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TMI Blog2018 (5) TMI 1953X X X X Extracts X X X X X X X X Extracts X X X X ..... investors cannot be accepted since the claims of all the appellants (except one) are in millions of rupees (in the range of ₹ 2 million to ₹ 8 million). It is also a fact that SEBI and exchanges have widely publicized the specific manner in which clients accounts should be maintained by the brokers and how such accounts should be settled in every quarter etc. as evidenced through the Bye-laws and circulars. From the Bye-laws and the relevant circulars, we note that the process of refunding investors when a broker is declared as defaulter is as follows : a) On inviting claims against the defaulter broker by the exchange investors would submit their claims. b) These claims are scrutinized by the IGRP of the exchange who validates the admissible claims against the said broker. c) The exchange would refund the claims using the funds of the defaulter broker available with the exchange in the form of deposits, margin money etc. d) In case of shortage of funds in the defaulter broker's account with the exchange, the unpaid claims / remaining claims would be placed before the DC of the exchange which will verify such claims as to whether they can be paid out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in October 2012 respectively. Subsequent to opening the trading accounts appellants entered into agreement and supplementary agreements etc. with Kassa wherein the appellants deposited certain amount of cash / securities with Kassa in return for interest / return / loyalty bonus on the unused margin money. The last date of such an agreement (an extension agreement) entered into by both the appellants was on September 18, 2014 whereby they transferred their mutual funds units maturing in a few days to the account of Kassa. 4. On March 19, 2015, based on several complaints, SEBI passed an ex- parte ad-interim order against Kassa, its promoters and its directors, inter-alia, restraining them from dealing in securities market. The appellants filed their individual claims against Kassa before NSE Investors Grievance Resolution Panel ('IGRP' for short) which was considered by the IGRP and admitted their claims on March 24, 2015. On April 21, 2015 NSE expelled Kassa as a trading member. On April 24, 2015 NSE published a newspaper advertisement inviting legitimate claims against Kassa. On June 19, 2015 the appellants filed their claims before the DC of NSE seeking relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, when they asked Kassa to refund their margin money Kassa did not oblige. Therefore, they complained to NSE and SEBI. Later Kassa was expelled by NSE on April 21, 2015. Appellants' claims and review application thereon were rejected by the DC of NSE for payment out of IPF in its meeting held on different dates during 2015, 2016 and 2017. Rejection of the claims, according to DC, was because the transactions between the appellants and their broker Kassa were in the nature of loan transactions and payment in the form of interest has been given to the appellants and TDS also has been deducted on the same. 7. Learned counsel Mr. Gaayan Sethi for the appellants made submissions similar to that of the appellants in appeal no. 153 of 2017 as recorded in para 5 above. Further, he stated that the appellants did not trade in any securities since they were told by Kassa that the market conditions were not good. He emphasized that NSE as a regulator of the broker Kassa has failed in its duty to protect the investors. Though the appellants have taken up the matter of Kassa default with NSE, no timely action was taken by NSE and the appellants have been adversely impacted in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice issued to NSE in this regard had been disposed of by the WTM of SEBI vide order dated August 30, 2017 without any direction as it was found that NSE had taken whatever steps they could in the matter of Kassa. He particularly emphasized the table detailing settlement of a large number of claims from investors given at page no. 17 of the said order. 9. We find no merit in the arguments advanced by the appellants in both the appeals. The legal position is very clear as laid down in the bye-laws of the NSE as to who can be and who cannot be paid out of IPF. In the instant matter before us, it is undoubtedly clear that the relationship between the appellants and Kassa was in the nature of a client - broker one rather than an investor - broker one. Very fact that the clients did not do a single trade for a long period after opening their trading accounts and they had entered into agreements which specified the percentage of fixed returns to the appellants make it very clear that the appellants were supporting the illegal para banking activity of their broker. The submissions made by some of the appellants that they were uninformed investors cannot be accepted ..... 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