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Recently, Kwality Ltd informed the stock exchanges that it had received a notification from one of its directors and investors that a registered broker (F6 Finserve Pvt Ltd) located at Gurugram, Haryana, had fraudulently offloaded some of the investor’s shares in the open market.
According to the investor, the broker is not traceable and absconding as the office is closed. Repetitive calls to the broker were not attended and the investor said that he was in the process of initiating legal proceedings and a police complaint against the broker.
Of late, there have been quite a few instances of broker default coming to light. In the last two months alone, the BSE and the NSE have suspended three brokers — Wealth Mantra, Ficus Securities and CRP Capital Services, amidst allegations of misuse of clients’ money to speculate in the market. In 2017, over half-a-dozen brokers had turned defaulters.
These incidents offer valuable lessons for investors when they are dealing through a broker. The most important point is that one should transact only through SEBI-registered brokers/sub-brokers. The list of brokers is available on the exchanges and SEBI website.
One should always insist on a contract note for each transaction and verify details in the contract note. Ensure that the broker’s name, trade time and number, transaction price and brokerage are shown distinctly on the contract note. Ensure that receipt of payment or deliveries of shares into one’s own account is effected within 48 hours of the transaction. Besides, ask for a periodic statement of accounts from the broker. Most importantly, exercise the option of keeping your demat or bank balances in your account and not the broker’s.
Report to service cell
In case of default, what should investors do? The first step is escalate the issue to the investor service cell of the exchanges. If the issue is not resolved within 15 days, bourses themselves will refer the case to Investors’ Grievances Redressal Committee (IGRC). If not satisfied even at IGRC, investors are free to insist on arbitration process.
The first step is to file a written complaint (through arbitration application form, which involves deposit of money) to stock exchanges as early as possible.
However, in case the broker is either expelled or declared defaulter by the exchanges, the door for arbitration is closed. In that case, the exchanges will issue a public advertisement inviting public claims. So, investors have to be vigilant and keep track of the exchanges’ activities.
The Defaulters’ Committee in the exchanges distributes the amount available in the defaulter’s account to the admitted claimants on pro rata basis. In case the funds in the defaulter’s account are insufficient to meet the admitted value of claims, compensation is paid from the Investor Protection Fund, based on the recommendations of the defaulters’ committee, up to a maximum of ₹25 lakh (says NSE) and ₹15 lakh (BSE).
The guidelines are available on the websites of the BSE and the NSE.
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