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2019 (9) TMI 593 - HC - SEBITransaction on the exchange - whether petitioner s transactions were not through the exchange? - alternative remedy before the Securities Appellate Tribunal - HELD THAT - Shares were transferred from the applicant s account to broker account, which the broker did not return. It is further pointed out that there was no trade executed on the exchange. The transaction is therefore, construed as a loan transaction and therefore, not recommended for payment. This recommendation of the Committee was accepted by Respondent No.3 and the claim of the petitioner was accordingly rejected. We do not find that the Respondent No.3 has committed any error. It may be that the previous Circulars issued by the SEBI from time to time, do not specifcally include a clause that in case of transaction not executed through the platform of BSE, the claim would not be entertained by the Respondent No.3. Nevertheless, there is no instance cited before us by the petitioner that any such claim in the past was entertained and allowed. The case of the petitioner was considered and disposed of after the Circular dated 23rd February, 2017 was issued. The Circular was therefore, correctly applied. In any case, Clause (b) of paragraph 2 of the said Circular can be seen as clarifcatory in nature and explicitly declares the policy of the SEBI to entertain only those claims of investors which arise out of the transaction carried out through the platform of BSE and not outside.
Issues:
1. Claim for compensation from Investors Protection Fund. 2. Rejection of claim based on transaction not executed through the exchange platform. 3. Interpretation of Circular dated 23rd February, 2017. 4. Discretionary nature of compensation from the Fund. Analysis: Issue 1: Claim for compensation from Investors Protection Fund The petitions involved a claim by an Advocate against a registered broker for non-delivery of shares, leading to an arbitration award in favor of the petitioner. The petitioner sought compensation from the Investors Protection Fund, which was rejected by Respondent No.3. The petitioner argued that the circulars issued by SEBI did not exclude claims not made through the exchange platform. The court noted the purpose of the Fund to assist small investors and examined the sources of contribution to the Fund, emphasizing the need for fair and non-arbitrary decisions. Issue 2: Rejection of claim based on transaction not executed through the exchange platform Respondent No.3 rejected the petitioner's claim citing that the transaction was not executed through the exchange platform, treating it as a loan transaction, and thus not eligible for compensation from the Fund. The court analyzed the communication detailing the rejection, highlighting the absence of trades on the exchange and the nature of the transaction as reasons for denial. The court found no error in Respondent No.3's decision, emphasizing the importance of transactions executed on the BSE platform for eligibility for compensation. Issue 3: Interpretation of Circular dated 23rd February, 2017 The court examined the Circular dated 23rd February, 2017, which clarified the guidelines for the Fund, emphasizing that claims must be from transactions executed on the exchange platform to be eligible for compensation. The court noted that the circular explicitly declared the policy of SEBI to entertain only those claims arising from BSE transactions. The court found the circular to be clarificatory and correctly applied in the petitioner's case. Issue 4: Discretionary nature of compensation from the Fund The court acknowledged the discretionary nature of granting compensation from the Fund but emphasized that decisions should not be arbitrary. While the arbitration awards supported the petitioner's claim against the broker, the court highlighted that the policy of Respondent No.3, as per SEBI circulars, determined the eligibility for compensation. The court dismissed the petitions, upholding the decision to reject the petitioner's claim based on the transaction not being executed through the BSE platform.
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