Contract Disputes- Breach of Contract by my Broker

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Contract Disputes Stock Broker

Contract Disputes- Breach of Contract by my Broker
My broker used to deal in the F&O in my account. Last year, in one such trade, they caused huge losses in excess of my investments.

When I questioned them about the losses, they gave many contradicting replies. When I investigated further, I found that the margin was only 15% as against the required 30% and hence grossly inadequate for the high value transactions they executed. Further, they neither made any calls to cover for MTM losses, nor did they square off the open positions they took, to cut down losses — which is a common practice in the broking industry.

At the time of sale, they called me to ask if they can sell off the positions. I was in vacation at that time and had already informed the broker about my vacation plans. Hence I was surprised that I got that call but still answered that in good faith, without suspecting foul play and told him to sell at whatever best price he could. It turned out they had recorded this conversation and are now claiming this as a defence. When I questioned them as to why they needed to make an uncharacteristic call, and that too at the time of sale but not for purchase of the F&O lots, they could not reply satisfactorily. My research later showed that on the day of their call, the MTM losses had already eroded 116% of my equity investments. So I smelt something fishy about the very motive behind the call. While I was still negotiating with them, the broker sold off all my equity held in the demat account with them in adjustment against the debit balance in my account.

I complained to SEBI and pursuant to SEBI forwarding my complaint to the broker asking for its explanations, the broker approached NSE arbitration for recovery of the balance amount. I argued before the Arbitrator that having iniaitied positions, the broker owns responsibility for the entire trade upto its closure and hence the broker has acted negligently by not doing so. I had also relied on the principle of agency under the Contract Act to show how the broker, as an agent, failed in its duty of care and diligence that it owed me as its Principal.

I had also expressed a suspicion that instead of placing a ‘sell’ order, the broker negligently placed another ‘buy’ order and upon discovery of its blunder, only to pass on this negligence to me, the broking firm made the unusual call in the name of taking instructions. The Arbitrator has rejected my above claims, stating there is no Principal-Agent relationship between an investor and a broker. He has also ruled that insufficient margin is not a major violation. He has also overlooked my suspicion that the broker negligently placed a ‘buy’ order instead of a ‘sell order’. He has even held that the contract notes prove that it was me who did the trades and has awarded in favour of the broking firm. . In protest, I have approached the NSE HO to guide me properly, since filing a civil suit against the Arbitrator award will be a costly and time consuming affair for me, and also so many material facts were overlooked by the Arbitrator. I would appreciate if you can guide me the proper course of action. I still maintain that the broker is an agent of the investor and hence the broker cannot get away from his negligence by merely recorded conversations. I want to approach Consumer Forum against this deficiency in service on the part of the broking firm.

I am of the opinion that since it was broker who approached NSE Arbitration as the applicant, I am still within my rights to approach any other forum, including Consumer Forum, for redressal of my grievance. It cannot be said that the same cause of action is being presented before two different forums because the applicants in both these cases are different. Under NSE Arbitration, I was only merely defending the allegation against me whereas under Consumer Forum, I am enforcing my right against deficiency in service. I am still within the 2 year cut-off for filing a complaint with the Consumer Forum. Looking forward to your esteemed opinion. Regards

Shyam

Reply from one of our Panelist

Sir,

You will have to take a three pronged action against the broker.

The first will be to file a police complaint against the broker under 406 & 420 of IPC.

The next will be to file a complaint with the SEBI, Ministry of Finance, NSE & other exchanges where the
broker is operating.

The third is to file a complaint before the consumer forum for deficiency of service.

YOu will have to do with a lot of follow up action.

For the first ie the police complaint it should be followed by a direction under section 482 by the High
Court and a FIR registered against the broker.

The complaint to the NSE, Ministry of Finance & SEBI should be followed by a writ in the High Court to
direct these authorities to investigate the affairs of the said broker.

You also have to file a suit to set aside the arbitration award. If all these things are done simultaneously then you have a good chance of success.

Further, in all your complaints you should tell that the broker has breached the trust placed by you upon
him and he has cheated you and you should not say that you suspect so. If you say you suspect then you do not
have a case. So you should catagorically state that he has done these offences.

So go ahead. Good Luck.

Maran

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