D S P Blackrock Fund Managers Ltd vs Dayanand Satija

WE have heard the learned Counsel for the petitioner and the authorized representative of Respondent No. 1.

BRIEFLY stated the relevant facts are that the complainant, Respondent No. 1 herein, had applied for allotment of Tax Saver Fund Units for Rs. 1,00,000 with the petitioner on 28.3.2008 and for this purpose, he had deposited a cheque for this amount along with an application for KYC (Know Your Client). While the application for the Tax Saver Fund was received by the petitioner without any objection, the respondent was informed that the petitioner had no arrangement to receive the KYC form. As such, the respondent submitted the KYC form on the same day with the Tata Mutual Fund office and completed the KYC formalities. However, the respondent received a letter dated 1.4.2008 from the petitioner rejecting his application for Tax Saver Fund on the ground that the KYC formalities have not been completed. On receiving this letter, the respondent rushed to the Delhi office of the petitioner along with KYC acknowledgement but the concerned official refused to entertain the same. Thereafter, the respondent contacted the Chennai office of Respondent No. 2, i.e., the CAMS who was the Registrar and Share Transfer Agent to the petitioner fund requesting them to inform him the grounds of rejection of his application despite compliance with the KYC requirements. In view of the non-allotment of the Tax Saver Fund Units, the respondent suffered a loss of Rs. 33,990 since he was burdened with the extra tax of the amount of Rs. 33,990. Aggrieved by this conduct of the petitioner fund, the respondent/complainant knocked the doors of the District Consumer Forum by lodging a complaint with it. The District Forum issued a notice to the petitioner fund but they chose not to appear despite service of notice and hence they were proceeded ex parte before the District Forum. Based on the averments made by the respondent/complainant and the evidence produced by him before the District Forum, the District Forum found the petitioner fund deficient in service and hence passed the following order on 17.11.2008: "(i) OP is directed to issue units worth Rs. 1,00,000 with NAV application as on 31.3.2008 or compensate with the loss of Rs. 33,990; (ii) OP is directed to pay Rs. 20,000 for mental agony and harassment to the complainant; (iii) OP will pay Rs. 18,000 towards cost of litigation to the complainant."

THE aforesaid order was directed to be complied within a period of 30 days. The appeal filed by the OP fund against the order of the District Forum came to be dismissed by the Delhi State Commission vide its order dated 6.8.2009. Feeling aggrieved by the dismissal of its appeal by the State Commission vide its impugned order dated 6.8.2009, the petitioner has filed the present revision petition before this Commission.

IT is submitted by the petitioner that as per the instructions issued by the SEBI, compliance with KYC requirements is a must for every applicant who wants to apply for the mutual fund units worth Rs. 50,000 or more. It is further submitted that all the applications for allotment of mutual fund units are accepted subject to verification and invalid or incomplete applications are liable to be rejected after acceptance and verification and information is sent to the address of the applicant by general post. In the present case, since the respondent had not fulfilled the KYC requirements at the time of submission of his application form on the day that he applied for the Tax Saver Fund Units, his application was rightly rejected by the petitioner. Learned Counsel for the petitioner submitted that wide publicity with regard to the KYC requirements, as laid down by the SEBI, had already been issued in different newspapers and the guidelines issued by the Association of Mutual Funds in India (AMFI) had also been issued for the information of the prospective investors and others concerned. It has been submitted that any action on the part of the petitioner in violation of the instructions issued by the SEBI or the guidelines issued by AMFI would render the petitioner liable for punitive action by these agencies and hence no fault could be found with their rejection of the application of the complainant/respondent, which was submitted without fulfilling the mandatory KYC requirements on the day of submitting the application. In respect of the submission of the complainant to the effect that he had submitted KYC form along with the main application for the Tax Saver Fund to the petitioner, initially learned Counsel for the petitioner denied the same but later on submitted that even if it was so, it could not be treated as fulfilment of the KYC requirements since the KYC compliance has to be necessarily referred to before the allocation of units worth Rs. 50,000 or more can be made to any investor. In this context, learned Counsel specifically referred to the AMFI guidelines, which state that investor should attach the KYC acknowledgements along with their investor application form. Application forms not accompanied by KYC acknowledgement are liable to be rejected. This being the rule position, learned Counsel submitted that the State Commission erred in ignoring these specific requirements and dismissed the appeal of the petitioner and hence the impugned order is liable to be set aside being contrary to the rule position.

WE have given our thoughtful consideration to the submissions made by the parties before us. There is no dispute about the instructions issued by the SEBI and the guidelines issued by AMFI in this regard. It is well known that as per the income tax regulations, anybody who wants to get tax relief has to establish that he has invested in Tax Saver Fund Units before the close of financial year, i.e., upto 31st March. This being the well-known position, it has to be noted that when the petitioner chose to accept the application form along with the cheque for Rs. 1,00,000 from the respondent/complainant but returned the KYC form, they should have realized that the mandatory requirement in respect of the KYC compliance had not been fulfilled by the respondent and hence his request for Tax Saver Fund was bound to be rejected. With reference to the non-compliance of the mandatory KYC requirements, the application of the respondent/complainant and his cheque should have been returned by the petitioner fund right on 28th March itself when they returned his KYC form while retaining the main application and the cheque. The Fora below found the petitioner deficient in its service to the complainant in this regard, which is established beyond doubt. The dead line of 31st March being of paramount importance in the present case and the same being well known to the petitioner fund, they cannot deny the fact that a later intimation after 31st March would result in denying the prospective investor of the tax benefit on that account. Perusal of the documents produced before us by the parties clearly shows that the respondent/complainant had the KYC form with him and since the same came to be refused by the petitioner fund, he submitted the same through Tata Mutual Fund and the same was acknowledged by the CDSL Ventures Ltd. vide their letter dated 29.3.2008, a copy of which is filed at Annex-B (page No. 145) on the file. In this view of the matter, no fault could be found with the order of the District Forum, where the petitioner chose to remain absent in spite of service of notice on them, holding the petitioner guilty of deficiency of service and directing them to either allot the units in question or compensate the respondent with the loss of Rs. 33,990. We, therefore, agree with the finding of the District Forum against the petitioner which has been rightly upheld by the State Commission while dismissing the appeal. However, as regards the direction to the petitioner to pay a sum of Rs. 20,000 for mental agony and harassment to the complainant along with an additional amount of Rs. 18,000 by way of cost of litigation, this part of the order of the District Forum, in our considered opinion, requires some modification. Taking into consideration the entirety of the facts and circumstances of this case, we feel that the ends of justice would be met if a consolidated amount of Rs. 20,000 only is paid by the petitioner to the respondent/complainant both for mental agony and harassment and the cost of litigation. To this extent, the order of the Fora below is modified. The revision petition is accordingly allowed partly with no order as to cost at this stage of the litigation. Revision Petition partly allowed.