Investor Protection Fund claims barred where long inactivity led deposits to be treated as excluded loan-related claims.

Exchange bye-laws governing compensation from the Investor Protection Fund excluded claims relating to loans, with or without security, and SEBI and exchange circulars required exchange-based transactions to satisfy Defaulters' Committee norms. The committee treated inactivity for more than 24 months as a relevant bar. On the stated facts, the claimants had not traded for over 24 months, so their deposits were treated as falling within the excluded loan category. The rejection of their claims was therefore sustained, and no legal error was found in the impugned orders.

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Issues: Whether claims lodged against defaulting members were admissible from the Investor Protection Fund when the claimant had not undertaken trading activity for more than 24 months and the deposits were liable to be treated as a loan with or without security.

Analysis: The governing framework consisted of the exchange bye-laws and SEBI and exchange circulars governing compensation from the Investor Protection Fund. The relevant bye-law excluded claims in respect of a loan with or without security. The circulars and committee guidelines further provided that claims arising from transactions executed on the exchange platform would be eligible only if they satisfied the norms of the Defaulters' Committee. The committee had also treated a substantial period of inactivity as 24 months from the relevant date. On the facts, the appellants had not carried out trading activity for more than 24 months, and the deposits were therefore treated as falling within the excluded category. No legal error was found in the impugned rejection orders.

Conclusion: The claims were not admissible under the exchange bye-laws and the rejection orders were upheld.

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