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Person trading in share is not a consumer (NCDRC goes against previous judgments)

Citation : Baidyanath Mondal vs Kanahaya Lal Rathi, Revision Petition No. 3286 Of 2016

Date of Judgment/Order : 29 Apr 2022

Court/Tribunal : National Consumer Disputes Redressal Commission

Corum : Hon'ble Mr. C. Viswanath, Presiding Member

Background

The Complainant/Petitioner had purchased 2000 equity shares of Aravinda Remedies and 200 equity shares of Reliance Power Ltd. by making payment of Rs.13,700/- and Rs.49,400/- respectively. The Opposite Party delivered 1000 shares of Aravinda Remedies instead of 2000 shares amounting to Rs.6,850/- leaving a refundable amount of Rs.6,850/-. Further, the Opposite Party delivered 200 shares of Reliance Power Ltd. amounting to Rs.47,440/- leaving a refundable amount of Rs.1,960/-. When the Complainant enquired about his Demat Account, he came to know that 200 shares of Reliance Power Ltd. were transferred to the account of Ureka Stock & Share Broking Services without intimation to the Complainant. The Opposite Party also did not make payment of Rs.27,480/- being the differential price of the shares which were credited to the Demat account of the Complainant. Aggrieved by non-refunding of the aforesaid amount by the Opposite Party, the Complainant filed Consumer Complaint before the District Forum which was partly allowed ex-parte, with a direction to the Opposite Party to pay Rs.8,810/- to the Complainant, alongwith interest @ 9% p.a. from the date of institution of the case till realization.

Not satisfied with the order of the District Forum, the Complainant filed First Appeal before the State Commission. The State Commission, remanded the matter to the District Forum for deciding the Complaint afresh. In compliance of the order of the State Commission, the District Forum, vide order dated 28.01.2014, dismissed the Complaint as barred by limitation.

Aggrieved by the order of the District Forum, the Complainant filed First Appeal before the State Commission. The State Commission dismissed the Complaint as not maintainable since the transactions involved in the case were commercial in nature.  The State Commission with the observation that the Complainant was not a “Consumer” as he was dealing in share market. Finally, appeal before the NCDRC.

Judgment

NCDRC observed that as per Section 2 (1) (d) of the Consumer Protection Act, 1986, a consumer is a person who buys goods or hires or avails of services for a consideration. The section, however, carves out an exception by providing that the person who purchases goods or hires/avails services for commercial purpose, shall not be included in the definition of Consumer. Explanation to Section 2 (1) (d), however, provides that if such services are availed exclusively for earning livelihood, he will be considered as a “Consumer.” It is not the case of the Complainant that he had invested the money in share market exclusively for earning his livelihood.

The State Commission had relied on the judgment of this Commission in M/s Steel City Securities Ltd. vs. G.P. Ramesh & Anr. Revision Petition No.3060 of 2011 dated 03.2.2014 and dismissed the Complaint with the observation that the transaction was commercial in nature and the Complainant was not a “Consumer.”

The NCDRC referring to judgment of Supreme Court Morgan Stanley Mutual Fund vs. Kartick Das (1994) 4 SCC 224, observed that the State Commission has passed a well-reasoned order.

Note

The NCDRC in the above judgment referred to a Supreme Court judgment which was no relevance to this matter. In the Morgan Stanley matter complaint was filed by a prospective investor to stop allotment of new shares alleging various defects. The Supreme Court there observed that an application for allotment of shares cannot constitute goods. Till the allotment of shares takes place, "the shares do not exist". Therefore, they can never be called goods. Therefore, it is after allotment, rights may arise as per the contract. But certainly not before allotment.

Therefore this Supreme Court judgment has nothing to do with the instant matter.

The NCDRC judgment does not explain whether the Petitioner traded regularly or occasionally, because in two different judgments the issue of trading was raised and addressed. 

In Vaman Nagesh Upaskar & Anr. vs India Infoline Ltd. & 2 Ors., Revision Petition No. 2873 Of 2014, dated 28 Oct 2020, wherein it has been clearly mentioned that if a person engaged in a business or profession other than regular trading in shares, open a Demat Account and occasionally carries out trading in shares, it cannot be said that the services of the broker were hired or availed by him for a commercial purpose, the scale of such trading by a casual investor being very low. Such a person cannot be said to be in the business of buying and selling shares on a regular basis. Therefore, the complainants were consumers within the meaning of Section 2(1)(d) of the C.P. Act.

While in M/s. Steel City Securities Ltd. vs G. P. Ramesh & Anr., Revision Petition No. 3060 OF 2011, the NCDRC had observed that it is well settled that the dispute between the parties relating to commercial purposes are excluded under the Act. This Commission in Vijay Kumar Vs. Indusind Bank, II (2012) CPJ 181 (NC) has held; since, petitioner has been trading regularly in the shares which is a commercial transaction and for which he has also availed the draft facility from the respondent, as such he would not be a consumer as per Section 2 (1) (d) (ii) of the Act. Since, respondents are trading regularly in the share business which is commercial activity, under these circumstances, respondents would not fall under the definition of consumer as per the Act. Moreover, regular trading in the sale and purchase of shares is a purely commercial activity and the only motive is to earn profits. Therefore, this activity being purely commercial one, is not covered under the provisions of the Act.

This is another example of an ambiguous judgment. The NCDRC may be considered to have stumbled upon a correct decision only if the transactions are large in number or the complainant is a regular trader.

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