w w w . L a w y e r S e r v i c e s . i n



Motilal Oswal Securities Ltd., Maharashtra v/s The New India Assurance Co. Ltd., Maharashtra & Others

    Consumer Case No. 32 of 2009

    Decided On, 07 June 2022

    At, National Consumer Disputes Redressal Commission NCDRC

    By, THE HONOURABLE MR. JUSTICE RAM SURAT RAM MAURYA
    By, PRESIDING MEMBER

    For the Complainant: Saurajay Nanda, V.K. Sharma, Mansa Shukla, Advocates. For the Opposite Parties: Amit Kumar Singh, Tovikato Alhumi, Advocates.



Judgment Text

1. Heard Mr. Saurajay Nanda, Advocate, for the complainant and Mr. Amit Kumar Singh, Advocate, for the opposite parties.

2. Motilal Oswal Securities Ltd. (the Insured) has filed above complaint for directing The New India Assurance Company Ltd. (the Insurer) to pay (i) Rs.7972500/- with interest @18% per annum from six months after the loss till the date of payment towards EMIC claim, (ii) Rs.1647305/- with interest @18% per annum from six months after the loss till the date of payment towards Durga Chemical claim, (iii) Rs.4114765/- with interest @18% per annum from six months after the loss till the date of payment towards Morgan Stanley claim, (iv) the costs of the litigation and (v) any other relief, which is deemed fit and proper, in the facts of the case.

3. The facts, as stated in the complaint and emerged from the documents attached with the complaint, are as follows:-

(a) The Insured was a stock broker on the Bombay Stock Exchange (with SEBI Registration No. INB 011041257) and National Stock Exchange (with SEBI Registration No. INB231041238) and provides services to the investors in stock market. The New India Assurance Company Ltd. (the Insurer) is a public sector insurance company and used to provide different types of insurance services. The Insured obtained (i) Stock Brokers Indemnity Policy No.130800/46/05/01246, for Rs.200/- lacs, valid from 01.07.2005 to 30.06.2006, (ii) Stock Brokers Indemnity Policy No.112700/46/06/51/0000419 for Rs.200/- lacs, valid from 01.07.2005 to 30.06.2006 and (iii) Stock Brokers Indemnity Policy No.112700/46/06/51/0000419, for Rs.400/- lacs, valid from 01.06.2006 to 31.05.2007, from the Insurer.

(b)(i) The Insured received an order from Emerging Market to sell 923112 shares of Indian Overseas Bank on 17.05.2006. Soros Fund Management, a Foreign Institutional Investor placed an order to the Insured to buy a block of 500000 shares of Indian Overseas Bank at the rate of Rs.94/- per share on 17.05.2006. The Insured instructed its dealer Kiran Patel to put the buy order for shares of Indian Overseas Bank and simultaneously placed a sale order with another dealer Parvez Moosani on 17.05.2006. However, the dealer Parvez Moosani committed a mistake and placed the order for sale of the share in regular segment of market instead of segment of Foreign Institutional Investors. Standard Chartered Bank, the custodian of the Insured informed that the deal was cancelled as Foreign Institutional Investor could not buy the shares from regular segment.

(ii) The Insured informed the dealer that the deal was wrongly placed in regular segment of market, due to which, the deal was cancelled. On 18.05.2006, the Insured notified the insurance claim to the Insurer, under Stock Brokers Indemnity Policy No.130800/46/05/01246. The Insured sold these share on 19.05.2006 at the rate of Rs.78.055 per share and suffered a loss of Rs.7972500/.

(iii) The Insurer appointed Sudhir Tandon & Company, Mumbai as the surveyor to assess the loss. The surveyor submitted his Final Survey Report dated 04.09.2006, in which, he has verified the loss of Rs.7972500/-. However, he observed that the claim was not payable as per valuation method prescribed under the policy. He further observed that the claim falls outside the scope of policy.

(iv) Thereafter, the Insurer repudiated the claim, vide letter dated 11.01.2008 on the grounds that (i) the insured loss was not payable as per valuation method, (ii) Exclusion clause-1 (b) of Part I and Part II of the Policy excluded loss attributable to loss of market or delay on the part of the Insured as there was delay in squaring up the erroneous trades by the insured and (iii) reasonable care was not exercised by the insured to minimize the loss.

(c)(i) On 15.05.2006, the account of M/s. Durga Chemical Agency, a client of the Insured was showing a debit balance. Risk Management System Team of the Insured at its Head Office squared off the position of the client by selling its share on 16.05.2006 as they had no information of deposit of cheque and under impression that debit balance was still there. Although M/s. Durga Chemical Agency provided a cheque to clear the debit balance, on 15.05.2006 to the Ludhiana Branch of the Insured who had punched it into their internal system. On coming to know that M/s. Durga Chemical Agency had provided a cheque to the Ludhiana Branch on 15.05.2006 in respect of debit balance, the Insured bought back those shares in client account on 17.05.2006, in which, the Insured suffered loss of Rs.1647305/-.

(ii) The Insured notified the loss on 18.05.2006 to the Insurer under Stock Brokers Indemnity Policy No.112700/46/06/51/0000419. The Insurer appointed R.G. Verma, New Delhi, for survey and assessment of loss, who conducted survey and submitted his Survey Report dated 04.10.2006, in which, he assessed the loss to Rs.1632305/- (excluding Rs.15000/- under excess clause of the policy). The Insurer vide letter dated 22.03.2007, repudiated the claim on the ground that it was a case of “Trading Loss” and not payable under the policy.

(d)(i) On 15.06.2006, at 9:15 hours, Mr. Kenneth Chau, a dealer of Morgan Stanley placed a stop loss order of nifty 520 lots. On 15.06.2006, at 15:10 hours, Mr. Darren Letts, another dealer of Morgan Stanley placed order to buy 2500 lots nifty till close. The Insured gave confirmation on 15.06.2006, at 15:30 hours for purchase of 1980 lots nifty, which was actually bought. On realizing mistake, 520 lots nifty was purchased on 16.06.2006, resulting in loss of Rs.4114765/-.

(ii) The Insured notified the loss on 17.06.2006 to the Insurer under Stock Brokers Indemnity Policy No.112700/46/06/51/0000419. The Insurer appointed R.G. Verma, New Delhi, for survey and assessment of loss, who conducted survey and submitted his Survey Report dated 26.10.2006, in which, he assessed the loss to Rs.4089765/-, adjusting excess clause of the policy. However, he observed that it was consequential loss due to increase in opening rate of nifty on next day i.e. 16.06.2006. The Insurer repudiated the claim vide letter dated 23.07.2007 on the ground that loss falls within the Exclusion clause-5 (A) (C) & 12, i.e. the loss attributable to business and trading loss of the assured, including non-recovery of trade debts & indirect or consequential losses of any nature.

(e) The Insured filed this complaint on 06.03.2009, claiming deficiency in service on the part of Insurer.

4. The Insurer filed its written reply on 28.08.2009, in which, the material facts relating to the business of the Insured, issue of the insurance policies and losses as mentioned in the complaint, have not been denied. It has been stated that as soon as the letters/claims of the Insured were received, Insurer appointed the surveyor, for survey and assessment of loss. After receiving the reports of the surveyor, entire papers were examined by the competent authority, who found that the claims were falling in Exclusion clauses of the policies, as such, the claims were repudiated. Under Clause-3 (a) of the policy, the assured is indemnified against its legal liability to pay compensatory damages from any claim made against it. In the present cases no legal liability was created against the insured nor any of his clients had set up any claim against him, as such the claims were not payable. The losses occurred as the Insured had failed to observe reasonable care in trade and also failed to take steps to minimize the loss. The surveyor, in his report dated 04.09.2006 pointed out that the Insured had not applied correct valuation method according to the policy. There was no deficiency in service on the part of Insurer. The complainant has remedy to invoke arbitration clause under the policy. The complainant is engaged in speculative business and is not a consumer and the complaint is not maintainable. The complainant has joined three different claims in different policies, in order to make the complaint within the pecuniary jurisdiction of this Commission as all the three claims were below Rs.one crore. The Consumer Protection Act, 1986 does not contain any provision permitting joinder of causes of action and the complaint is liable to be dismissed on this ground alone. The present complaint raises complicated question of facts, which cannot be decided in exercise of summary jurisdiction of the Consumer Protection Act, 1986.

5. The Insured filed his Rejoinder Reply on 15.12.2009, in which, the facts stated in the complaint were reiterated. The Insured filed various documentary evidence and Affidavit of Evidence of Subhash Earath. The Insurer filed documentary evidence and Affidavit of Evidence of S.K. Kundra, Manager Law. Both the parties filed their written synopsis.

6. I have considered the arguments of the counsel for the parties and examined the record. Relying upon judgment of Supreme Court in Ethiopian Airlines Vs. Ganesh Narain Saboo, (2011) 8 SCC 539, the counsel for the Insurer submitted that Order 2 Rule 3 C.P.C. has not been applied in the proceeding under Consumer Protection Act, 1986 as such joinder of causes of action is not permissible. So far as objection of the Insurer in respect of joinder of causes of action is concerned, there is no dispute that all the causes of action were against the Insurer under the different policies issued to the Insured. Although Order 2 Rule 3 C.P.C. has not been applied in the proceedings under the Consumer Protection Act, 1986 but Supreme Court in Civil Appeal No. 1779 of 2021, Brigade Enterprises Ltd. Vs. Anil Kumar Virmani (decided on 17.12.2021) held that under Section 13 (2) of the General Clauses Act, 1897, the word in singular shall include the plural and vice versa. As such one complaint by several consumer can be treated a joint complaint under Section 35 (1) (a) of the Consumer Protection Act, 2019. Joinder of several causes of action by different consumers in one complaint have been permitted. This Commission in Patel Engineering Limited Vs. New India Assurance Company Ltd., 2015 SCC OnLine NCDRC 198, also permitted joinder of causes of action in one complaint. In the present case, the consumer and service provider are same as such filing of one complaint for three claims is permitted on the aforesaid principle. As such preliminary objection has no force. Similarly objection to the pecuniary jurisdiction has also no force as the value of first claim as claimed in the complaint exceeds Rs. one crore.

7. So far as objection of the Insurer that the Insured has remedy to invoke for arbitration is concerned Supreme Court in Fair Air Engineers Pvt. Ltd. Vs. N.K. Modi, (1996) 6 SCC 385, Sky Pack Courier Ltd. Vs. Tata Chemicals Ltd. (2000) 5 SCC 294 and Emaar MGF Land Limited Vs. Aftab Singh, I (2019) CPJ 5 (SC) held that arbitration clause does not affect the jurisdiction of consumer fora. This Commission in Harsolia Motors Vs. National Insurance Company Ltd., (2005) I CPJ 27 (NC), held that contract of insurance is a contract of indemnity, as such, it cannot be treated as trade for profit and consumer complaint claiming deficiency is service is maintainable. In the present case, disputes arise out of Insurance Policies and not in respect of the trade of the Insured. The case laws in Morgan Stanley Mutual Fund Vs. Kartik Das, (1994) CPJ 7 (SC), Unit Trust of India Vs. Sabitri Devi Agrawal, (2000) II CPJ 4 (NC) and Balwant Kumar Gyan Chand Mittal Vs. Networth Stock Broking Ltd. (2015) II CPJ 535 (NC) have no application in the present case.

8. Relevant Clause of Stock Broker Indemnity Insurance Policy issued in the year 2005 is quoted below:-

“Section-3(a)- Errors & Omissions

This Section is to indemnify the Assured against their legal liability to pay compensatory damages, including claimants costs, for any claims made against them as a consequence of transaction entered by the Assured on the Stock Exchange, Mumbai during the period of insurance stated in the Schedule and notified to Underwriters during that period. It is agreed that the transactions on the Stock Exchange, Mumbai are extended to include the transactions on the Internet Trading, Debt Segment and Government Securities derivative Segment of the Exchange and subject to the provisions of Clause (a) under Additional Exclusions in respect of Section-3 Errors & Omissions under Part-1 of the Policy:

“INSURING CLAUSE 1: Negligence as a direct result of any negligent act, negligent error, negligent omission or negligent breach of professional duty owed to clients.”

9. Repudiation letter dated 11.01.2008, pertaining to the claim in respect of loss of Emerging Market records following reasons namely (i) the insured loss was not payable as per valuation method, (ii) Exclusion clause-1 (b) of Part I and Part II of the Policy excluded loss attributable to loss of market or delay on the part of the Insured as there was delay in squaring up the erroneous trades by the insured and (iii) reasonable care was not exercised by the insured to minimize the loss.

10. Clause-6 of Special Conditions In Respect of Part-1 and Part-II of the Policy provides the mode of Calculation of Indemnity:

“Calculation of Indemnity

The maximum indemnity afforded to the Assured hereby in respect of Each Loss shall be calculated by estimating the value of the Securities as at the mid-market price (calculated as the average of the opening and the closing price published by the Stock Exchange) or value on the day immediately preceding discovery of the circumstances giving rise to the liability or loss (Sundays and Public holidays being omitted) or cost of replacement, whichever is lower or the loss sustained as a result of auction of shares by the Stock Exchange, Mumbai, as applicable.”

11. The surveyor in his Comment in the Final Survey Report dated 04.09.2006, noted that “The one which is higher shall be considered for the purpose of assessment”. On the basis of this observation of the surveyor, in the repudiation letter it has been mentioned that the insured loss was not payable as per valuation method as the Insured has calculated loss according to Clause-6 on lower basis. The observation of the surveyor and in repudiation letter in this respect is contrary to the policy.

12. Section 3 (a) uses the term “legal liability to pay compensatory damage”. The “legal liability” means, liability arises under the law. The Insured has committed mistake and placed the order for sale of the share in regular segment of market instead of segment of Foreign Institutional Investors due to which the deal was cancelled as Foreign Institutional Investor could not buy the shares from regular segment. As such liability to pay damages to the dealer arose against the Insured. The claim is falling under the Insured perils as such exclusion clause is not applicable.

13. Reserve Bank of India issued Circular No.53 dated 17.12.2003. Vide clause-5 of this Circular, it has been provided that Foreign Institutional Investor shall not engage short selling and shall take delivery of securities purchased and give delivery of securities sold. There shall be no squaring off of transactions during the non-delivery period of security. The mistake was committed on 17.05.2006. On 18.05.2006, the Insured notified the insurance claim to the Insurer. The Insured sold these share on 19.05.2006 at the rate of Rs.78.055 per share and suffered a loss of Rs.7972500/. The shares were not received back prior to 19.05.2006 as such according to Circular of Reserve Bank of India it could not be sold prior to 19.05.2006. The observation that the Insured has not taken reasonable care to minimize the loss are wholly uncalled for. The repudiation of the claim was illegal. The Insured was entitled for full amount of claim after deduction of excess clause.

14. The claim in respect of liability for M/s. Durga Chemical Agency, is concerned, it has been stated that the account of M/s. Durga Chemical Agency was showing a debit balance on 15.05.2006. Risk Management System Team of the Insured at its Head Office squared off the position of the client by selling its share on 16.05.2006 as they had no information of deposit of cheque by M/s. Durga Chemical Agency to clear the debit balance, on 15.05.2006 at the Ludhiana Branch of the Insured who had punched it into their internal system. On coming to know that M/s. Durga Chemical Agency had provided a cheque to the Ludhiana Branch on 15.05.2006 in respect of debit balance, the Insured bought back those shares in client account on 17.05.2006, in which, the Insured suffered loss of Rs.1647305/-. The claim was repudiated by letter dated 22.03.2007 on the ground that it was a “trading loss”.

15. Exclusion Clause provides that loss attributable to business or trading losses of the Assured, including non-recovery of trade debts. Trading loss means loss sustained during trade. In the present case, the loss was sustained due to erroneous decision of Risk Management System Team of the Insured at its Head Office to sell the share to cover debit balance, which was an Errors & Omissions as provided under Section 3 (a) of the Policy not during trade of the share. The Insured was entitled to the claim of Rs.1647305/- subject to deduction under excess clause.

16. Relevant Clause of Stock Broker Indemnity Insurance Policy issued in the year 2006 is quoted below:-

“SECTION II : ERRORS & OMISSIONS (LEGAL LIABILITY)

INSURING CLAUSE

This Section, subject to policy terms, exclusions, provisions, limitations and conditions otherwise contained in the Policy or endorsed thereon, provides an Indemnity to the Insured:

1. to be first made against the insured during the Policy Period.

2. Arising out of ordinary course of the provision by the Insured of the transactions conducted and recorded on the National Stock Exchange complying with laid down norms and procedure

A. In respect of the Insured’s legal liability to third parties for any third party claim provided that such third party claim must

i) be for compensatory damages, such Indemnity to include claimant costs and expenses, including such damages and costs and expenses as a result of the Insured’s physical loss of or damage to documents or Securities, but excluding however the intrinsic value of any property or the face value or costs of reconstruction of any documents or any loss payable under an equivalent policy irrespective of the amount thereof and whether or not such a policy is actually maintained by the Insured; and

ii) a) be for financial loss caused by a negligent act, negligent error or negligent omission on the part of an Officer or Employee of the Insured; or

b) be for financial loss caused by a dishonest or fraudulent act or omission on the part of an officer or Employee of the Insured; and

iii) is related to a negligent act, negligent error or negligent omission which was or may have been or is alleged to have been committed or omitted (as the case may be) after the Retroactive Date.

B. against any pecuniary loss suffered by the insured as a direct result of any negligent act, negligent error, negligent commission or omission by their employee (s) taking place in course of insured’s business activity.

Exclusions:

1. Error & Omission committed/ omitted by any Intermediary or their employee is excluded.

However if the Add-On Cover- ‘Error and Omission for Intermediaries’ has been granted on payment of extra premium, this exclusion will not be applicable.”

17. In respect of claim for loss of Morgan Stanley, the Insured stated that on 15.06.2006, at 9:15 hours, Mr. Kenneth Chau, a dealer of Morgan Stanley placed a stop loss order of nifty 520 lots. On 15.06.2006, at 15:10 hours, Mr. Darren Letts, another dealer of Morgan Stanley placed an order to buy 2500 lots nifty till close. The Insured committed mistake and gave confirmation on 15.06.2006, at 15:30 hours for purchase of 1980 lots nifty, due to

Please Login To View The Full Judgment!

earlier of stop loss of nifty 520 lots, which was actually bought. On realizing mistake, 520 lots nifty was purchased on 16.06.2006, resulting in loss of Rs.4114765/-. The Insurer repudiated the claim vide letter dated 23.07.2007 on the ground that loss falls within the Exclusion clause-5 (A) (C) & 12, i.e. the loss attributable to business and trading loss of the assured, including non-recovery of trade debts & indirect or consequential losses of any nature. The claim was covered under Section II Errors & Omissions (Legal Liability). The exclusion clause will not apply. 18. Regulation 9 of The Insurance Regulatory and Development Authority (Protection of Policyholder’s Interest) Regulations, 2002 directs the Surveyors to submit their Survey Report within 30 days and in any case within 45 days, from the date of his appointment. The Insurer has been directed to make settlement within 30 days of receipt of Surveyor’s report. Regulation 9 (6) provides as follows: Regulation-9(6). Upon acceptance of an offer of settlement as stated in sub-regulation (5) by the insured, the payment of the amount due shall be made within seven days from the date of acceptance of the offer of by the insured. In case of delay in the payment, the insurer shall be liable to pay interest at a rate which is 2 per cent, above the bank rate prevalent at the beginning of the financial year, in which the claim is reviewed by it. After expiry of six months, the Insurer is liable to pay interest at a rate which is 2 per cent, above the bank rate prevalent at the beginning of the financial year, in which the claim is reviewed by it. ORDER In view of the aforesaid discussions, the complaint is allowed. The opposite parties are directed to pay (i) Rs.7972500/- after deduction under excess clause, towards EMIC claim, (ii) Rs.1647305/- after deduction under excess clause, towards Durga Chemical claim and (iii) Rs.4114765/- after deduction under excess clause, towards Morgan Stanley claim. On the above amount, the opposite parties shall also pay interest @9% per annum from six months after the loss till the date of payment. The order shall be complied with within two months from the date of the judgement.
O R