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'Those who buy shares as an investment are consumers'

Since shares are "traded", consumer fora treat it as a commercial dispute which is not maintainable. In a recent judgement, the National Commission has differentiated between trading in shares and purchase of shares as an investment, and ruled that an applicant for shares is a consumer.

Arpitha Reddy had paid an amount of Rs 1 lakh by cheque and Rs 1.40 lakhs in installments through cash payment for allotment of shares of Venve Light Metal Ltd. The company had acknowledged receipt of this money in its Board meeting. Yet, neither were the shares issued nor was the money refunded.

Arpitha had a legal notice issued to the company, which responded by asking her to furnish particulars of the payments to look into the complaint. Arpitha produced a copy of the Board Resolution and her bank statement to substantiate her claim. She also relied on a agreement between her and the company for issue of shares worth Rs 2.4 lakhs. The company then admitted receipt of the cash component, but claimed that the cheques had not been realized, and that a false the agreement had been fabricated by Arpitha's husband.

Arpitha filed a complaint before the Hyderabad District Forum claiming Rs 2.40 lakhs along with interest. The company defended itself, contending that there was a change in management. While its records reveal a receipt of Rs 1 lakh, there was no record of the remaining Rs 1.40 lakhs. The company claimed that it had already allotted 10,000 shares of Rs.10 each for the amount of Rs1 lakh.

The District Forum dismissed the complaint, against which Apritha filed an appeal. The Andhra Pradesh State Commission observed that the company failed to produce any document to show that shares had be received by Arpita. Even the Return filed before the Registrar of Companies did not reveal any such allotment. So the Commission refused to believe the company's contention that it had allotted shares of Rs 1 lakh to Arpitha. The Commission also noted that the signature on the agreement matched that of the Chairman of the company. The Board resolution also supported Arpitha's case. Hence the Commission set aside the Forum's order and directed the Opposite Party to pay Rs 2.40 lakhs along with 9% interest from the date of payment and costs of Rs 2,000/.

A revision was filed by the company before the National Commission challenging this order. The company claimed that buying of shares is a purely commercial transaction, so it would fall outside the purview of the Consumer Protection Act. The company also stated that Arpitha had kept silent for almost two years till the company was taken over by a new management.

In its order dated 1.4.2014 delivered by Justice V B Gupta for the Bench along with Mr. Suresh Chandra, the National Commission differentiated between trading in shares and allotment of shares. An applicant who applies for shares would stand on a different footing from one who trades in shares for commercial purpose. Since Apritha has applied for allotment, she would be a consumer and was entitled to approach the consumer fora for redressal of her grievance.

On merits, the National Commission held that deficiency on the part of the company was writ large and was evident from the Board Resolution and the agreement. Accordingly, the revision petition was dismissed and the order of the State Commission in Arpitha's favour was confirmed. The Commission also imposed costs of Rs 10,000/ on the company to be paid to legal aid.

 Article referred: http://timesofindia.indiatimes.com/business/india-business/Those-who-buy-shares-as-an-investment-are-consumers/articleshow/39583197.cms

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