Applicability of Consumer Protection Act

on Capital Markets in Comparison with

SEBI SCORES
By
TaTa Yasaswi Goud
Introduction:

Consumer is the most important person in any market. Consumers are

protected by law as they are most venerable players in the market and chances of
them being exploited by the sellers and other intermediaries is very high. A very
famous quote by our father of nation M.K Gandhi regarding the customer is “A
customer is the most important visitor on our premises. He is not dependent on
us. We are dependent on him. He is not an interruption of our work. He is the
purpose of it. He is not an outsider of our business. He is part of it. We are not
doing him a favour by serving him. He is doing us a favour by giving us the
opportunity to do so.” To protect the rights and interests of a customer there is
enactment called consumer protection act 1986 in India. I, in this article would
like to explain about applicability of consumer protection act over capital markets
in comparison with SCORES. The consumer would approach the consumer
forum when there arises the dispute between the seller and consumer. The
consumer protection act defines consumer dispute 1. Whether the dispute between
the company and the investors, listed companies and intermediaries,
intermediaries and intermediaries, and among the various stake holders comes
under consumer protection.

Under the consumer protection act, only consumer who comes under the
definition of the consumer2 is protected by this act. In that definition person who

1
Section 2(1) (e) of consumer protection act 1986
2
Section 2(d) of consumer protection act 1986

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purchases the goods or services for resale or commercial purpose are specifically
excluded under the purview of this enactment. In this article I will explain
whether the investor availing the services from the intermediaries to invest in a
company, can be a consumer? and issues between the investor and company ,
SCORES redressal method in comparison with consumer protection law redressal
method.

Disputes Between Member and Companies.

Members are one of the financial sources to the company. Usually members
subscribe to the to the memorandum of association and articles of association to
become a member of the company. As a return to their investment in the
company, company pays dividend to its members. This membership in the
company makes members entitled to certain rights towards the company these are
Right to receive dividend (if declared by the company), right to receive Bonus
shares, Right access documents, right to participate in the annual general
meetings of the company and other shareholder rights. While enforcing these
rights shares investors face various problems with company and other
intermediaries. In Morgan Stanley Mutual Fund vs Kartick Das3 the apex court
held that a prospective investor cannot be consumer because shares are created
only after allotment to member before they are allotted, they are only a
prospective investor where the investor is not considered as a consumer under
consumer protection act. In the case of Jayantilal Trikambhai Bhaham Bhatt Vs.
Abhinav Gold International Pvt. Ltd 4. and Ors. in which it is held that
petitioner investors cannot file consumer complaint. But in cases of investing in
the units of unitrust of India, the investor is considered as consumer where the
allotment is done on firm allotment basis. In Satish kumar v. Unit Trust of India 5

3 1994 SCC (4) 225

4
2012 (4) CPR- 37 (NC)
5
2004(3) C.P.R. 734(St.c) Chhattisgarh.

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the complainant submitted an application form to unit trust of India for allotment
of 200 units in firm allotment basis under the scheme UGC 2000 by duly sending
2000/- by demand draft in favour of unit trust of India which was duly enchased
and credited to the account of unit trust of India through state bank of India. The
unit trust of India, despite accepting the payment, failed to issue units certificates.
The state commission held that “the units were to be allotted on firm allotment
basis and it not being a case of discretionary allotment of shares, hence, directed
the Unit Trust of India to allot the units to the complainant with all benefits
available on the date of realisation of demand draft or refund the amount with
interest @12 percent, if it is not possible for any reason”. The order of the district
forum was overruled by state commission and it was held that the complainant is
a consumer under consumer protection act because the allotment of units were on
firm allotment basis. In Surinder Singh v. The Company Secretary, LIC mutual
fund6it is held that “The company which floated shares has a duty towards the
share purchaser for getting the share transferred in his name and returns the same
safely to the transferee. Failure on the part of the company to transfer and return
the shares to the concerned purchaser will amount to deficiency in the service.

Disputes Between the Investors and Intermediaries.

Investor invest in a company with the help of so many intermediaries.
These intermediaries help the investors at various stages of their process of
investing in a company. Investor are depended on these intermediaries when they
are exercising their right against the company like receiving the dividend,
transferring the securities, selling their shares in the market and other transaction
with the company. These intermediaries provide the services to investor to
enforce their right in a company. Whether the service provided by the
intermediaries to the investors is service under the consumer protection act. In

6
2002(3) C.P.R. 275(St.c) Punjab.

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T.K Goswami v. State Bank of India 7 it is held that the bank was given power of
attorney for transfer of shares by an account holder, who later cause loss to
customer by its mala fide action “Purchase and sale of shares undertaken by bank
out of the account maintained by the customer for a consideration is a service
covered under consumer protection act,1986. The customer is a hirer-consumer
and not a purchaser-consumer. Also, complaint against mala fide action by bank
(thereby causing loss to the complainant) is maintainable for deficiency in
service” under consumer protection act 1986. In Sri Shankar Das v. Bank of
India8 it was held that “failure on the part of bank to remit money of Rs.6000/-
deposited by complainant for the purchase of master shares on rights basis from
Unit Trust of India shall definitely fall under the category of negligence and
deficiency in banking service. If the bank failed to clarify the reason for failure
to make appearance before court, despite giving the adequate opportunity, it shall
be deemed that the bank committed deficiency in providing banking service and
accordingly liable to pay hectic compensation”.

In case of Pandey R.K. v. Arcadia securities Pvt. Ltd. 9 The complainant

purchased shares. As per bye laws, the said shares ought to have been transferred
to the D-mat account of the complainant in canara bank instead, the company/
agent, sold the shares and got adjusted the sale proceeds towards the loss incurred
through purchase and sale of shares in the name of complainant without the
authority of law or instructions of the complaint. The state commission made
company liable for its actions. In Datamatics Financial Services Ltd. vs. Wosi
khan10 the petitioner M/s. Datamatics Financial services were appointed as
registrars and transfer agents for Magnum Multiple Plus Scheme 1993 by the state
bank of India mutual fund. The complainant Shri wosikhan and mazahid khan

7
1995(1) C.P.R. 559-561(St.C) West Bengal,1995(II) C.P.J. 400(W.B)
8
1993(1) C.P.R. 690(St.C) West Bengal
9
2005(2) C.P.R. 15 (St.c) Karnataka
10
2006(2) C,P.R. 01 N.C., New delhi

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purchased 5000 scheme shares worth rs.10/- each by paying rupees 50000/-. The
shares were dully allotted and dispatched to the address given in the application
form given by the complainants. The said shares were returned back as
undelivered by the postal authorities. The petitioner company pointed out that
they communicated the the return of the shares to complainant with a request to
furnish the correct address. Since, the company did not receive any new address
from the complainants, it dispatched the shares to the same old address. When the
complainant enquired about the status of the share certificates in the question in
1999, the company informed the complainant that the said certificates stands
transferred in the name of Shah Mradula. It is learnt that, the company received
the aforesaid certificates for transfer from Mr.Shah Mradula, Mumbai

The complainants aggrieved by the action of the company which transferred the
certificates to the third party without their knowledge, filed a complaint before
the district forum claiming a compensation of 50000/- with the interest @ 18
percent per annum and 50000 for mental agony. The district forum dismissed the
complaint on ground that the transferee was not made party. The state
commission, on appeal, by appreciating the evidence, directed the company to
pay 50000/- rupees with interest of 18% per annum from the date of allotment of
share certificates till the date of realisation of the amount along with the
compensation of Rs.25000/- for the harassment and metal agony. Upon appeal to
to the National commission, it is observed that the company has failed to show
the proof of the date of the dispatch and letter received by them containing the
name of Mr. Shah Mradula. Accordingly, the national commission came to the
conclusion that the complainants were denied of the amount apent by them over
the years. Therefore, the national commission order to pay the complainants
Rs.50000 with interest of 15% per annum along with the 10000/- towards the
cost. The compensation of 25000/- by the state commission was set aside. In the

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case of Senior manager, Delhi Stock Exchange v. Ravinder Pal Singh11 National
commission held that the services provided by the members of the stock exchange
(stock broker) to the investors for buying and selling of share in the stock
exchange is service under the consumer protection act and the investor are the
consumers under the consumer protection act.

Consumer Protection is in addition to other remedies

The remedies under consumer protection act are additional to the remedies
available to the consumer, In Mr. Pandey R.K v. Arcadia Securities (P.) Ltd. The
respondent raise an issue on jurisdiction of the state commission stating that the
parties have agreed for the adjudication disputes only by Mumbai courts, hence ,
the consumer forums cannot exercise their jurisdiction in that matter, the state
commission ruled that as the remedy under consumer protection act 1986 is in
addition to other remedies , the said agreement will not come on the way of
consumer forum exercising jurisdiction on the subject matter. In Aftab singh vs
Emaar MGF Land Limited & Anr the national commission has held that the
Consumer Protection Act, 1986 is a supplement act and not in derogation of any
act. However, a consumer can approach a consumer forum under this act. Only if
he hasn’t approached any other authority under the relevant enactment, he cannot
simultaneously file any complaint under the consumer protection act. Also held
that mere availability of a right to address the grievance in a particular statute will
not stop the complainant or consumer from approaching the consumer for a under
the consumer protection act. Even though various provisions have been made
which are to be followed by the Developer/Promoters and the rights and duties
and the return of amount as compensation as also rights and duties of Allottees,
yet same cannot mean to limit the right. In Ajay Nagpal Vs. Today Homes &
Infrastructure Pvt Ltd 12 the National Consumer Disputes Redressal Commission

11
2008 BusLR 127 NCDRC.
12
NCDRC Consumer Case No. 1357 of 2017

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has held that RERA Act does not bar filing of a complaint under the Consumer
Protection Act 1986 against a builder/developer.

SEBI COMPLAINT REDRESS SYSTEM(SCORES)

SEBI complaint redress system is an online portal created by the capital

market regulator Securities Exchange board of India vide circular No.
CIR/OIAE/1/2014. Where it contains the database of all investor complaints and
tracking of the complaint on its portal. SEBI mandates every listed company, all
intermediaries registered with it, Recognized Stock Exchanges, All Depositories,
Association of Mutual Funds in India (AMFI) to register on SCORE portal failing
in doing so, the concern company will be penalised by SEBI. In case Premium
Industries India Ltd. The adjudicating officer of SEBI imposing penalty of the
company of rupees Five lakhs 13 when the company failed to get authentication
with the SCORES portal. SCORES is 24 x 7 portal where the aggrieved investor
can register his complaint anytime.

When a complaint is registered on the SCORES portal the complaint is sent

to the concern company for solving the dispute, where after the concern company
shall file action taken report for each case. The complaint raised by an investor
will contain a unique No. all further correspondence regarding that complaint.
Thus SCORES enables an investor to track and get his grievance solved through
SCORES. This platform helps not only the investor but the regulator also to
observe the type of disputes among the stake holder of the capital market and
frame the policy to reduce those disputes.

Comparing SCORES Grievance Redressal with the Consumer Protection

Act Grievance Redressal
 The relief under the consumer protection act is only confined to the consumer
who purchased a goods or service from the seller, where as in SCORES the

13
ADJUDICATION ORDER NO. ORDER/MS/SB/2018-19/1301

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 investor can raise a compliant on a company on a very petty cases like change
in address or phone no.
 The dispute under consumer protection act is adjudicated by a quasi -judicial
authority established by a law. The decision of the consumer forum is binding
on the both the parties whereas in SCORES there is no adjudicating authority,
as it is a platform created to ease the grievance redressal procedure between
the investors and listed companies.
 Consumer forum has so many cases to decide apart from capital market cases
and there is involvement of third party (consumer forum), this redressal
mechanism might take time to address a grievance. Where as in SCORES, it
is just a web portal, where there is a background interface which connects the
investors and the listed company, thereby chances of getting the dispute
resolved very quickly than under consumer protection act.
 Under consumer protection act the reliefs to consumer are rectification of the
defects, payment for damages, compensation and any other relief as the
adjudicating authority may deem fit. These reliefs are enforceable under the
law, where as in the SCORES there is no such relief to the investors.
 SCORES do not entertain any disputes arising out of a private agreement
whereas consumer forum has power to entertain disputes arising out private
agreement also for Example contract for service.
 A party aggrieved by a decision of the consumer forum can go on appeal as
there is a hierarchy of adjudicating authorities under consumer protection act
whereas SCORES do not contain any procedure if the complaint given by the
investor is not solved.

CONCLUSION
Consumer in any market should be protected in any market. Especially in
capital markets these consumers are prone to so many frauds. These consumers
in the capital markets face many difficulties with the companies and other

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intermediaries. The protection is provided by the setting up redressal forum like
consumer forums and SCORES like platforms and through awareness
programmes, consumer education or any other means. As discussed above
SCORES is just a medium through which a investor communicates his grievance
while consumer forums give relief to investors by compensating for the investor’s
loss.

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