Smt. Sudha Gupta vs Sebi

Order Reserved on: 09.03.2018

Date of Decision : 15.03.2018

Appeal No. 355 of 2017

Smt. Sudha Gupta House No. 1360, Sector - 4, Panchkula - 134 112. .....Appellant

Versus

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

Mr. Gaayan Sethi, Advocate for the Appellant.

Mr. Rashid Boatwalla, Advocate with Ms. Lipsa Unadkat, Advocate i/b Manilal Kher Ambalal & Co. for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair, Member

1.

This appeal is filed challenging the communications of the National

Stock Exchange of India Limited ('NSE' for short) dated February 29, 2016

and August 21, 2017 whereby the claim of the appellant provided as margin

money to Kassa Finvest Private Ltd. ('Kassa' for short), a defaulter stock

broker of the NSE, was not admitted for payment from the Investor

Protection Fund ('IPF') of the NSE. The claim was rejected on the ground

that the said amount of Rs. 8,89,620/- purportedly provided as margin 2

money for trading in securities was in fact a transaction in the nature of

loans.

2. The argument of Shri Gaayan Sethi, Learned Counsel for the

appellant is that the appellant, a small investor, opened a trading account

with Kassa (A/C. No. CX0869) on March 18, 2014 and transferred number

of shares of 10 companies with off market trade instruction to Kassa's

account on April 2, 2014. The appellant received Rs. 8457 on July 9, 2014

and Rs. 5575 on October 10, 2014 as dividend. Since the committed returns

was not forthcoming from Kassa, appellant sought return of her shares on

January 22, 2015 which was not done by Kassa. Though NSE expelled

Kassa for various violations vide its order dated April 10, 2015, the

appellant became aware of the said order when she saw the public notice of

NSE against Kassa in the media on April 24, 2015. Thereafter, she

immediately filed application with NSE on May 30, 2015 for refund of the

margin money deposited with Kassa and provided all the details sought by

NSE vide various letters dated June 16, 2015, July 20, 2015 and January 20,

2016. However, the Defaulters' Committee of the NSE rejected her claim on

February 29, 2016 and the appellant filed a review application on April 2,

2016, which was also finally rejected vide NSE letter dated August 21,

2017. It was also submitted that since NSE was duty bound to regulate their

brokers properly but failed to discharge this regulatory function in the case

of Kassa, NSE should compensate the appellant.

3. Shri Rashid Boatwalla, Learned Counsel for the NSE submitted that

the Defaulters' Committee of NSE rejected the claim of the appellant

because as per By-laws of NSE and NSE Circular dated May 6, 2014

regarding manner of maintaining client account with the broker Defaulters' 3

Committee of NSE cannot entertain claims in the nature of loans for

compensation from the IPF. Such claims of the appellant have to be settled

by the broker itself because collecting loans by the broker purportedly in the

name of margin money is prohibited. To support the argument the Learned

Counsel for the NSE relied on the financial ledger of Kassa from April 1,

2013 to March 31, 2015 in respect of the appellant herein. This statement

shows that interest to the tune of Rs. 9397 has been paid to the appellant

upto June 2014 and provision of a tax credit to the tune of Rs. 1634 is also

given. All these indicate that the so-called margin money deposited was in

the form of a loan since the appellant had never traded in any securities

during the period under consideration.

4. We have perused the various documents placed before us and heard

the respective submissions of the Counsel for the parties. We have also

noted that the Securities and Exchange Board of India ('SEBI' for short) had

issued an interim order against Kassa on March 19, 2015 and the final order

was passed on September 5, 2017 whereby, inter alia, Kassa was directed to

refund / return client's money / securities with 15% interest thereon. It was

also stated in the order that Kassa admitted to taking loans from clients by

offering fixed returns.

5. The appellant before us is unable to produce any evidence relating to

her trading in securities. The appellant is neither able to provide any

convincing reason why no trading was done for about a year of having the

trading account except a vague statement that her instructions to the broker

was never implemented. Further, the record produced before us clearly

indicate that interest was paid to the appellant by Kassa. The statement on

dividend itself is not very convincing as there are entries to the effect that

the same company has paid dividend twice during a period of three months. 4

All these clearly show that the amount deposited by the appellant with

Kassa was in the form of loans. Since the By-laws of the NSE clearly

prohibit compensating claims in the nature of loans given to defaulting

brokers, we find no fault in the Defaulters' Committee's decision that the

appellant's claim cannot be entertained from the IPF which is meant for

safeguarding the interests of genuine investors. Appellant is at liberty to

approach the appropriate forum to settle her claim against Kassa in case

Kassa is not honouring her claim of the deposited amount.

6. We do not find any merit in the argument of the appellant that NSE is

liable to compensate the appellant for having failed in their duty as a

regulator of brokers. In our order dated January 4, 2018 on a related appeal

(Appeal No. 357 of 2017 by Sh. Subhash Chand Bithal vs SEBI) this

argument of the appellant therein was rejected since the WTM of SEBI had

recalled the SCN issued against NSE. Moreover, NSE as a first line

regulator is not liable to compensate for the willful violation committed by

the appellant alongwith the broker.

7. Accordingly, we find no merit in the appeal and same is hereby

dismissed with no order as costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

15.03.2018 Prepared and compared by: msb