IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE A.K.BASHEER THURSDAY, THE 13TH AUGUST 2009 / 22ND SRAVANA 1931 WP(C).No. 4568 of 2004(R) ----------------------------- PETITIONER: ------------- LILA MATHEW, PUSHPAMANGALAM, THRIKKAKARA P.O., KOCHI-682 021. BY ADV. SRI.P.V.BABY RESPONDENT: --------------- NATIONAL STOCK EXCHANGE OF INDIA LTD., "EXCHANGE PLAZA", BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI 400 051, INDIA, REPRESENTED BY ITS EXECUTIVE DIRECTOR. ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 13/08/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX EXT.P1: TRUE COPY OF RECEIPTS DT. 26/4/2000, 22/5/2001 & 03/04/2000 ISSUED BY PRAMAN. EXT.P2: TRUE COPY OF REPLY DT. NIL SENT BY PETR. TO DEFAULTERS COMMITTEE. EXT.P3: TRUE COPY OF REPLY DT. NIL ISSUED BY RESPONDENT TO PETR. EXT.P4: TRUE COPY OF COMMUNICATION DT. 2/7/2003 SENT BY PETR. TO RESPONDENT. EXT.P5: TRUE COPY OF PROCEEDINGS DT. 28/11/2003 OF RESPONDENT. A. K. Basheer J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - W.P (C)No.4568 of 2004 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 13th day of August, 2009. Judgment Petitioner is a housewife. She has burned her fingers by making some investment in shares through an authorised trader viz., M/s. Praman Capital Market Services Ltd., which was an approved stock broker recognised by the Securities Exchange Board of India and member of the National Stock Exchange of India Ltd. 2. Petitioner had been having dealings in stocks and shares through Praman since 2000-2001. She had paid money to M/s.Praman for purchase of certain shares. According to the petitioner, shares worth Rs. 58202.16 were not delivered to her. Similarly an amount of Rs.15127.52 in cash was also due to the petitioner. Dividend that was declared in respect of the shares which were not delivered to her came to Rs.1348/- Thus the petitioner reckoned the total amount due to her as Rs.74677.68. Petitioner has produced photocopies of the three receipts issued by M/s.Praman to her for having received a total sum of Rs.47,000/- in three instalments of Rs.6,000/-, Rs.26,000/- and Rs.15,000/- on April 26, 2000, May 22, 2001 and April 3, 2000 respectively. 3. It appears that M/s.Praman was declared by the respondent, the National Stock Exchange of India Ltd. (NSE) as a defaulter. As is revealed from the counter affidavit of the WP(C).4568/04. : 2 : respondent, a public notice in this regard was issued by the NSE in all leading newspapers across the country on January 4, 2002. By the said notice, the respondent advised all the clients of M/s.Praman, who had a subsisting claim against it, to inform them in writing together with documentary evidence within three months from the publication of the said notice. 4. But the grievance of the petitioner is that the respondent refused to entertain her claim and disburse the sum of Rs.74677.68 as claimed by her in Ext.P2 claim petition. The sole prayer in the writ petition is to issue a writ in the nature of mandamus or such other appropriate writ, order or direction to the respondent to honour her claim. 5. In the counter affidavit the respondent has contended that it is not bound or liable to pay off the liability allegedly incurred by the petitioner in her dealings with M/s. Praman . However it is admitted that M/s. Praman was a trading member of the respondent. Since M/s. Praman failed to resolve the investor complaints against it, it was declared as a defaulter with effect from December 19, 2001. It is further contended that the Defaulters Committee which had considered the claim made by the petitioner had requested her to produce certain documents including original receipts obtained from Praman evidencing payment for purchase transactions. Petitioner was further directed to produce Bank WP(C).4568/04. : 3 : statements to prove cash withdrawal from her account which enabled her to make payment to M/s. Praman. 6. The respondent has taken up a stand that since the petitioner did not provide any proof with regard to cash withdrawal from her bank account to show that she had made payment to M/s.Praman for the share transaction, it was not in a position to entertain her claim. It is further contended that Defaulters Committee did not have sufficient funds to meet the claims against the defaulter. The matter was thereafter considered by the Defaulters Committee and the Trustees of the Investor Protection Fund. It was decided that the claim of the petitioner cannot be entertained since she had not produced any proof as requested by the respondent. In short, the respondent has denied its liability to pay the amount claimed by the petitioner. 7. It may at once be noticed that the respondent does not have a case that the original receipts produced by the petitioner indicating payment of a total sum of Rs.47,000/- to M/s.Praman are not genuine. The respondent has also not raised a contention that there was collusion between the petitioner and M/s. Praman. It is also not the case of the respondent that petitioner had not raised her claim or failed to lodge a complaint against M/s. Praman with respect to her claim even before the latter was declared a defaulter by the respondent. WP(C).4568/04. : 4 : 8. It is seen tacitly admitted in the counter affidavit that the respondent had received the complaint from the petitioner on December 18, 2001 and that the said complaint was treated as a Claim Petition against M/s. Praman. It is the admitted case of the respondent that M/s. Praman was declared a defaulter through a public notice dated January 4, 2002. Therefore it cannot be said that there was any possibility of a collusion between the petitioner and M/s .Praman. Even otherwise there is not even a whisper about any collusion between the petitioner and M/s.Praman in the counter affidavit. 9. As has been noticed already, petitioner had produced the original receipts issued by M/s. Praman acknowledging receipt of a total sum of Rs.47,000/- from her on three occasions as indicated in the earlier part of this judgment. Petitioner had also given all the details about her various transactions in stocks and shares through M/s. Praman in Ext.P2 petition submitted by her, to which I do not propose to specifically refer to in this judgment. A perusal of Ext.P2 will clearly show that all necessary particulars were furnished by the petitioner way back in the year 2001 itself. Respondent has no case that Ext.P2 was not received by it. In fact respondent had conceded the same and advised the petitioner to produce certain documents. It was at that stage that the petitioner had produced the original receipts and certain other documents as WP(C).4568/04. : 5 : advised by the respondent in support of her claim. But strangely the respondent made a volte-face at that stage. The respondent directed the petitioner to produce her bank account statement showing that she had withdrawn money from her bank account to make payment to M/s.Praman. Significantly it is further seen from the counter affidavit that the claim of the petitioner was placed before the Defaulters Committee, since sufficient funds of the defaulter (M/s. Praman) were not available with it. 10. In this context it is relevant to notice that bye-law 1 of Chapter XIII of the bye-laws of the respondent provides for maintaining an Investor Protection Fund. It is stipulated in the said clause that an investor Protection Fund shall be maintained “to make good claims for compensation which may be submitted by any person including a trading member or constituent who suffers loss arising from any trading member being declared as a defaulter by the Exchange”. A perusal of the other clauses in Chapter XIII of the bye-laws will further show that each trading member has to contribute amounts required by the bye-laws to make good claims for compensation. It is further provided that the amount that may be paid under this part to each person who suffered loss on account of a trading member being declared as a defaulter, shall not exceed such amount as may be decided by the relevant authority from time to time. The relevant authority shall WP(C).4568/04. : 6 : have the power to utilise income earned on the interest amount out of Investors Protection Funds either in part or whole. The amount which any claimant shall be entitled to claim as compensation shall be the amount of the actual loss suffered by him (including the reasonable costs of and disbursements incidental to the making and proof of his claim) less the amount or value of all monies or other benefits received or receivable by him from any source in reduction of the loss. The following clauses in Chapter XIII of the bye-laws speak for themselves: “ (7) The relevant authority, if satisfied that the default on which the claim is rounded was actually committed, may allow the claim and act accordingly. (8) The relevant authority may at any time and from time to time require any person to produce and deliver any securities, documents or statements of evidence necessary to support any claim made or necessary for the purpose of establishing his claims and in default of delivery of any such securities, documents or statements of evidence by such first mentioned person, the relevant authority may disallow any claim by him under this Chapter. (9) The contribution of each trading member to the Investor Protection Fund shall be such an amount as may be determined by the WP(C).4568/04. : 7 : relevant authority from time to time and the relevant authority shall further be empowered to call for such additional contribution as may be required from time to time to make up for the shortfall, if any, in the Investor Protection Fund, at the discretion of the relevant authority. (10) The Fund will also entertain claims of clients against defaulting trading members, upto a limit as may be determined by the relevant authority from time to time. (11) The Investor Protection Fund to be held in trust as aforesaid shall vest in the Exchange or any other entity or authority as may be prescribed or specified by the relevant authority from time to time.” 11. That M/s. Praman has been declared as a defaulter is not in dispute at all. Similarly the fact that petitioner had raised her claim even before declaration of M/s. Praman as a defaulter is also beyond controversy. Respondent had never questioned or suspected the genuineness of Ext.P1 (series) receipts issued by M/s. Praman in favour of the petitioner. The respondent had also not questioned or doubted the correctness of the various claims made under distinct heads in Ext.P2 Claim Petition at any point of time. The only specious and technical plea, which on the face of it is per se untenable, is that petitioner's claim could not be WP(C).4568/04. : 8 : considered since she failed to furnish details of her bank account indicating that she had withdrawn requisite money from her bank to make payment to M/s. Praman. This stand taken by the respondent, in my view, is totally irresponsible and not becoming of a public financial institution which is constituted under the Securities Contract (Regulation) Act 1956 by the Govt. of India. 12. It need not be reiterated that a public entity like the respondent has to protect the interests of gullible investors like the petitioner. The action of the petitioner in dealing with M/s.Praman could not have been faulted at all since at that time the said trader was a recognised member of the respondent. It is revealed from the counter affidavit that M/s.Praman was declared as a defaulter subsequently. Chapter XIII in the bye-laws has been incorporated as a means to achieve the purpose of protecting the interests of investors like the petitioner. It is for that purpose that Investors Protection Fund has been constituted. Contributions are collected from members and traders under the respondent to create a corpus for the fund to make good the losses that may be sustained by any member, investor etc. If that be the position, the contention raised by the respondent that it did not have sufficient funds to pay to the petitioner cannot be entertained at all. To a financial institution like the respondent which deals with business in millions and billions, the claim for a paltry sum of Rs.75,000/- should never WP(C).4568/04. : 9 : have been a big liability, especially when it has got an Investors Protection Fund at its command. Moreover, the claim made by the petitioner, on the face of it, was transparent. Significantly the respondent did not have a case that there was anything shady about the claim made by the petitioner. If in fact the respondent had any suspicion about the genuineness of Ext.P1 (series) receipts or about the other transactions referred to in Ext.P2 Claim Petition, these could have been cross checked and verified from the records of M/s.Praman which were admittedly taken into custody by the respondent. The claim was refuted by the respondent as revealed from Ext.P5 since the petitioner had not provided requisite proof of payment in support of her claim against M/s.Praman. 13. One other contention raised by the respondent is that this Court does not have territorial jurisdiction to entertain this writ petition. Yet another contention is that in the absence of M/s.Praman on the party array, no relief can be granted to the petitioner. Both these contentions have been referred to only to be repelled. First of all the respondent is an institution which controls and deals with the entire stock trade activity in the whole country. Though it has got its headquarters in Mumbai, its area of operation is spread over the entire country. M/s.Praman admittedly was declared a defaulter by the respondent. It is tacitly admitted in the counter affidavit that the assets of M/s.Praman WP(C).4568/04. : 10 : including the books of accounts and other documents were taken over by the respondent. In that view of the matter, the above two contentions raised by the petitioner are liable to be rejected . I do so. 14. Having regard to the entire facts and circumstances, I have no hesitation to hold that the contentions raised by the respondent cannot be sustained. Petitioner is entitled to get relief as prayed for. 15. In the result the writ petition is allowed. The respondent is directed to disburse the amount claimed by the petitioner in the Claim Petition with interest thereon at the rate of 9% per annum from the date of this writ petition till its realization. This shall be done as expeditiously as possible, at any rate within one month from the date of receipt of a copy of this judgment. Though this is a fit case in which the respondent should be mulcted with costs, I refrain from doing so. However a copy of this judgment shall be sent to the Secretary, Ministry of Finance, Union of India. A.K. Basheer an. Judge