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NCDRC provides relied to retail investors

Finsec Law Advisors

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In the matter of Vaman Nagesh Upaskar and Ors. v. India Infoline Ltd. and Ors. dated October 28, the National Consumer Dispute Redressal Commission (NCDRC) held that a casual/retail investor can be categorised as a ‘consumer’ under the Consumer Protection Act, 1986 (CPA).

In the present matter, the complainant had entered into an agreement with India Infoline Ltd. (Infoline) to avail stock broking services. Thereafter, an employee of Infoline undertook unauthorised trades in the account of the complainant and caused substantial losses for the latter. As the matter was not resolved by Infoline, the complainant approached the concerned district consumer forum (District Forum) to seek appropriate relief for the losses suffered by him. The District Forum ruled in favour of the complainant, and subsequently, Infoline filed an appeal to the concerned state commission. The state commission held that the complainant could not be defined as a ‘consumer’ under the CPA, as opening a trading account with a stock broker would amount to availing services for a ‘commercial purpose’ and accordingly set aside the order of the District Forum. Being aggrieved by the same, the complainant filed an appeal to the NCDRC.

The CPA defines a consumer as any person who buys any goods or avails any services for a consideration, and inter alia does not include a person who buys goods or avails services for any ‘commercial purpose’. The definition of a ‘consumer’ has not been amended under the new Consumer Protection Act, 2019 which came into force on July 20, 2020.

The NCDRC deliberated on the question of whether an investor who opens a trading account with a stock broker can be considered to be a ‘consumer’ under the CPA. In the order, the NCDRC highlighted several judgements, including the Supreme Court’s decision in Synco Textiles Pvt. Ltd. Vs. Greaves Cotton & Company Ltd. ((1991) 1 CPJ 499), wherein it was held that if a person avails goods or services for undertaking large scale manufacturing or processing activities to make a profit, then such a person would be considered to be availing goods and services for a commercial purpose and would be excluded from the definition of a ‘consumer’ under the CPA.

In the order, highlighting the importance of the scale of trading activities, the NCDRC observed that in the present matter there was no evidence to demonstrate that the complainant was indulging in large scale trading activities in shares. NCDRC opined that if a person engaged in a business or a profession other than regular trading in shares, opens a trading account with a stock broker and occasionally buys or sells shares, it cannot be inferred that the broking services have been availed for ‘commercial purposes’. NCDRC held that a casual investor cannot be said to be in the business of dealing in securities on a regular basis. Based on the above interpretation, NCDRC set aside the decision of the concerned state commission and upheld the decision of the District Forum.

This order helps put to rest the conflicting interpretations laid down by various state commissions with respect to the interpretation on whether a retail/casual investor who opens a trading account with a stock broker can be classified as a ‘consumer’ under the CPA. Further, this order has laid down a good precedent for aggrieved retail investors to utilise an alternate avenue to seek relief from stock brokers apart from using the existing redressal mechanisms laid down by the stock exchanges and the SEBI. Furthermore, this order may encourage investors to seek appropriate relief under the CPA from other financial market intermediaries who are regulated by SEBI.