Sucheta Dalal :Stock exchanges: Anti-investor
Sucheta Dalal

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Stock exchanges: Anti-investor  

August 10, 2011

The shocking attitude  of the BSE

Sucheta Dalal

At the end of an 11-year battle, the Securities Appellate Tribunal (SAT) has ordered the Bombay Stock Exchange (now BSE Ltd) to pay Rs2.21 crore with interest to Emmel Financial Services (which was an investor/client of Nikko Stock Brokers). The twists and turns in this fight for justice are enough to drive investors permanently away from the market. Emmel Financial probably fought a dogged and expensive battle (it was not awarded any costs) only because it is a corporate entity. Fortunately for it, even if the BSE appeals, only the payment of interest will be stayed.

Here is what happened. In 1999, Emmel Financial had a dispute with its broker Nikko, which went into arbitration. It won the case and the broker was asked to pay Rs2.60 crore. Nikko also agreed that Rs2.21 crore out of its funds available with the BSE would be paid to the Income-Tax Department on behalf of Emmel. In January 2002, the BSE’s governing board ratified this payment along with a tiny sum owed to another investor. Meanwhile, the BSE began to discover Nikko’s massive financial problems as claims from more aggrieved investors began to surface.

It learnt that Nikko owed over Rs19 crore to 46 clients while its funds (margins, deposits, etc) with the BSE were a mere Rs3.11 crore. So the BSE declared Nikko a defaulter and quickly reneged on the commitment to pay Emmel on the grounds that it would be unfair to other investors. In effect, an investor who had won an arbitration award in 1999 was denied money, because of claims from other investors that emerged after the broker was declared a defaulter in 2002. Emmel Financial approached SEBI (the Securities and Exchange Board of India) which ordered the BSE twice to pay out of its funds, if necessary.

When the Exchange refused to comply, Emmel approached the Bombay High Court and encountered more drama. A single judge disagreed with SEBI’s directives and the case went to the divisional bench, where in 2010, most of the contentions of the single judge were overturned. But again, the BSE dug in its heels and refused to pay. Finally, Emmel approached SAT and obtained partial justice but without costs, or interest. After 11 years, the value of that money itself has more than halved.

The irony is that the BSE hired expensive lawyers to fight an 11-year battle against an investor and will spend even more in going to the Supreme Court. But it is probably safe to bet that Nikko’s 45 other clients have not been paid in the past decade. There is no indication from the SAT order that the BSE ever empathised with Emmel Financial or attempted to find a fair resolution. It merely seems to have been cussed. This attitude of bourses is probably one reason why millions of investors have vanished from the markets for good.

-- Sucheta Dalal