Investor Protection Fund excludes loan-like broker arrangements; exchange not liable for broker default or alleged regulatory lapse.

Claims based on fixed-return, loan-like arrangements with a broker were treated as outside genuine investor activity and therefore not payable from the Investor Protection Fund. The tribunal applied the stock exchange bye-laws and held that the fund covers genuine investor claims, not transactions in the nature of loans or para-banking. It also held that the stock exchange was not liable to compensate investors merely because the broker defaulted or because a regulatory lapse was alleged, since the exchange is not an insurer for losses arising from unlawful or loan-based dealings. The appeals were dismissed on that basis.

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Issues: (i) whether claims arising out of the arrangements between the investors and the broker were admissible for payment from the Investor Protection Fund; (ii) whether the stock exchange was liable to compensate the investors for the broker's default and the alleged regulatory lapse.

Issue (i): whether claims arising out of the arrangements between the investors and the broker were admissible for payment from the Investor Protection Fund.

Analysis: The claims were examined against the stock exchange bye-laws governing default of a broker and the scope of the Investor Protection Fund. The relevant framework permits payment only of genuine investor claims and excludes claims arising from loan transactions. The factual matrix showed that the appellants did not carry out trading activity for long periods after opening their accounts, and the arrangements provided for fixed returns, interest, loyalty bonus, or similar benefits. On that basis, the relationship was treated as one of loan or para-banking arrangements rather than genuine investment activity.

Conclusion: The claims were not admissible for payment from the Investor Protection Fund and the decision rejecting those claims was upheld.

Issue (ii): whether the stock exchange was liable to compensate the investors for the broker's default and the alleged regulatory lapse.

Analysis: The exchange's liability was tested against the scheme under its bye-laws and the role of the exchange as a regulator. The decision notes that the exchange had taken steps in relation to the defaulting broker, that claims against the broker could be pursued before the appropriate forum, and that compensation from the exchange was not available merely because the broker had defaulted or because the investors alleged delay in regulatory action. The exchange was not treated as an insurer for losses arising from unlawful or loan-based transactions.

Conclusion: The stock exchange was held not liable to compensate the investors for the broker's default or the alleged failure in regulatory duty.

Final Conclusion: The appeals failed because the claims were outside the permissible scope of the Investor Protection Fund and no compensatory liability could be fastened on the stock exchange for those claims.

Ratio Decidendi: Claims founded on loan-like or fixed-return arrangements with a broker are not payable from the Investor Protection Fund, and the exchange is not liable to compensate such claimants for the broker's default.

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