TMI Blog2005 (12) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia, calling for the records of the case and after going into the legality, validity and propriety of the same quashing and setting aside the Guidelines issued by Respondent No. 1 and Respondent Nos. 4 to 8 on 2-4-2002. The Petitioner has also prayed that the decisions communicated to the petitioners vide their letters dated 26-4-2002, 17-6-2002 and 16-1-2003 respectively be quashed and set aside. Similarly, the petitioner has also prayed for a writ order or direction under Article 226 of the Constitution of India against the Respondents ordering and directing Respondent No. 1 and Respondent Nos. 4 to 8 to forthwith withdraw and cancel the said Guidelines dated 2-4-2002 and further restrain the said Respondents from acting pursuant thereto whilst deciding the Petitioners claim for being compensated under the Investors Protection Fund. The Petitioner has also prayed for an order or direction directing Respondent No. 1 to act in strict compliance with and to scrupulously follow the provisions of Chapter XIII of its Bye-laws made under section 9 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as SCR Act, 1956 for brevity sake) as also the 1996 Guidelines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the Petitioners and many other investors in relation to Respondent No. 3. The National Stock Exchange instead of instructing the chartered accountants to ascertain the claims made by the petitioners and other investors on the basis of the said guidelines, instructed the chartered accountants appointed by them to ascertain the claims made on the basis of a comparison between the contract notes submitted by the Petitioners with the data available on the NEAT system of the National Stock Exchange. The chartered accountants appointed by the National Stock Exchange submitted two reports in this regard, the first one on 2nd November, 2001 and the second one on 21-2-2002 respectively, on the basis of transactions tallying with the NEAT system of the National Stock Exchange. It is the second report dated 21-2-2002 that forms the basis of the final rejection of the Petitioners claim by the National Stock Exchange. The said report clearly states that the claims were processed on the basis of transactions tallying with the National Stock Exchange s NEAT system. 5. On or about 2-4-2002, the trustees appointed by the National Stock Exchange sought to review and decide the basis for ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stock Exchange has duly declared the trading member as a defaulter. Furthermore, the National Stock Exchange arbitrators have in fact passed awards in favour of some of the Petitioners confirming the fact that amounts are due from Respondent No. 3 to the respective Petitioners. It is submitted by the Petitioners that, had the National Stock Exchange applied the 1996 guidelines, as it was bound to do in deciding the Petitioners claim, the Petitioners would have had to be compensated. The National Stock Exchange instead proceeded to decide the claims on the basis of a completely ad hoc and arbitrary procedure, which was not part of the guidelines prepared by the trustees, but was ex facie inconsistent with and contrary thereto. It is further submitted by the Petitioners that the guidelines which the National Stock Exchange is seeking to rely on in support of its decision to reject the Petitioners claim, were framed in April, 2002 i.e., long after the Petitioners had duly filed their claims and even long after the same, having been entertained by the National Stock Exchange, had been decided by the Chartered Accountants on 21-2-2002. According to the Petitioners, the National S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, as delegates of the National Stock Exchange. According to Mr. Seervai, the substantive right is conferred under Chapter XIII of the Bye-laws of the National Stock Exchange. These Bye-laws have been made by virtue of section 9 of the SCR Act, 1956. The learned counsel for the Petitioners has submitted that the trustees are not entitled to frame guidelines except in conformity with Chapter XIII, and which do not derogate from the substantive rights conferred on investors. The 2002 guidelines clearly purport to do so. The National Stock Exchange and/or its delegate ( i.e., the trustees) wholly lack the power, authority or jurisdiction to frame such procedural guidelines and, therefore, the same are ex facie ultra vires, illegal and void . In support of his submission, the learned Counsel for the Petitioners, Mr. Seervai has relied upon certain decisions of the Supreme Court. 9. With regard to the preliminary objection raised by the National Stock Exchange that no writ petition can lie against the trust set up by the National Stock Exchange for the purpose of administering the investor protection fund or against the National Stock Exchange, which is a Company, the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Stock Exchange and on the application of the same to the Petitioners claim for compensation from the investor protection fund. The learned counsel for the Petitioners has submitted that it is now settled law that a writ petition involving a consequential relief of a monetary claim is maintainable. In support of this contention, the learned counsel Mr. Seervai for the Petitioners has referred to and relied upon certain decisions of the Supreme Court reported in Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust v. V.R. Rudani [1989] 2 SCC 691 and ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd. [2004] 3 SCC 553. 11. It is submitted by the learned Counsel for the Petitioners, that the Petitioners claims were disallowed on the basis of clause 2( i ) and 2( ii ) of the 1996 Guidelines in view of the fact that none of the contracts had been executed through the NEAT System; the amount deposited by the Petitioners with Respondent No. 3 were not "connected with the purchase and sale of securities" and that any amount intended to be claimed as ALBM would amount to a speculative transaction falling under 2( ii ) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etely overlooked the provisions of clauses II(1)( iii ), which stipulates in no uncertain terms that all claims "arising out of money in the hands of the trading member pending investment or money in the hands of the trading member which has been improperly dealt with" are required to be compensated through the investor protection fund. If the National Stock Exchange had decided the Petitioners claim for compensation on the basis of the above-mentioned guideline, as they were bound to do, there is no doubt that the petitioners were entitled to be compensated through the Investor Protection Fund of the National Stock Exchange. Submissions of Respondent No. 1 Respondent Nos. 4 to 8 14. The learned senior counsel Mr. Bharucha for the Respondent No. 1 and the Respondent Nos. 4 to 8 has submitted that the Petitioner - Satya Prakash Aggarwal is an individual investor who claims to have placed amounts with the Respondent No. 3 purportedly for investing in the Automated Lending and Borrowing Mechanism (ALBM) of the National Stock Exchange-Respondent No. 1. It was submitted that the Respondent No. 1 (NSE) is a company incorporated under the provisions of the Companies Act, 1956 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1, 4 to 8 has further submitted that on or about 19th April, 2001, the Investor Grievances Cell of NSE forwarded the complaint to the Respondent No. 3, broker for his response and simultaneously the Investor Grievances Cell verified from their records and found that none of the purported transactions tallied with the records of the NSE referred to as the NEAT System ( i.e., the National Exchange for Automated Trading) and accordingly by a letter dated 28th April, 2001 the Petitioner was informed accordingly. In response to the said letter the Petitioner had submitted a purported extract of ledger copy of Respondent No. 3 and also the certificate issued by the Bank. Thereafter, the Investor Grievances Cell of the NSE once again verified the transactions and found that none of the transactions tallied with the records as reflected in the NEAT system and accordingly communicated the same to the Petitioner. The NSE thereafter on or about 11-6-2001 had appointed M/s. C.C. Chokshi Co. a well known Chartered Accountants firm to carry out an inspection audit of the claims made by many investors against the Respondent No. 3. The said Chartered Accoun-tants had perused the data availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims before the NSE and had also filed a formal arbitration against Respondent No. 3. It is submitted on behalf of the NSE that the Petitioner had also filed a criminal complaint against Respondent No. 3, and that the Petitioner had received Rs. 1,14,234.95 from the Respondent No. 3 in the said criminal complaint. It is further submitted that in November, 2001 the petitioner had lodged a revised claim with the NSE after deducting a sum of Rs. 1,14,234.95 received by the Petitioner pursuant to the criminal proceedings filed against the Respondent No. 3. It was submitted by Mr. Bharucha that the Petitioner along with the other investors had consented to compound the criminal offence committed by the Respon- dent No. 3. 16. Mr. Bharucha, the learned senior counsel further submitted on behalf of the NSE that certain representations were made by the investors including the Petitioner regarding the processing of claims. The said representations including that of the Petitioner were placed before the concerned committee for its consideration. Mr. Bharucha contended that the said claims were once again reviewed by the Chartered Accountants firm in relation to partially tallying the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The NSE does not insure parties against the wrong doings of brokers who trade on the NSE. The said amount if payable is to be paid by the National Stock Exchange Investor Protection Fund Trust, a Trust registered under the provisions of the Bombay Public Trust Act, 1950. Hence, the Petition is essentially against a Company and a Trust. According to Mr. Bharucha neither the Company nor the Trust is a State as defined under Article 12 of the Constitution of India against whom a writ can be preferred under Article 226 of the Constitution of India. In support of his submissions, the learned counsel for the NSE has referred to the decision of the Hon ble Supreme Court in the case of Federal Bank Ltd. v. Sagar Thomas [2003] 10 SCC 733, wherein, the Hon ble Supreme Court has held as under :- "From the decisions referred to above, the position that emerges is that a writ petition under Article 226 of the Constitution of India may be maintainable against ( i ) the State (Government); ( ii ) an authority; ( iii ) a statutory body; ( iv ) an instrumentality or agency of the State; ( v ) a company which is financed and owned by the State; ( vi ) a private body run substantially on State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 3 to recover his dues. Referring to the criminal complaint proceedings filed by the Petitioner against the Respondent No. 3, the learned senior counsel for the NSE has submitted that actually the Petitioner has already recovered an amount of Rs. 1,14,234 from the Respondent No. 3. 21. The learned senior counsel Mr. Bharucha for the NSE has further submitted that the claim of the Petitioner is not as per the NEAT system. The learned counsel has pointed out the Bye-law XII(1) which sets out the circumstances in which a broker may be declared a defaulter. Bye-law XII(2) provides that trading member may be declared a defaulter if he fails to meet an obligation arising out of Exchange transactions. The declaration of a broker as a defaulter is essentially as a result of Exchange of transactions. The learned counsel for the NSE has submitted that after a broker is declared as a defaulter, certain consequences follow. The assets of the defaulter to the extent they are lying with the Exchange to the credit of the defaulter and amounts due to the defaulter by other trading members shall vest in the Exchange. It is pertinent to note that the personal wealth and assets of the default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties shall be permitted on the NSE as provided in the Bye-laws and save as so provided no other dealings are permitted. Contracts not in accordance with the Bye-laws are thus not permitted. Bye-law V(2)( b ) provides that all contracts for deals on the Exchange shall be in accordance with the Bye-laws, Rules and Regulations of the NSE. In the present case the facts set out above clearly show that contracts are not compliant. Bye-law VII(4) provides that all dealings in securities shall be made subject to the Byelaws, Rules and Regulations of the NSE. 24. The learned senior counsel, Mr. Bharucha for the NSE has further referred to the Bye-law XII(24) which provides that the Defaulters Committee shall not entertain any claim against a defaulter which arises inter alia out of a contract not made subject to the Bye-laws, Rules and Regulations of the NSE or out of a contract in respect of which comparison of accounts has not been made in the manner prescribed in the Bye-laws, Rules and Regulations or when there has been no comparison if a contract note in respect of such contract has not been rendered as provided in the Bye-laws, Rules and Regulations or which is in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has to abide by its Bye-laws. The learned counsel for the NSE has further submitted that the NSE had set up an independent trust for the purpose of administering and managing the amounts earmarked specifically towards the Investor Protection Fund. Such a trust was created by a Deed of Trust dated 11th July, 1995 and is registered under the Bombay Public Trust Act. Referring to the Clause 10( i ) of the said Trust Deed the learned counsel for the NSE has submitted that the said clause inter alia provided that the net income from the trust would be utilised by the trustees inter alia for the purpose of compensating any loss which may be suffered by any person including a trading member or constituent arising from a trading member being declared as a defaulter by the settler (NSE) under Chapter XII of the Settler s Bye-law upto a limit as may be determined by the trustees. According to him, the express reference to Chapter XII clearly implies that the payment can only be in respect of a loss admissible under Chapter XII of the Bye-laws. Thereafter the learned counsel for the NSE has referred to Clause 12 of the Trust Deed which inter alia provides that the settlement of clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NSE has contended that it is further relevant to note that in the Statement of Claim filed by the Petitioner before the NSE it is admitted that the Respondent No. 3 has used the amounts to finance its personal trading loss instead of investing on the ALBM, and it is also admitted that the Respondent No. 3 had been issuing fraudulent and false contract notes. According to him it is thus an admitted position that the transactions were not recorded in the records of the NSE. It is submitted that the Investors Protection Fund has been set up by the Exchange primarily to compensate any loss that may be suffered by a constituent or a trading member provided, however, that the claim made by the constituent has to be based on transactions executed through the Exchange. According to the learned senior counsel for the NSE, it is very clear that for considering any claim to be valid it must be substantiated by the transaction done/executed and recorded on the NEAT System of the NSE, and that the evidence of payment/proof of delivery of securities by the claimant to the trading member should also be produced. According to him it is an admitted position by the Petitioner himself that the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been transacted through the NEAT System and hence the said claim would be disallowed. According to the learned Senior Counsel for the NSE, the amount purported to have been deposited by the Petitioner with the Respondent No. 3 is not "connected with the purchase and sale of the securities". According to him, the said amount was placed by the Petitioner for Badla Transaction, which would per se amount to a speculative transaction falling under clause 2( ii ) of the Guidelines and hence the trustees are not liable to pay any losses to the constituents. The learned Senior Counsel for the NSE has further contended that the petitioner or the persons similarly situated will not be entitled to compensation from the Fund merely on a bare reading of the Guidelines, as the Guidelines have to be read in furtherance of the Bye-laws. 31. Thereafter, the learned senior counsel for the NSE has submitted that it was reiterated by the trustees in their meeting held on 2-4-2002 that only the genuine and bona fide claims in respect of which an order/trade is recorded in the NEAT System would be eligible for consideration. 32. While dealing with the petitioners argument that they were e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be referred to arbitration. According to him it is further relevant that some of the transactions may have gone through the NEAT System fully or partially and the NSE has considered such claims to the extent they are recorded in the NEAT System. According to him, most arbitrations involving defaulting brokers (as in the instant case) are decided ex parte, and that NSE is not a party to the arbitration. The learned senior counsel for the NSE has, therefore, submitted that it is very clear that mere reference to arbitration does not amount to any admission on the part of the NSE that the transaction has gone through the NEAT System or that the loss caused to a constituent is such as is covered by the Bye-laws. In the premises, therefore, the learned senior counsel for the NSE has submitted that the present Petition be dismissed with costs. 34. Mr. Jha, the learned counsel for SEBI, sought to contend that the claims of the Petitioners are contractual in nature, hence the same cannot be enforced through writs and relied on certain decisions of the Supreme Court. Submissions of Adv. Narulla in W.P. No. 395 of 2004 35. Mr. Narulla, the learned counsel appearing for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes setting up a defaulter committee to take charge of assets of the defaulter brokers, realization of the assets of the defaulter, taking/initiating legal action against the defaulter to recover the moneys and distribution of surplus assets of defaulter amongst the claimants including constituents. The learned counsel for the Petitioner has further submitted that the Respondent No. 1 in conformity with the guidelines issued by the Central Government and SEBI, has set up an Investors Protection Fund Trust as a charitable trust and made provisions pertaining to the fund under Chapter XIII of the Bye-laws which deals with creation of fund, utilization of fund money, distribution of moneys out of fund etc. The learned counsel for the Petitioner has also submitted that the Respondent No. 5 in the month of February, 1997 had framed a Scheme called "Securities Lending Scheme" with the main object to facilitate smooth settlement of trades at Stock Exchanges, and under the said Scheme the Respondent No. 5 has made it mandatory that the Securities Lending Scheme can be functioned through an approved intermediary who will guarantee the return of equivalent securities of the same type and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Petitioner, the Petitioner and other investors had participated into the ALBM because it was a secured lending scheme introduced by Respondent No. 1 through its subsidiary company Respondent No. 2 who acted as intermediary. The learned counsel has further submitted that the petitioner and other investors have lent/borrowed securities to Respondent No. 2 through the Trading Members of Respondent No. 1 and Clearing Members of Respondent No. 2 and, therefore, the Respondent Nos. 1 2 are liable to indemnify the investors who have not received back monies/securities from their trading member/clearing member/ participants. The learned counsel for the petitioner has submitted that during the period from 29-3-2000 to 12-3-2001 the petitioner has lent monies into ALBM Scheme through Respondent No. 6 as participant of Respondent No. 2 and Trading Member of Respondent No. 1, and the Respondent No. 6 has executed the transactions for lending of money and issued contract notes from time to time confirming thereby the details of the lending transactions executed by them as participant for and on behalf of the Petitioner. The learned counsel for the Petitioner has submitted that the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to get the amount refunded by Respondent No. 2 as the Petitioner had lent money through Respondent No. 6 as participant under ALBM Scheme and it was the responsibility of Respondent Nos. 1 and 2 under their Regulations to ensure that their participant and Trading Member are carrying out their business of stockbroker strictly in compliance with Rules, Bye-laws and Regulations of Respondent Nos. 1 2, SEBI Act and Securities Contract Regulation Act. In view thereof, the learned counsel for the Petitioner has submitted that the Respondent Nos. 1 2 cannot escape themselves from their responsibilities for their failure and cannot deny the claim of the Petitioner. 39. Referring to the Award dated 22-11-2002 passed by the Arbitral Tribunal, Mr. Narulla, the learned counsel for the Petitioner has contended that as per the said Award the Petitioner is entitled to recover a sum of Rs. 37,62,296.82 from Respondent No. 6 in accordance with the provi- sions of the Rules, Bye-laws and Regulations of Respondent No. 1. The learned counsel for the Petitioner has further submitted that since the Arbitral Tribunal has adjudicated that the Petitioner is entitled to recover a sum of Rs. 37,62, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the Petitioner has submitted that the decision taken by the Respondent Nos. 3 and 4 as communicated by letter dated 19-9-2002 is also arbitrary, bad in law, illegal and void as no reasons are mentioned for rejection of the Petitioner s claim. According to the learned Counsel for the Petitioner, the impugned decisions are against the principles of natural justice, arbitrary, capricious and liable to be set aside. Submissions of Mr. Makhija, the learned counsel for the Petitioner in W.P. No. 2055 of 2004 42. The learned counsel for the Petitioner in W.P. No. 2055 of 2004 has submitted that the decision taken by the Respondent Nos. 3 and 4 ( viz. National Stock Exchange Investor Protection Fund Trust and Defaulter Committee) not to compensate the Petitioner as communicated by the letter dated 19-9-2002 is arbitrary, bad in law, illegal and void as no reasons are mentioned for rejection of the claim of the Petitioner. According to the learned counsel for the Petitioner, the Respondent No. 1 - National Stock Exchange of India Limited has failed to notify the basis on which certain amounts are taken as admissible and certain amounts are taken as not admissible for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim lodged by the Petitioner though all the claimants belong to the same category. Therefore, according to the learned counsel for the Petitioner, the pro rata amount from the surplus assets were required to be distributed amongst all the investors, however, the Respondent No. 4 has conducted their statutory duties in gross violation of the provisions of Chapter XII of the Bye-laws of Respondent No. 1. 44. The learned counsel for the Petitioner has further contended that the entire procedure and method adopted by Respondent No. 1 in processing the said claims is not only arbitrary but has been extremely secretive and has lacked transparency. According to him, the Respondent No. 5 by refusing to compensate the Petitioner for losses incurred on account of Respondent No. 6, the Respondent No. 5 has failed to perform its statutory duty to protect small investors. The learned counsel for the Petitioner has even pointed out that despite complaints made by various investors to Respondent No. 5, the Respondent No. 5 has failed to initiate any steps against Respondent Nos. 1 and 2 as it ought to have done. According to him, the effect of the impugned actions of Respondent Nos. 1, 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 6. The Petitioner has also prayed for a direction to Respondent No. 5 to conduct an enquiry in accordance with section 11 of the SEBI Act into the affairs of Respondent Nos. 1 2 regarding settlement/disbursement of the claims arising out of the Securities Lending Scheme/ALBM Scheme and submit its report to this Court. Submissions of Mr. Mehta, the learned counsel for the Petitioner in Writ Petition No. 2764 of 2004 47. Mr. Mehta, the learned counsel for the Petitioner in the above Petition, has strongly submitted that the Respondent No. 1 - National Stock Exchange of India has erred in its decision not to compensate the Petitioner for the losses incurred by him on account of the default of Respondent No. 8 - Mr. Bhavesh Dhirajlal Sethia, and to selectively compensate only some constituents of Respondent No. 8 for their losses, by adopting a completely discriminatory, arbitrary and capricious criteria. The learned counsel for the Petitioner has further submitted that the entire procedure and manner in which the Respondent No. 1 has gone about processing claims made by the Petitioner is not only completely arbitrary and contrary to its own Bye-laws and the 1996 Guideline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of default of Respondent No. 8, has failed to perform the statutory duty to protect the small investors. According to him, the effect of impugned actions of Respondent Nos. 1 to 7 has resulted in a violation of the Petitioner s rights as guaranteed under Articles 14 and 300A of the Constitution of India. 51. In the circumstances, the learned counsel for the Petitioner has prayed that the Guidelines issued by Respondent No. 1 and Respondent Nos. 2 to 6 on 2-4-2002 be declared to be illegal and ultra vires the Bye-laws of Respondent No. 1 as well as the 1996 Guidelines. It is also prayed in the alternative that the Guidelines issued by Respondent No. 1 and Respondent Nos. 2 to 6 on 2-4-2002 be declared to be operative prospectively and not retrospectively, and that it be declared that the Petitioner s claim made to the Investors Protection Fund is governed by the Bye-laws of Respondent No. 1 read with 1996 Guidelines. It is also prayed by the Petitioner that the said Guidelines issued by Respondent No. 1 and Respondent Nos. 2 to 6 on 2-4-2002 be quashed and set aside, and that the decisions communicated to the Petitioner vide letters dated 26-4-2002, 19-6-2002 and 16-1- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also prayed for a direction to Respondent No. 5 to conduct an enquiry in accordance with section 11 of the SEBI Act into the affairs of Respondent Nos. 1 2 regarding settlement/disbursement of the claims arising out of the Securities Lending Scheme/ALBM Scheme and submit its report to this Court. 53. So far as Writ Petition No. 2735 of 2004 is concerned, the learned senior counsel Mr. Seervai appearing for the Petitioner has submitted that the learned Arbitrator appointed by the Stock Exchange itself had passed an Award on 31-7-2002 in favour of the Petitioner holding thereby that an amount of Rs. 2,78,217.71 was due and payable by Respondent No. 8 to the Petitioner with interest at the rate of 15 per cent per annum from 13-7-2001 till payment. Referring to the Advocate s letter dated 21-10-2002 written to the National Stock Exchange, the learned counsel for the Petitioner has further submitted that on or about September/October, 2002 the Petitioner has received a sum of Rs. 9,820.35 and Rs. 11,406.12 respectively from the funds of the said broker leaving thereby a balance amount due and payable to the Petitioner in the sum of Rs. 2,72,397.36. Ultimately, the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on default of M/s. Bhavesh Dhirajlal Stock Broking Company Limited, so far as Writ Petition No. 2047 of 2004 is concerned the Petitioner is entitled to a net claim in the sum of Rs. 7,76,004.93 as compensation for the loss suffered on default of M/s. Bhavesh Dhirajlal Stock Broking Company Limited, and so far as Writ Petition No. 2048 of 2004 is concerned the Petitioner is entitled to a net claim in the sum of Rs. 14,36,211.20 as compensation for the loss suffered on default of M/s. Bhavesh Dhirajlal Stock Broking Company. Mr. Narulla has, therefore, submitted that in all the aforesaid Petitions the Petitioners have prayed for almost similar prayers viz., for a declarations that the Guidelines issued by Respondent No. 1 on 2-4-2002, be declared to be illegal and ultra vires the Bye-laws of Respondent No. 1 as well as the 1996 Guidelines and cannot be made applicable to the cases of the Petitioners, and for quashing setting aside the same, and for a direction to Respondent Nos. 1 3 to act in strict compliance with and to scrupulously follow the provisions of Chapter XIII of its Bye-laws made under section 9 of the Securities Contracts (Regulation) Act, 1956 as also the 1996 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ye-laws for criticism. The bye-laws to be made, amended or revised under the Act shall be published for criticism in accordance with the provisions of section 23 of the General Clauses Act, 1897 both in the Gazette of India and Official Gazette of the State in which the principal office of the recognised stock exchange is situate." 59. It appears that pursuant to the said powers the National Stock Exchange has framed the Bye-laws in June, 2000 wherein Chapter XIII deals with the Investors Protection Fund and the relevant Rules 1, 2 and 3 of the said Chapter read as under: (1)In respect of such market segment of the Exchange as may be prescribed by the relevant authority, an Investors Protection Fund shall be maintained, to which each trading member shall contribute the amounts required by this Part, 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 under Chapter XII. (2)Subject to this part, the amount which may claimant shall be entitled to claim as compensation shall be the amount of the actual loss suffered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/trade is recorded on the NEAT system, will be eligible for consideration irrespective of whether the Claimant produces a copy of contract note as proof or otherwise. (2)No claim shall be entertained unless such a claim is supported with necessary and sufficient proof of payment/delivery of securities to the member who is declared a defaulter/expelled, either directly or through a registered sub-broker. (3)All claims, which meet the requirements of (1) and (2) above, will be eligible for consideration by the Exchange. (4)Any claim which does not meet both the requirements of (1) and (2) above shall be placed before the Defaulters Committee for scrutiny and the Committee may consider each case on its merit, and a decision on any case, on the basis of the merits of each case shall not constitute/be quoted as, a precedent in another case. (5)While considering a claim referred under condition (4) above, the Defaulters Committee may direct payment of such claims, which, in the opinion of the Defaulters Committee are made by a genuine and bona fide investor and the claim has direct relevance to such transactions through the NEAT system of the Exchange. (6)A claim will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that none of the claims of the Petitioners for compensation were collusive with the defaulting Trading Member or fraudulent. Mr. Bharucha also does not dispute that the claims of the Petitioners were genuine, however, as the transactions are not reflected in the NEAT system of the National Stock Exchange, the petitioners are not entitled to such compensation out of the Investor Protection Fund. 67. All the Petitioners had invested their funds with the Trading Member when the 1996 Guidelines were in force. The Trading Member was declared a defaulter when 1996 Guidelines were in force. Even when the claims of the Petitioners were made, 1996 Guidelines were in force. Therefore, it is very clear that 1996 Guidelines would cover the cases of the Petitioners. 68. Even Mr. Bharucha did not rightly contend that the 2002 Guidelines have a retrospective effect. There is nothing expressly or impliedly in the said 2002 Guidelines to hold that they have a retrospective effect. We are clearly of the view that the said 2002 Guidelines can only be prospectively applied and that they have no retrospective effect. 69. Hence we have to decide whether the claims of the Petitioners can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of securities at the National Stock Exchange. In the cases of Petitioners claim of compensation do not pertain to any repayment of loan or deposit given to the Trading Member, unconnected with the sale or purchase of securities, hence the said argument cannot be sustained. 75. Similarly, the Petitioners seeking to invest in ALBM of National Stock Exchange cannot be construed as speculative transactions, so as to prohibit claims of compensation. There is also no dispute that the National Stock Exchange has been regularly compensating claims arising out of investment in ALBM of the National Stock Exchange. Therefore we are clearly of the view that the claims of Petitioners for compensation cannot be denied on the ground that such proposed investment in the ALBM of National Stock Exchange would amount to speculation as contemplated under section 1996 II(2)( ii ) Guidelines. 76. The final objection of Mr. Bharucha is that all the Petitions are solely for monetary claims, hence not maintainable. On the contrary all the Petitioners in the above Petitions in substance are seeking enforcement of 1996 Guidelines and 2000 Bye-laws and by way consequential relief are seeking mon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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