Satish Vasant Gadkari vs Sebi

Order Reserved On: 26.04.2019 Date of Decision : 03.05.2019

Appeal No. 171 of 2018

Satish Vasant Gadkari 204, Amanda-B, Hiranandani Meadows, Thane (W) - 400 610 ...Appellant

Versus

Bombay Stock Exchange Limited Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai - 400 051 ...Respondent

Mr. Ronak Desai, Advocate for the Appellant.

Mr. P. N. Modi, Senior Advocate with Mr. Vivek Shah and Mr. Abhiraj Arora, Advocates i/b ELP for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M. T. Joshi, Judicial Member

Per: Dr. C.K.G. Nair

1.

This appeal has been filed to challenge the order/

communication dated February 26, 2018 issued by the Investor

Protection Fund ("IPF" for convenience) of the BSE Limited 2

("BSE" for convenience), whereby only a small part of the

amount sought by the appellant was allowed by the IPF.

2. The appellant is an investor who opened a trading account

with M/s. Dreams Broking Private Limited ("Broker" for

convenience) and a demat account with IL&FS ("DP" for

convenience) on July 30, 2013. On December 31, 2015 the

BSE declared M/s. Dreams Broking Private Limited as a

defaulter. On January 29, 2016 the appellant submitted an

Arbitration Award Application to the Secretary of the

Arbitration Committee of BSE at the concerned arbitration

center against the Broker claiming an amount of

` 15,45,111.20/- along with the relevant documents etc. On

August 23, 2016 the Arbitral Award was passed for the same

amount as claimed by the appellant. On February 26, 2018 the

IPF of BSE issued the communication impugned in this appeal

recommending for a payment of ` 61,843/- from IPF out of

which ` 60,440/- towards non-receipt of 100 shares each of Oil

and Natural Gas Corporation Limited ("ONGC") and ITC and

` 1,403/- towards credit balance. As regards the remaining

amount claimed by the appellant, the impugned communication,

further states that since these relate to shares of Hindustan

Unilever Limited ("HUL"), Reliance Industries and Merck Ltd. 3

which have been fraudulently transferred from the demat

account of the appellant and not purchased or sold through BSE,

the appellant was advised to take up the matter with the

Depository Participant and Depository as fraudulent transfers

from the demat account is a matter with the Depository and not

with the Exchange.

3. The appellant collected the amount of ` 61,843/- vide

cheque dated 01.02.2018 on account of compliance and

settlement of their claim in Arbitration Award Reference No.

228/2016.

4. It is the submission of the learned counsel appearing on

behalf of the appellant Shri Ronak Desai, that the very objective

of the IPF is to reimburse claims of the investors affected by

defaulter brokers. Accordingly, and as advised by the BSE after

the appellant's Broker was declared a defaulter, the appellant

filed an Arbitration Award Application on January 28, 2016 and

got an Award in his favour on August 23, 2016. Despite the

fact, that a legitimate award for ` 15,45,111.20/- has been given

to the appellant, the respondent BSE/IPF has given him only

` 61,843/-. It is further contended that as per the relevant

Circulars issued by Securities and Exchange Board of India 4

("SEBI") on October 28, 2004 and February 23, 2017 the

appellant is entitled to get the full Arbitral Award since the

claim of the appellant falls under the eligible claims as stated in

these Circulars. According to the appellant only speculative

transactions shall not be eligible for compensation from the IPF

and the appellant's transactions were not speculative. It was

further contended by the learned counsel for the appellant that a

total of 943 Arbitration Orders against the said Broker have

been issued and the respondent BSE/IPF has settled many of

those awards. He further submitted that as advised by the

respondent the appellant has also approached the Depository

Participant, IF&FS as well as the Depository, Central

Depository Services Limited ("CDSL") requesting them to help

him in resolving the matter. However, apart from giving some

replies, the matter has not been resolved by them.

5. Learned counsel for the appellant also relied upon the

orders passed by this Appellate Tribunal in the following

matters Mr. Bipin Vijaykant Mehta, HUF V/s Assistant

General Manager, Bombay Stock Exchange Limited (Appeal

No. 375 of 2016 decided on 31.01.2018); M/s Emmel

Financial Services V/s Bombay Stock Exchange Limited and

Ors. (Appeal No. 148 of 2010 decided on 28.06.2011) and 5

Harinarayan G. Bajaj V/s The Investors Protection Fund of

Stock Exchange, Mumbai and Anr. (Appeal No. 153 of 2008

decided on 15.07.2009) and submitted that his claims of getting

the full amount of the Arbitral Award is supported by these

orders.

6. We have heard Shri P. N. Modi, learned senior counsel

appearing on behalf of the respondent BSE/IPF who submitted

as follows:-

a) It is the appellant's own submission that certain

shares of the appellant were fraudulently

transferred from the demat account of the

appellant on July 07, 2014.

b) Though, the appellant, while opening the demat

account has opted for obtaining SMS and

Email alerts relating to his demat transactions

by providing mobile telephone number as well

as Email ID, the appellant never took up the

matter with the Depository Participant or the

Depository. All transactions indicated in the

demat statement provided by CDSL relating to

the disputed shares are off market and not 6

through the platform of the Exchange. Only

transactions done through the platform of the

Exchange is eligible for compensation from the

IPF.

c) Moreover, the appellant is raising dispute about

the off market transactions only in respect of

three securities (HUL, Merck and Reliance

Industries) while there were a few other

transactions also effected off market in the

CDSL statement on which the appellant is not

forthcoming with any explanation.

d) Reiterating the Circulars of SEBI dated

October 28, 2004 and February 23, 2017 and

the norms for eligibility of claims of

compensation from the IPF of BSE, the learned

senior counsel emphasised that only

transactions that have been executed on the

BSE platform shall be eligible for

compensation from the BSE/IPF subject to a

maximum specified limit. The details of such

norms are also part of the affidavit in reply

filed by the respondent BSE/IPF.

7

7. In addition to the submissions made by the learned

counsel for the parties, we have also perused the papers

produced before us. In the SEBI Circular dated October 28,

2004, the relevant one as far as the present matter is concerned

the eligibility conditions are too broad, though, it is clearly

stated that claims arising out of speculative transactions are not

eligible. However, the Circular dated February 23, 2017 clearly

states that only transactions executed on the Exchange platform

shall be eligible for settlement from IPF subject to a maximum

limit and subject to the appropriate norms laid down by the

Defaulters Committee. The norms laid down by the BSE/IPF

also specifically states that only transactions done on the

Exchange platform are eligible subject to other norms and

conditions which are detailed.

8. The present dispute is about fraudulent transactions done

by the Broker through the Depository Participant whereby

allegedly certain shares were transferred from the account of the

appellant without his knowledge. Admittedly, power of

attorney was given by the appellant to his Broker. The

Depository Participant also has replied to the appellant that the

same power of attorney was used in transferring the shares from

the account of the appellant. The appellant is claiming 8

ignorance of the fraudulent transactions till January 2016 when

he received the statement from the Depository, though, he had

opted for Email and SMS alerts from the Depository in his

application. In appeal memorandum he submitted that since he

had not placed any orders in regards to these shares, he did not

check Emails or SMSes. However, the appellant was conscious

of delayed payment of dividend and had approached his Broker

multiple times during 2014-2015 and got certain amount of

monies credited to his account. It is inexplicable, and no

explanation is coming from the appellant, as to why he did not

take up the matter despite his 'suspicion' for a long time during

2014-2015, till the Broker was declared a defaulter on

December 31, 2015. The alleged fraudulent transactions have

taken place on July 07, 2014; hence the period involved is one

and half years. The appellant had no time to check SMSes and

Emails for such a long period. Apart from stating that the

power of attorney given by the appellant to the Broker was only

for normal market transactions and not for off market

transactions and off market transaction was done behind his

back there is nothing on record to show the veracity of these

statements.

9

9. Accordingly, we do not find any merit in the submissions

made by the appellant. The orders (supra) relied on by the

appellant are distinguishable as they relate to normal

transactions on the Exchange platform and not involving

fraudulent transactions as in the present matter.

10. However, we note that the present matter involves

fraudulent transactions from the demat account of the appellant

for which the right forum to approach is the Depository. We

also note that similar Investor Protection Funds have been set up

under Depositories Regulations. Appellant is at liberty to

approach the forum set up under the Depositories Act and

Regulations. Alternatively, he is also at liberty to approach

relevant forum to get his Arbitral Award implemented against

the Broker.

11. Appeal is dismissed with no order on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member Sd/-

Justice M. T. Joshi Judicial Member 03.05.2019 Prepared & Compared By: PK