RUPAL R.PATEL vs INTEGRATED ENTERPRISES (INDIA) LTD

BY way of this complaint the complainant has prayed for following reliefs from the opponents: "(B) To direct the opponents to pay to the complainant an amount of Rs. 1,80,238 being the difference of amount secured by them through Court as sale proceeds of the sold out shares of Infosys and the price quoted at the Stock Exchange on the date of retransfer of shares i.e., on 15.10.2001 together with interest at the rate of 12% p.a. (C) To direct the opponents to pay to the complainant an amount of Rs. 25,000 by way of mental shock and agony the expenses she was required to spend for her journeys to Mumbai and back which the complainant had to undergo on account of negligent acts on the part of opponents. (D) To direct the opponents to pay Rs. 10,000 by way of cost to the complainant."

IT is the complainant's case that opponent No. 1 is engaged in the activities of a Depository Participant and Merchant Banker at its office at Mumbai as per the particulars set out in the title as Opponent No. 2. As a Depository Participant the first opponent accepts applications for compulsory dematerialization of Equity Shares of various Public Limited Companies by opening account and maintaining the same for such consumers. The complainant had equity shares of various public limited companies. Since she wanted to convert them from physical to electronic form (dematerialized form) she opened a depository account with the first opponent through its branch office at Mumbai i.e., as opponent No. 2 on 11.1.1999 by making payment of Rs. 3,000. The complainant was assigned 10379703 as client ID number. She received statement of transactions from 1.1.2001 to 31.3.2001 showing balance of the equity shares of following companies: The complainant received a letter dated 15.9.2001 from the Sr. Inspector of Police G.B., C.B., CID Mumbai, calling her to his office at Bombay in connection with a complaint filed by Shri Ganesh Raman of first opponent's Divisional Office at Mumbai regarding fraudulent transfer dated 1.9.2001 in respect of the aforesaid shares from the complainant's aforesaid Demat Account. The complainant also received letter dated 19.9.2001 from opponent No. 1 informing her about such fraudulent transfer and that the first opponent was undertaking the process of transferring the shares from one of its group Companies.

The complainant has under such circumstances alleged that the fraudulent transfer of her shares had taken place on account of gross negligence and deficiency in service on the part of the opponents. She has asserted that after getting the amount from the fraudulent transaction of sale of her shares from the concerned Court the opponents ought to have consulted the complainant whether she would prefer to have the money from her sold shares or the shares. Instead of doing so the opponents displayed mala fide intention of taking advantage of their own wrong. The transaction of sale reflected that the fraudulently transferred equity shares of Infosys were sold out at Rs. 3,850 per share whereas subsequently its price was reduced to Rs. 2,750 per share. The opponents credited the aforesaid shares once again to the complainant's Demat Account on 11.10.2001 and 15.10.2001. According to the complainant the opponents ought to have conferred the benefit of difference in price to the complainant whose shares were sold out by fraudulent transactions on account of gross negligence and deficiency in service on the part of the opponents. Under such circumstances complainant made demand of Rs. 20,28,000 being the difference of price of the said shares realized by the opponents through fraudulent transactions as stated above, as per letter dated 18.4.2002 and reminder dated 14.6.2002. The first opponent replied on 24.6.2002 virtually rejecting the request of the complainant. Complainant has, therefore, filed the present complaint for the aforesaid reliefs from the opponents.

IT has been asserted that as stated in para 17 of the complaint the opponents have their branch office at Ashram Road in Ahmedabad. Hence the second opponent having its branch office at Ahmedabad and the complainant having been informed about fraudulent transaction in question at Ahmedabad this Commission would have jurisdiction to entertain the complaint. IT has been asserted that as soon as opponent No. 2 received fax message dated 27.8.2001 for change of address of the complainant from Ahmedabad to Mumbai and for delivery of the instruction booklet purported to have been signed by the complainant and when Mr. Sandip Patil went to opponent No. 2 to collect such booklet on the basis of authority letter purported to have been signed by the complainant it was obligatory on the part of the opponents to verify the authority of the letters in question. Had the opponents taken proper care and verified such authority letters in question the fraud would have come to light soon and further transactions with regard to sale of shares would have been avoided. The complainant has also asserted the facts with regard to the criminal complaint filed before the police as also Application No. 190/N/2001 made by the opponent No. 2. According to her the fraudulently transferred shares came to be re-credited in her Demat Account on 11.10.2001 and 15.10.2001 as stated above where the price of the concerned shares was low as compared to the price reflected by the said transaction in question. IT remains admitted position that the consideration of Rs. 54,80,238 has been received by the opponents and retained by them. The opponents have filed reply Exh.-7. While denying the allegations contained in the complaint the opponents have contended that the complaint is not maintainable at law, that this Commission has no jurisdiction to hear the complaint as cause of action has arisen outside the State of Gujarat, that as soon as the opponents came to know about the fraud they immediately verified from the complainant about so-called instructions (regarding sale of the shares in question) and after confirming the true and correct facts from the complainant they wrote letter dated 8.9.2001 requesting Kotak Street Com. to freeze the payment, that Mr. Ganesh Raman, Divisional Manager of the Mumbai Office immediately took decision to lodge a complaint to the Sr. Inspector of Police, Greater Bombay Crime Branch and that on account of immediate action taken by the Divisonal Manager of Mumbai Office of the opponents and on account of constant efforts of the said officer in filing petition before appropriate competent Court at Mumbai, orders were issued to return the property and frozen amount of Rs. 54,00,238 by Kotak Street Com. The complaint is accordingly sought to be dismissed with cost.

WE have gone through the pleadings of the parties. WE have heard the learned Advocate for the complainant. WE have gone through the written submissions made by the complainant. WE have also gone through the decision submitted on behalf of her. No one has remained present on behalf of the opponents. However, the facts which have been asserted by the complainant have remained almost admitted with regard to the fraudulent transactions of the complainant's shares having taken place at the office of the opponents. It has also remained not in dispute that by virtue of the Court's order the sale consideration of Rs. 54,80,238 has been received by the opponents. It is a different matter that the shares which were fraudulently sold from the Demat Account of the complainant were recredited to the complainant's account. That would precisely mean the difference of price prevalent on the date of sale and the price prevalent on the date on which the shares were recredited to the account of the complainant has been retained by the opponents, so submits Mr. Shah learned Advocate for the complainant. The complainant has, therefore, prayed for such difference by saying that she would be entitled to the difference between sales proceeds and value of the shares recredited in her account. It is in the background of the aforesaid facts we are required to adjudicate the dispute presented in the complaint. The complainant has come out with the fact that the opponents have their branch office at Ahmedabad. The complainant has also asserted that the transaction with regard to opening of the Demat Account with the opponents had taken place through their branch office at Ahmedabad. It would, therefore, clearly appear that since the opponents have their branch office at Ahmedabad and since the transaction of opening Demat Account had taken place through the Ahmedabad office of the opponents, this Commission would have jurisdiction to entertain this complaint.

THE opponents have tried to contend that the complainant cannot be said to be a "consumer" in the eye of law. THEy have contended that by seeing that the fraud was located before the sale price was misappropriated they cannot be said to be deficient in rendition of service. It is not in dispute that the opponents are acting as Depository Participant as also Merchant Banker while opening Demat Accounts in respect of shares in dematerialized form. THE consumers who entrust such work to the opponents agree to have rendition of service in respect of such dematerialised accounts from the opponents. THE services which the opponents are required to render inter alia include maintaining of such accounts in accordance with the transactions which truly take place between the share-holders and the third parties who purchase the shares from the share market having such Demat Accounts with the opponents. It is the duty of the opponents acting as Depository Participant to see that the accounts are maintained in accordance with true and correct transactions entered into between the consumers and their contracting parties. Whenever there is breach of performance of such duty in maintenance of account the service rendered by the opponents could be said to be deficient. In the present case when a third party approached the second opponent with authority letters and forged delivery instruction booklet including the document alleging that the complainant had changed her address from Ahmedabad to Mumbai the opponents were bound to make on the spot inquiry about such a dealing which could be said to be prima facie suspicious. THEre clearly appears to be lapse in not doing so and in allowing the authority letter to be processed without due verification. THE fraudulent transactions had, therefore, taken place with the aid of a forged authority letter. It is a different matter that the concerned officer of the second opponent immediately acted and filed criminal complaint before the Bombay Police and saw to the sale consideration being brought back to the opponents through the orders of competent Court. It is a fact that the benefit arising out of the fraudulent sale of shares by way of difference in price might ultimately go to the opponents. Under such circumstances it has been submitted that if appropriate order of compensation is not passed the provider of service of dematerialized accounts would be left free to deal with the accounts of the consumers freely with a view to make profit. In our considered opinion there appears to be a great deal of substance in the submission made on behalf of the complainant. THE opponents have clearly displayed deficiency in service in not appropriately scrutinizing the documents with regard to change of address of the complainant from Ahmedabad to Mumbai and other documents facilitating fraud being practised in respect of the seal of the shares of the complainant, particularly when such dealing was suspicious on the face of it.

IT has been submitted that the complainant would be entitled to the difference between the price of the shares which prevailed on the date on which the shares were re-credited i.e., Rs. 2,750 per share and the price at which the complainant's shares were sold fraudulently on or around 1st September, 2001 i.e., Rs. 3,850 per share. IT is not in dispute that the complainant was posted with knowledge about fraudulent transfer on 19th September, 2001. Price of the shares was Rs. 2,750 per share and the same price prevailed on the date on which the shares were re-credited to the complainant's Demat Account. The price remained constant and the complainant was not at loss insofar as the price of the shares in question was concerned. IT is not the case of the complainant that she tried to sell the shares from 15.9.2001 to 15.10.2001 at a price which would be higher than Rs. 2,750 per share. IT is also not the case of the complainant that she had any occasion to make any effort to sell the shares on or prior to 1.9.2001 or during the period between 1.9.2001 and 15.9.2001. She was not prevented in selling her shares at any point of time during such period. On account of such facts she was not put to any loss in any manner in respect of value of shares in question. IT is difficult to say that the opponents are benefited with the difference in price. The amount of sale consideration which includes difference in price is no doubt tendered to the opponents under the Court's order. However, such sale consideration might have been given to the opponents subject to further orders by the competent Court. IT is not the case of the complainant that criminal complaint is disposed of. Under such circumstances it cannot be said that difference of price in fact has gone to the benefit of the opponents. The matter would depend upon the ultimate result of the criminal proceedings with regard to the fraudulent transactions in question. We are, however, constrained to observe that the complainant had to undergo a great deal of mental pain, and hardship on account of her shares having been fraudulently dealt with. She was also required to go to Bombay for giving her statement. In our considered opinion this is a fit case where general damages should be awarded so as to set an example to the Institutions which are dealing in Demat Accounts of the consumers that they have to take due care and caution in keeping and maintaining consumers'' accounts when they are confronted with apparently suspicious dealing in such accounts. We propose to award compensation in the sum of Rs. 1,00,000 bearing in mind such circumstances of the case. We also propose to award cost quantified at Rs. 10,000. In view of what is stated above and bearing in mind the facts and circumstances of the case we pass following order: The opponents are directed to pay to the complainant Rs. 1,00,000 with interest @ 9% p.a. from the date of this order till payment and cost quantified at Rs. 10,000 within six weeks from the date on which true copy of this order is received by them. Direct service accordingly is permitted. Complaint disposed of.