2019 (2) TMI 2121 - HC - SEBI

Complaint to the National Stock Exchange against the petitioner - petitioner is carrying out activities of trading in shares, and is also registered stock broker and respondent no. 2 registered himself as a client of the petitioner and started buying and selling of the shares through petitioner s Authorised Person - petitioner had sold the shares worth Rs. 10.67 Crores, generated a loss of Rs. 9.08 Crores and assured payment of 1% was not paid. observation/opinion of the Investor Grievance Redressal Committee wherein petitioner has not kept the margin money over and above the locked amount and it will not be able to trade - whether such an opinion is amenable to be examined under the writ jurisdiction of this Court. Even assuming that it is so amenable, obviously we cannot examine it exercising appellate powers. HED THAT - In the present case, the Committee has considered the case put up by both the petitioner as well as the respondent no.2 and has found that the trading member was aware of the arrangement. The Committee consists of experts in the trade. After giving an opportunity to both sides, the Committee has given a detail opinion based on their expertise and the material that the claim made against the petitioner is an admissible claim. They have found, based on their experience, that it is not possible that the petitioner, an experienced trader, would not know of the transaction. It is not possible for us to further dissect this opinion to hold that the opinion is incorrect. The Committee members are fully aware as to how day to day transactions are carried out on the Stock Exchange. The petitioner being a member of the Stock Exchange is covered by the Circular of 2013. This methodology is operating for almost six years now. We find no special circumstances to make an exception from the procedure laid down, which is designed to secure confidence in the trading of the Stock Exchange. The terminals of the petitioner would be shut down only if the petitioner does not furnish the requisite margin amount. The hearing was adjourned twice for the petitioner to inform about security for the blocked amount. The petitioner offered to give a security of a residential flat of his family members, without original title deeds. Thereafter, during the course of arguments, the petitioner stated that 50% of the amount would be generated within six weeks. Dr. Saraf is correct in pointing out that the Stock Exchange cannot sell the immovable properties, that to recover the amount payable to the Complainant. That is not the role of the Stock Exchange. Shut down of terminals is not an order passed by the SEBI, but a situation created by not securing the amount and the margin money. We are not inclined to exercise our extraordinary writ jurisdiction. The Writ Petition is accordingly rejected.

Summary

Issues:
1. Complaint against trading member by investor to National Stock Exchange.
2. Circular issued by Securities and Exchange Board of India on Investor Grievance mechanism.
3. Allegations of breach of agreement and malpractices by trading member.
4. Investor Grievance Redressal Committee's decision on admissible claim.
5. Petitioner's challenge to Committee's decision and invocation of writ jurisdiction.
6. Respondent Stock Exchange's defense based on Circular and margin requirements.
7. Examination of Investor Grievance Redressal Committee's opinion under writ jurisdiction.
8. Upholding Committee's decision and adherence to Circular's procedure.
9. Petitioner's failure to provide margin amount leading to potential shutdown of terminals.
10. Rejection of writ petition and suggestion for pursuing other legal remedies.

Analysis:

The judgment by the High Court of Bombay deals with a case where a trading member of the National Stock Exchange faced a complaint from an investor, leading to proceedings before the Investor Grievance Redressal Committee. The Committee found merit in the complaint, alleging breach of agreement and malpractices by the trading member, resulting in an admissible claim against the member. The petitioner challenged the Committee's decision, claiming arbitrariness and invoking writ jurisdiction to contest the appropriation of funds by the Stock Exchange.

The Court examined the Committee's opinion, emphasizing that it cannot act as an appellate authority and must respect the Committee's expertise in evaluating trading practices. It upheld the Committee's decision, noting that the trading member was aware of the arrangement with the investor. The Court also highlighted the importance of following the Circular issued by SEBI in 2013 to maintain confidence in Stock Exchange trading, indicating that deviations were unwarranted unless under exceptional circumstances.

Regarding the petitioner's failure to provide the required margin amount, the Court clarified that the potential shutdown of terminals was a consequence of non-compliance rather than a direct order from the Stock Exchange or SEBI. Despite the petitioner's offer of alternative security, the Court emphasized the necessity of adhering to margin requirements for trading activities.

Ultimately, the Court rejected the writ petition, stating that extraordinary jurisdiction was not warranted in the circumstances. The petitioner was advised to explore other legal remedies available to address the situation, with the Court's decision focusing on the specific reasons for not intervening through writ jurisdiction, leaving the petitioner to pursue further actions based on their merits.