TaxTMI 
TaxTMI 
2023 (6) TMI 1506
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....3. In all these appeals the claim of the appellants for receiving compensation under the Investor Protection Fund (hereinafter referred to as 'IPF') has been rejected/disallowed on the ground that there has been no transaction in the trading account for more than 24 months and, therefore, the deposit with the defaulter is in respect of a loan with or without security. 4. In Appeal No.366 of 2023, Ms. Anupama Parashar vs. NSE, Karvy Stock Broking Ltd. was the broker and trading member of NSE. On 23rd November, 2020, Karvy was expelled under Rule 1 and Rule 2 of Chapter IV of the Rules of the Exchange and Byelaw (1) of Chapter XII of Byelaw (1) of Byelaws of the Exchange. 5. On 7th March, 2022, the said appellant lodged a claim for Rs. 6,35,039.10 for compensation under the Investors Protection Fund. The Committee rejected the claim on the ground that there had been no trading activity for more than 24 months. 6. In Appeal no.441 of 2023, the claim was for Rs. 34,80,065.60 from the Investor Protection Fund on account of Karvy being declared a defaulter. The claim was lodged on 9th January, 2021 which was found to be inadmissible by an order of 29th June, 2021. A review was f....
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....to this circular dated 28th October, 2004 provided as under: "12. The claims received against the defaulter members during the specified period shall be eligible for compensation from the IPF/CPF." 11. The aforesaid indicates that claims received against defaulting members would be eligible for compensation under IPF. Chapter XII of the Bye-laws of NSE deals with a declaration of a trading member as a defaulter and the procedure that is required to be followed. Bye-law 24 of Chapter XII provides that certain claims against a defaulter cannot be entertained by the Defaulter's Committee. For facility, Clause 24 of Chapter XII is extracted hereunder: "Certain claims cannot be entertained 24. The Defaulters' Committee shall not entertain any claim against a defaulter: (a) which arises out of a contract in securities dealings in which are not permitted or which are not made subject to Bye Laws, Rules and Regulations of the Exchange or in which the claimant has either not paid himself or colluded with the defaulter in evasion of margin payable on bargains in any security; (b) [deleted] (c) which arises from any arrangement for ....
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....ct to the appropriate norms laid down by the Defaulters' Committee. 15. One of the norms/procedure laid down by the Defaulter's Committee is found in the minutes of the 35th meeting of Defaulter's Committed dated 2nd July, 2010 which laid down certain guidelines as to how a transaction is to be treated as a loan transaction or not under Bye-law 24 of Chapter XII of the Bye-laws of NSE. For facility, item no.4 of the minutes which relates to the guidelines for loan transaction is extracted hereunder: "Item No.4 To consider and approve the guidelines for loan transactions. The Committee noted that The Defaulters' Committee is empowered under Byelaw 24 of Chapter XII of the Byelaws of NSEIL not to entertain certain claims against a defaulter and Bye-Law 24(d) further provides that Defaulters' Committee shall not entertain claims in respect of a loan with or without security. The Committee deliberated on the nature of claims which could be construed as transactions in the nature of loan and thereafter decided that for the purpose of processing of claims following could be considered as broad guidelines in assessing a claim as loan with or without security.....
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...., however, the claimant has not furnished any evidence with respect to the execution of trades for the amounts which are proportionate to the value of the amounts of funds and/or securities deposited; 8. Where the claimant has failed to withdraw the credit balance and/or securities from the defaulter for a substantial period of time without any trading activity or substantially meager trading disproportionate in value to the quantum of the trade balance or securities lying with the defaulter; 9. Where the claimant has given funds and/or securities to the defaulter with the apparent intention to trade and the trades have been executed in the Futures and Options segment of the Exchange but for which trades corresponding evidence of utilization of funds deposited is not apparent from the records furnished by the claimant. The Committee also decided that the above guidelines are generic in nature and the conclusion would further depend on documents submitted by each of the claimants and hence, Committee would ultimately take a view of every claim based on the above guidelines and the relevant documents." 16. These guidelines provides that where a claimant ....
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....ulter or in the correspondence between the claimant and the defaulter and vice versa where the defaulter may or may not have passed on credits which may be construed to be payments in the nature of return, such claims would not be considered admissible. Notwithstanding the above, the Member and Core Settlement Guarantee Fund Committee (MCSGFC) may in exceptional cases, depending on the facts and circumstances of the case, consider as eligible for processing applications received from the investors, which may not be in line with the methodology set out herein. Further, below mentioned claims against the defaulter/expelled member shall not be accepted by the Exchange. (a) which arises out of a contract in securities dealings which are not permitted, or which are not made subject to Bye-Laws, Rules and Regulations of the Exchange; (b) which arises from any arrangement for settlement of claims in lieu of bona fide money payment in full on the day when such claims become due; (c) which is in respect of a loan with or without security; (d) which is not filed with the Defaulters' Committee (MCSGFC) within such time of the date of decla....