then no further meeting of IGRP or arbitration would

be conducted. It was contended that IGRP was a choice given to

an investor to settle the matter with its broker but where the

broker becomes a defaulter and a large number of complaints

are received then such claims have to be routed through the

Investor Protection Fund and payments are to be made on a pro-

rata basis as it would not be possible nor feasible to pay the

amount under the IGRP mechanism where the broker would

have a limited fund for disposal by the stock exchange.

7. In the light of the aforesaid and before proceeding, it

would be appropriate to consider some of the circulars that were

placed before the Tribunal. By circular dated September 26,

2013 SEBI streamlined and made more effective the investor

grievance redressal mechanism at the stock exchange. It was

decided that the stock exchange would constitute an IGRP and 8

resolve the issue within 15 days and if the member was unhappy

with the decision of the IGRP it would opt for arbitration. By

another circular dated February 23, 2017 the redressal

mechanism was amended in such cases where the claim amount

was more than the coverage the investor was given the liberty to

prefer arbitration mechanism for the balance amount. By

another circular dated November 6. 2020 it was directed that if

the complaint is not resolved amicably the matter should be

referred to IGRP.

8. On July 1, 2020 SEBI issued a circular providing Standard

Operating Procedure (SOP) in case whether a Trading Member

(TM) / Clearing Member (CM) became disabled or declared a

defaulter. Paragraph 7 and 8 of the circular, being relevant, is

extracted here under:-

"7. Once the Member is disabled or SCN is issued for declaration of defaulter to TM / CM (whichever is earlier), no further Investor Grievance Redressal Committee (IGRC) /Arbitration meetings shall be conducted.

8. Default proceedings shall take place as per bye laws / rules / regulations of the SE / CC. If the member is also a DP, Depositories shall take action as per its bye laws for termination / transfer of its participant-ship based on record. SEs shall not expel the TM immediately until the default proceedings are completed."

9 9. A perusal of the aforesaid clause indicate that if a trading

member is disabled or declared a defaulter then no further

proceedings of IGRP or arbitration shall be conducted. Clause 8

provides that such proceedings would take place under the bye-

laws / rules/ regulations of the stock exchange. The bye-laws of

the stock exchange provide that the investor could file a claim

within a stipulated period which shall be decided accordingly.

10. In view of the aforesaid circular dated July 1, 2020 it is

apparently clear that the resolution process cannot be carried out

under the IGRP where a trading member is disabled or has been

declared a defaulter.

11. In the instant case we find that the Member and Core

Settlement Guarantee Fund Committee ('MCSGFC /

Committee' for short) of stock exchange had disabled the

trading member on August 3, 2020 restraining the stock broker

from taking any fresh position in the Futures & Options (F&O)

segment, Currency Derivatives (CD) segment and in

Commodity Derivative segment (CO). Subsequently, the trading

member was declared a defaulter on November 26, 2020.

In view of the fact that the trading member was disabled on

August 3, 2020 the complaint of the appellants could not be 10

referred to for redressal to IGRP in view of the circular dated

July 1, 2020. The only option left available to the appellants was

to file a claim under the bye-laws of the stock exchange. In this

regard we find that after the trading member was declared a

defaulter on November 26, 2020 a notice in leading newspapers

was published on November 28, 2020 inviting the members to

file a claim against the trading member within three months

from date of the notice. The said period is still continuing. In the

light of the aforesaid, the relief claimed by the appellants

directing the stock exchange to refer their complaint to IGRP

cannot be granted. The appeal is, however, disposed of with a

direction to the appellants to file a claim pursuant to the notice

dated November 28, 2020 before the stock exchange under its

bye-laws within the stipulated period which if filed would be

decided in accordance with law.

12. In the circumstances of the case, parties shall bear their

own costs.

13. The present matter was heard through video conference

due to Covid-19 pandemic. At this stage it is not possible to sign

a copy of this order nor a certified copy of this order could be

issued by the registry. In these circumstances, this order will be

digitally signed by the Private Secretary on behalf of the bench 11

and all concerned parties are directed to act on the digitally

signed copy of this order. Parties will act on production of a

digitally signed copy sent by fax and/or email.

RAJALAKS Digitally signed Justice Tarun Agarwala by RAJALAKSHMI HMI H H NAIR Presiding Officer Date: 2021.01.19 NAIR 16:37:38 +05'30'

Justice M.T. Joshi Judicial Member 19.01.2021 msb