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Investors, depositors have right to seek compensation in financial fraud

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Investors, depositors have right to seek compensation in financial fraud


In an historical decision, the NCDRC held that the remedy before a consumer forum is primarily a civil remedy, whereas the prosecution before and conviction by a designated court constituted under MPID Act is a criminal remedy


The National Consumer Disputes Redressal Commission (NCDRC), in a significant decision, has held that investors and depositors have a right to seek compensation under the Consumer Protection Act in case of defaults from a financial establishment. In a related case, the apex consumer Commission has asked Nagpur-based Shivaji Estate Livestock And Farms Pvt Ltd to refund money invested along with a 9% interest from filing the complaint. The NCDRC also directed the company to pay 10% of the amount invested as compensation and Rs1,000 as cost of litigation to the complainant.


The NCDRC judgement ratifies a financial consumer's right to seek compensation for a fraudulent default on part of a financial establishment. A Bench of Justice VK Jain and Dr BC Gupta, said, "It would be seen from a perusal of the provisions contained in Maharashtra Protection of Interest of Depositors (MPID) Act that the designated court has no power to grant compensation to a person who is a victim of the fraudulent default on the part of a Financial Establishment. Therefore, it would be difficult to say that the said MPID Act provides an adequate redressal of the grievances of a person who suffers on account of the fraudulent default on the part of a Financial Establishment, where such defaults also constitutes deficiency in the services rendered by a service provider to its consumer. We are also in agreement with the learned counsel for the complainant that the remedy before a consumer forum is primarily a civil remedy, whereas the prosecution before and conviction by a designated court constituted under MPID Act is a criminal remedy available to the victim of a fraudulent default on the part of a Financial Establishment."


In this case, the complainants, Pratibha Adelkar and 372 others were represented by Adv Shirish Deshpande of the Mumbai Grahak Panchayat.


Shivaji Estate Livestock invited investors to invest in its goat farming and allied activities by purchasing units of several schemes floated by it. In its brochure, Shivaji Estate Livestock said it has arranged about 500 goats in each goat shed with 25-50 such shed in each rearing centre, 100% of the livestock would be insured and there would be 100% guarantee of the invested amount. The company also told investors that they would have hypothetical charge on 1,000 sq ft of land of Shivaji Estate Livestock and one time investment would offer consistent benefit for 15 years, experienced vets and professionals would look after livestock.


The company also assured minimum expected return on the investment and if targets are achieved, investors were also promised additional bonus. The schemes also provided for pre-mature withdrawals by giving 45 days’ notice.


Initially, Shivaji Estate Livestock made payments of some instalments due to the investors under the schemes but later on did not fulfil the terms (for repayment to investors). When the investors applied for pre-mature withdrawals, the company failed to honour its commitment. Alleging deficiency in the services offered by Shivaji Estate Livestock, the complainants filed appeal before the NCDRC.


No one except a director of Shivaji Estate Livestock filed any reply. In the reply, the company director took a preliminary objection that in view of the provisions contained in the MPID Act, the NCDRC has no jurisdiction to entertain the complaint, since the Act provides complete machinery for recovery of investors' deposits. It also stated that a complaint and FIR was filed against the company. A charge sheet was filed against the Company and nine others, under Section 420 read with Section 34 of the Indian Penal Code (IPC) and Section 3 and 4 of the MPID Act and the case was pending before the Designated Court. Shivaji Estate Livestock, however did not deny floating of schemes and accepting deposits from the complainants.


The NDCRD Bench, said, "As per Section 2(1)(d) of the Consumer Protection Act, 1986, 'consumer' means any person, who either buys goods or hires or avails services for a consideration, but does not include a person, who avails of such services for any commercial purpose. The term 'service' has been defined in Section 2(a) of the Act to mean service of any description, which is made available to potential users. The Complainants hired or availed the services of the opposite party for investing their savings in the schemes floated by Shivaji Estate Livestock, and deposited money with it for investing on their behalf in goat farming and allied activities. Therefore, it can hardly be disputed that the complainants are consumers of Shivaji Estate Livestock within the meaning of Section 2(1)(d) of the Consumer Protection Act."


The Bench then decided on whether the jurisdiction of NCDRC is barred under sub-section of Section 6 of the MPID Act.


Adv Deshpande contented that since the consumer forum is not a court; the provisions of Section 6(2) of the MPID Act are not applicable to such forum. He also submitted that the remedy provided before a consumer forum is a civil remedy in a case where the fraudulent default, as defined in MPID Act also constitutes deficiency in the services rendered by a service provider, whereas MPID Act provides for criminal prosecution and punishment of the persons indulging in such fraudulent defaults. "...the designated court constituted under the provisions of MPID Act has no power to grant compensation, which a consumer forum can grant in a case of deficiency in the services rendered to a consumer," Adv Deshpande pointed out.


Accepting the contention, the Bench said, "Section 3 of the Consumer Protection Act provides that the provisions of the said Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force. The MPID Act came to be enacted much later than enactment of the Consumer Protection Act. Despite that the Legislation in its wisdom used only the expression 'Court' and not the expression 'Court or any other forum' in sub-Section (2) of Section 6 of the said Act. In these circumstances, it would be difficult to say that the legislative intent behind the enactment of sub-Section (2) of the Section 6 was also to exclude the jurisdiction of the consumer forum in a case where fraudulent default on the part of the Financial Establishment also constitutes deficiency in the service rendered to a consumer. Therefore, in our view, for the purpose of the sub-Section (2) of Section 6 of the MPID Act, consumer forum cannot be said to be a 'court'."


While disposing of the complaint, the apex consumer forum, then directed Shivaji Estate Livestock to refund to investors, money deposited in different schemes along with an interest of 9% from the date of filing complaint.


Read More: Investors, depositors have right to seek compensation in financial fraud - Moneylife

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