COMPLAINTS AGAINST STOCK BROKERS
Persons/Entities using capital to purchase assets such equity, debt, securities, real estate, infrastructure, currency, commodity, token, derivatives such as put and call options, futures, forwards, etc, in return for a profit are referred to as Investors. Investors trade in the above assets/ stocks and securities is by maintaining a Demat Account (stocks held for long term) and Trading Account (stocks traded on a daily basis) with a Stock Broker. Some examples of stock brokers are Zerodha, ICICI Securities Limited, Angel Broking Limited, Sharekhan, Geojit Financial Services Limited, Motilal Oswal Financial Services Limited, etc. These Stock Brokers are registered with the Securities and Exchange Board of India and exchange like Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Also referred to as a Trading Member, Stock Brokers charge commission for the trades performed with them. Stock Brokers generally employ agents called “Sub-Brokers” to expand their investor base and assist investors in dealing in securities. Sub-Brokers are not Trading Members of a Stock Exchange but act on behalf of the Stock Broker. Every Sub-Broker must obtain a Certificate of Registration from SEBI without which they cannot deal in securities. The Sub-Brokers are also referred as Wealth managers, Portfolio Managers, etc
It must be noted that National Securities Depository Limited and Central Depository Services Limited store the financial securities bought are stored in electronic form with the depository. NSDL and CSDL are similar to a Bank Account and the stocks and securities cannot be removed from the depository without authorization and consent of the Investor.
Sometimes the investors end up facing several issues in the process of trading like the investor has not received the correct amount for sale of shares/ Securities or stock broker might have wrongly debited charges or trades have been executed without consent or the dividends/interest/bonus rights have not been received or the Order has been wrongly executed,etc to name a few. However, there are ways by which the investors can get their grievances addressed. A proper complaint can be lodged with SEBI’s SCORES (SEBI Complaints Redress System). The investors always have the liberty to employ a direct approach by taking up their issues with the concerned listed company or the Stock Broker itself. SCORES is primarily a mediating authority and acts as an ombudsman mediating the issue between the investor and the stock broker/ company. If the issue remains unresolved, these need to be taken up with the Investor Services Cell (ISC) of the Stock Exchange, which also provides for resolution of grievances through a quasi-judicial Arbitration Mechanism.
The Investor Services Cell (ISC) of the National Stock Exchange deals with the complaints as below : –
- Complaints against Stock Brokers:
Capital Markets/ Futures & Options Segment:
- If the Stock Broker has not issued documents
- If you have not received the funds / securities
- If you as an Investor have not received margin/security deposit given to the Trading Member (TM) / Stock Broker
- If you have not received Corporate Benefits such as dividend / interest / bonus etc.
- Auction value / close out value received or paid
- If any Trades, shares are bought or shares are sold by the Broker without Consent
- If excess Brokerage is been charged by Broker/ Sub Broker
- If there is mismanagement of the Demat Account or Trading Account
- If there are issues in the Account Statement
- If you have not received the credit balance as per the statement of account
- If you have not received Funds / Securities kept as margin
- If Brokerage Charged (other than on Option Premium) is in excess
- Issue of Cheating by Stock Broker or Sub Broker
- If Orders have been executed wrongly causing a loss to the Investor
- If there is any issue regarding opening or closing the Account
- Any other service issues with the Stock Broker
- Complaints against Listed Companies:
Public / Further offerings: Complaints regarding non-receipt of:
- Allotment Advice, securities allotted, refund order
- Interest on delay in Redemption / Refund Amount
- Sale Proceeds of Fractional Entitlement
- Composite Application Form (CAF) for Rights offer Rights for (CAF) Application
- Securities purchased through a Rights Offer
- Letter of offer for Buyback
- Corporate Actions: Complaint regarding non-receipt Of:
- Dividend
- Interest on Debentures, Bonds or other Debt Instruments
- Securities on account of a Bonus / De-merger / Merger / Stock Split
- Redemption Amount
- Transfer of Securities: Complaint regarding non-receipt of:
- Securities after Dematerialization
- Securities after Transfer/Transmission
- Duplicate Certificate relating to Securities
- Miscellaneous:
- Complaint regarding non-receipt of copy of the Annual Reports
ARBITRATION AT THE NATIONAL STOCK EXCHANGE
The National Stock Exchange has constituted a Grievance Redressal Committee (GRC) / Investor Grievance Redressal Committee (IGRC) at each of the ISC centre to deal with the above issues. The complaints that do not get resolved within fifteen working days from the date of registration at ISC or where the parties are still aggrieved by the resolution arrived at, are then referred to the said IGRC. The value of the claim admissible to the investor is then ascertained by the IGRC so that it is blocked in the Investor Protection Fund Trust (IPF). The purpose of the IPF is to compensate the investor to the extent of funds found deficit in the account of the defaulter, subject to a maximum limit of INR 25 lakhs per investor/ defaulter. The IGRC consists of a panel of qualified chartered accountants, stock market experts who deal with the issue. Depending upon the value of the claim, a panel of 1-3 members in the investor grievance redressal panel are appointed. The IGRC determines the claim and asks the stock broker to pay the amount. However, the stock broker is given an option to go for an arbitration if he disputes the IGRC’s observation. The claim amount is then blocked by the exchange if the Stock Broker prefers to go for the arbitration.
If the claim value exceeds INR 25 lakhs then a panel of 3 arbitrators is constituted. However, if the claim value is less than INR 25 lakhs then, a panel consists of a sole arbitrator. One can select arbitrators from a list provided by the exchange or depository at the time of application. The defaulting party also gets to choose the arbitrator similarly and, if the two choices match then that arbitrator is selected. Otherwise, the exchange or depository will select the arbitrator as per its internal parameters. The chosen arbitration panel must complete the arbitration proceedings within a period of 4 months from the date of its appointment. The same can be extended further to an additional two months if the arbitrator panel places a request with the relevant authority. While making an arbitration application, the deposit to be made by the investor is as follows:
- When the dispute involves a claim amount less than or equal to Rs. 10 lakhs, the Exchange bears the cost of the fees.
- If the dispute involves a claim amount of more than Rs. 10 lakhs, the investor has to deposit fees as provided herein below:
| Amount of Claim/ Counter Claim | If the claim is filed within 6 months | If the Claim is filed after 6 months |
| > Rs.10,00,000 – ≤ Rs.25,00,000 | Rs. 13,000 plus 0.3% amount above Rs. 10 lakh | Rs. 39,000 plus 0.9% amount above Rs. 10 lakh |
| > Rs. 25,00,000 | Rs. 17,500 plus 0.2 % amount above Rs. 25 lakh subject to maximum of Rs. 30,000 | Rs. 52,500 plus 0.6 % amount above Rs. 25 lakh subject to maximum of Rs.90,000 |
The arbitration proceedings are governed by rules, bylaws, circulars and regulations issued by the NSE and SEBI as amended from time to time. The arbitral award passed during the proceedings can be appealed against, at the Appellate Arbitration Panel. The Appellate arbitral award can be finally appealed against with the next Higher Court. As per SEBI’s stipulations, the limitation period for filing an arbitration application is governed by the law of limitation. Hence, an investor is required to approach the Exchange within a period of 3 years in order to file for arbitration.
The arbitral award passed is also subject to payment of stamp duty. Initially, the same is deposited with the Exchange on the basis of the claim amount involved. Once the award is passed, the stamp duty is calculated on that and differs from state to state. It is noteworthy that the party against whom the arbitral award has been passed is the one who bears the cost of the arbitration. The deposit is fully refunded to the party in whose favour the award has been passed.
Appeal
If the award is passed in favour of the investor then the Exchange sets aside a sum equivalent to the arbitral award amount, from the deposits of the opposite party. The same is kept in a separate Escrow account with the Exchange. As mentioned earlier, the aggrieved party can approach the Exchange with an application as per the prescribed format, accompanying the deposit to be paid, in order to appeal against the arbitral award at the appellate stage. This has to be done within a period of 30 days from the date of receipt of the arbitral award. However, if the opposite party fails to prefer an appeal within the specified time then the sum kept separately in the Escrow account is released to the investor.
The appellate arbitral panel comprises of three arbitrators who are different from the ones who passed the original arbitral award. A fixed cost of Rs 30,000, exclusive of stamp duty charges, are to be borne by the party who wants to challenge the award at the appellate stage. Reiteratively, the appellate award is also open to a final challenge under Section 34 of the Arbitration and Conciliation Act, 1996. The said petition has to be filed with the competent court nearest to the Regional Arbitration Centre (RAC). The appellate award, amongst other things, can be challenged on the grounds of-
- The award being in conflict with the public policy of India;
- The award being induced or affected by fraud;
- The award being opposite to the fundamental policy of Indian law or the law of the land;
- The award being in contravention to the most basic notions of morality or justice.
In conclusion, the entire process of dispute can be challenging for an investor, if appropriate legal services are not taken by the Investor, which can cause irreparable damage to the case. Hence, caution is advised while dealing with investor complaints from the beginning to avoid discrepancies.
– By Pankhuri Swarnim and Shashank Kumar