Brokers who have an inglorious record of dealing with stock investors are demanding money from, and action against, NSEL. However, it is not only the Exchange that is to blame, but brokers who have mis-sold the NSEL product to investors. They too are liable for legal acton by their clients
Several brokers and their associations are asking the government to take action against National Spot Exchange Ltd (NSEL), which they claim has the financial obligation for paying back to them. However, the fact is that it was brokers, who lured investors in the first place to get risk-free gains from NSEL. Thus, it is investors who should first take action against brokers for giving them the contract note of NSEL. Contract note is certainly a legal document in an exchange that was sanctioned to run by a ministry, in this case, the Ministry of Consumer Affairs.
Commodity Participants Association of India along with Association of National Exchanges Members of India and BSE Brokers Forum has also threatened that they will move court if commodities market regulator Forward Market Commission (FMC) cannot give guarantee on repayment. While that may be a valid course of action, the investors have valid grounds for suing their broker for defaulting on their obligation.
The reason is simple. Investors were offered the NSEL product with promises of high fixed returns by the brokerages. Investors primarily gave money to brokers for investment. Therefore, in the first place, it was the brokers' duty to check and verify what they were selling, which they failed in the NSEL case. Crying foul about the functioning of the Exchange is valid but can the brokers escape their role in this?
These brokers, pretending as if they do not know anything about NSEL operations, are now expressing concerns over quantity and quality of commodities lying in warehouses controlled by NSEL. Brokers are claiming it was NSEL’s responsibility to verify stocks. Brokers have even demanded that the government should take over Financial Technologies India Ltd (FT) the promoters of NSEL as well until the mess is cleaned up.
Kirit Somaiya-led Investors’ Grievances Forum (IGF) went further. IGF has filed a complaint with the economic offences wing (EoW) of the Mumbai Police against NSEL. The Forum while demanding police to file first information report (FIR), accused NSEL of cheating, fraud, forgery with the victims being 17,000 small farmers and investors. In all fairness, IGL should add brokers to the list of those who have sold a dubious product to investors.
Interestingly, a circular from NSEL says, “Giving / taking delivery of commodities in ‘demat mode’ should be directly to / from the ‘beneficiary accounts’ of the Clients except delivery of commodities to a recognised entity under the approved scheme of the Exchange.” Did the brokers ensure this, clients can ask.
The NSEL circular also says, “Member of the Exchange shall make the Client aware of…the precise nature of business to be conducted, the risk associated with business in trading in contracts permitted in the exchange for Spot Trading, including any limitations on that liability and the capacity in which the Member of the Exchange acts and the Client’s liability thereon.” Was this done by brokers? Most certainly not.
The NSEL circular also says, “The Exchange Member shall not furnish any false or misleading information or advice with a view to inducing the Client to do business in particular contract or contracts and which shall enable the Exchange Member to profit thereby.” Making presentations to clients, which gives the impression that NSEL contracts offer a high fixed return while the funds are secured against goods, is clearly a violation of members’ responsibilities, in the eyes of investors.
The brokers who are leading the charge do not exactly have a shining record of treating their customers fairly in the stock market. From forging Power of Attorney frauds to unauthorized trading, to illegal selling of shares, they have indulged in multiple misdemeanors. All of them have got away too, thanks to a grievance-handling system of the exchanges and the market regulator that is loaded against investors.
A Board of Inquiry is being instituted to investigate the explosion and subsequent fire onboard INS Sindurakshak, a Kilo class submarine of the Indian Navy
The Indian Navy on Wednesday ordered a board of inquiry to probe the explosion and subsequent fire on-board its submarine INS Sindurakshak, which has sunk. The fate of 18 persons on-board the submarine is being ascertained, a Navy official said.
An explosion resulting in a major fire took place on board INS Sindhurakshak, a Kilo class submarine of the Indian Navy, shortly after midnight.
Fire tenders from the Naval dock yard as well as the Mumbai Fire Brigade were immediately pressed into action. However, due to the explosion, the submarine has submerged at the dock with only a portion visible above the surface.
A Board of Inquiry is being instituted to investigate into the causes of the accident, he said.
Despite the order from the FAA, the PIO refused to give information. He even tried to mislead the CIC by making false statements. The CIC while issuing a show cause to the PIO, awarded a compensation of Rs2,000 to the appellant. This is 155th in a series of important judgements given by former Central Information Commissioner Shailesh Gandhi that can be used or quoted in an RTI application
The Central Information Commission (CIC), while allowing an appeal, directed the Public Information Officer (PIO) and assistant officer for value added tax (AVATO), in the Department of Trade and Taxes at Government of National Capital Territory of Delhi (GNCTD) to provide complete information. The CIC also asked the PIO to pay Rs2,000 as compensation to the appellant for the loss and detriment suffered by him of having to file the appeals and not getting information in time.
While giving this judgement on 3 June 2011, Shailesh Gandhi, the then Central Information Commissioner said, “The PIO did not give any justification for refusing to give the information initially and even after the order of the First Appellate Authority (FAA) he did not give the information. Even before the Commission, he was not willing to give the exact position. It does not need too much imagination to guess why there was such a resolute refusal to provide the information.”
Delhi resident LG Dass, on 22 November 2010, sought from the PIO information about action taken on a complaint he filed against a particular dealer who was using different series of retail invoices and not charging VAT on the car accessories. Here is the information he sought under the RTI Act...
1. Please inform the progress in the matter and particulars of action taken by this public authority against the dealer in pursuance of the aforesaid complaint dated 4 October 2010 followed by the, addendum dated 21 October 2010.
2. Please also supply copies of documents, correspondence, replies and file notings etc. in respect of enquiries & investigation initiated and/or conducted by this public authority till date in this regard.
In his reply on 24 December 2012, the PIO said, "This office has received your letter dated 4 October 2010. However, further details in this regard cannot be disclosed as these are prohibited under Section 8(1) (h) of the RTI Act, 2005 which inter alia states:
8 (1) Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen, -
h)information which would impede the process of investigation or apprehension or prosecution of offenders;"
Again in a reply on 3 March 2010, the PIO stated, "However, in your case the status of enquiry or verification has changed since the date of providing information to you in response to your original application. Now, in this regard, the application has been forwarded to the VATO (KDU)/ Assessing Authority for further necessary action at their end. Since the matter pertains to third party information, a submission of TR Sawhney is being sought as stipulated under section 11 of the RTI Act. After the comments or submissions are received, you will be accordingly informed."
Dass, the applicant, citing information denied filed his first appeal. In his order the First Appellate Authority (FAA), said, "The PIO shall have the re-look into the issue and act in accordance with the law laid down by the High Court of Delhi. He shall furnish the information or respond the appellant as within 15 days."
Even after the FAA's order, the PIO did not provide the information. Dass then approached the CIC with his second appeal.
During the hearing, Mr Gandhi noted that the appellant (Dass) had filed a complaint on 4 October 2010 followed by an addendum on 21 October 2010. He had complained that a particular dealer was using different series of retail invoices and not charging VAT on the car accessories. Thus the appellant had filed a complaint about somebody fraudulently depriving the state of revenue. Through this RTI application he sought the action taken on this complaint, the CIC noted.
Mr Gandhi said, "The PIO has not provided the information as per the order of the FAA and Subhash (the PIO) has been trying to mislead the Commission by making false statements."
The FAA had ordered that the information should be provided within 15 days considering the order of the Delhi High Court in the Bhagat Singh Case.
"It is apparent that the PIO had made up his mind not to provide the information. Initially he refused to give the information claiming exemption under Section 8(1)(h) of the RTI Act, without giving any reasons as to how disclosing the information would impede the process of investigation," Mr Gandhi said.
Under Section 19(5) of the RTI Act, the onus to prove the denial of information was justified and is on the PIO. "The PIO did not give any justification for refusing to give the information initially and even after the order of the FAA he did not give the information. Even before the Commission, he was not willing to give the exact position. It does not need too much imagination to guess why there was such a resolute refusal to provide the information," the CIC noted.
The Bench said, "The appellant has been unnecessarily harassed by the actions of the PIO and put to trouble by having to file the first and second appeal. An ordinary citizen instead of complaining and fighting succumbs to the pressure of undesirable functioning in offices instead of standing against it. Therefore, the award of compensation for harassment by public authorities not only compensates the individual, satisfies him personally but helps in curing social evil. It may result in improving the work culture and help in changing the outlook."
While allowing the appeal, Mr Gandhi directed the PIO to provide complete information available on records. Exercising its powers under Section 19(8)(b) of the RTI Act, the Bench awarded a compensation of Rs2000 to Dass for the loss and detriment suffered by him of having to file the appeals and not getting the information in time.
In addition, the CIC also issued a show cause notice to the PIO after finding him guilty of not furnishing information within the time specified under sub-section (1) of Section 7 by not replying within 30 days, as per the requirement of the RTI Act. "He has further refused to obey the orders of his superior officer, which raises a reasonable doubt that the denial of information may also be malafide," the Bench noted.
CENTRAL INFORMATION COMMISSION
Decision No. CIC/SG/A/2011/000897/12692
Appeal No. CIC/SG/A/2011/000897
Appellant : LG Dass,
Respondent : Subhash
Public Information Officer & AVATO (HQ)
Department of Trade and Taxes, GNCTD
O/o Commissioner (Enforcement- I),
Vyapar Bhawan, IP Estate,