Imagine you apply for shares in an IPO, but the bank enters only half the number of shares, resulting in half the allotment? This happened with an Ahmedabad-based lady – Anuradha Joshi – who alleged that, due to the bank’s error, she suffered a loss of Rs 42,142 and sought compensation of Rs 40 lakh.
On February 2, 2022, Mrs Joshi had applied for 130 shares in the Adani Wilmar IPO. However, her bank (Bank of Baroda) made an entry for only 65 shares, resulting in an alleged loss of Rs 42,142. She further claimed that the lender subjected her to physical and mental harassment.
Seeking relief, Mrs Joshi first appealed in the Ahmedabad District Consumer Commission, where her appeal was dismissed. She then approached the Gujarat State Consumer Disputes Redressal Commission, where the present case was heard. Here, Mrs Joshi won the case, but only partly.
Brief facts of the case
Her application for 130 shares in the Adani Wimar IPO was entered as 65 shares by Bank of Baroda. Mrs Joshi submitted that an error was committed, which was also acknowledged by the lender through its official communication on February 3, 2022.
Her husband Tushar Joshi, appearing on her behalf, argued that the bank can’t avoid its liability by describing the error as “typographical” or “clerical”. He added that there was sufficient balance in the account for the IPO application. Had the bank correctly recorded the application, they would have been allotted 130 Adani Wilmar shares.
“A data-entry or clerical error committed by a bank employee, if it results in financial loss to the customer or deprives the customer of a financial benefit, cannot be treated as an ordinary or significant mistake,” her counsel argued, citing ICICI Bank vs Santosh Sardana (2021).
What did Bank of Baroda say?
The bank’s counsel submitted that the transaction in question was undertaken for the purpose of investment in shares and earning profit. Therefore, it is a commercial transaction, and so Mrs Joshi doesn’t fall within the definition of a ‘consumer’.
“Share trading is a commercial activity and an investor is not a “consumer” within the meaning of the Consumer Protection Act”, the bank’s counsel added, citing Tajinder Kumar Taneja vs Unique Investments.
Bank of Baroda’s lawyer further argued that the District Commission rightly held that Mrs Joshi failed to produce any proof of payment of consideration to the bank. She also failed to produce documentary evidence establishing she was entitled to allotment of 130 shares and was deprived of it due to the bank’s error.
ET Wealth Online reached out to Bank of Baroda for a response regarding this case. However, the bank is yet to respond.
Why did Mrs Joshi lose in Ahmedabad District Commission?
The District Commission had held that the complainant did not qualify as a consumer and that the Complaint was not maintainable on the ground that investment in shares is a commercial activity, Supriya Majumdar, Partner, Elarra Law Offices, told ET Wealth Online.
However, her appeal has been partly allowed by the Gujarat State Consumer Disputes Redressal Commission. It held that Mrs Joshi qualified as a “consumer”, being a beneficiary of banking services, explained Diviay Chadha, Partner, Singhania & Co.
What did the State Commission rule?
After hearing both sides, the State Consumer Commission found that Mrs Joshi can be regarded as a beneficiary of the bank’s services. So, the absence of direct payment by her to the bank can’t be treated as conclusive to decide that she is not a consumer.
It added that the mere fact that the transaction relates to shares can’t result in every dispute arising from a banking service connected with the IPO being treated as commercial. Because of this, Mrs Joshi can’t be denied the remedy against the bank.
“Banking institutions are required to maintain a reasonable degree of care, accuracy, and diligence when processing applications and entering customer-related information,” the commission stated.
However, the commission didn’t accept Mrs Joshi’s contention that she suffered Rs 42,142 loss and rejected her “highly excessive” Rs 40 lakh compensation claim. The commission ordered the following:
-Rs 20,000 compensation to Mrs Joshi for the bank’s deficiency in service
-Rs 10,000 for mental agony and harassment
-Rs 7,000 towards the costs of the original as well as the present appeal.
Therefore, Mrs Joshi would get Rs 37,000 in total.
Why did she win (though partly)?
Majumdar said she won the appeal on 2 grounds: maintainability of the complaint and deficiency in services provided by the bank.
The complainant (Mrs Joshi) also produced a SEBI circular at the stage of appeal to argue that the bank, in relation to IPO-related services, is entitled to receive charges/compensation from another institution/entity.
“Thus, although the complainant may not have personally paid any consideration to the bank, the circular indicated that the IPO-related service was not necessarily a service rendered entirely without consideration, as the bank was entitled to receive compensation,” she explained.
Also, the State Commission clarified that the judgments relied upon by the bank concerning share trading and investment in shares had to be distinguished on facts and considered in the context of the services. The present case concerned deficiency in the service rendered in processing an IPO application and was not a dispute relating to stock broking or share trading undertaken for commercial purposes.
Moreover, the bank’s written admission of the incorrect entry established negligence and a deficiency in service, added Chadha.
Why did the commission reject her claim for Rs 42,142 and Rs 40 lakh compensation?
It was rejected on the ground that IPO share allotment depends on statutory procedures and subscription ratios, making any assumption of guaranteed allotment speculative, according to Chadha. “However, the Commission awarded Rs 20,000 as fair and reasonable compensation ex aequo et bono for the established deficiency in service, along with compensation.”
While there was admission by the bank insofar as incorrect entry of the number of shares applied for, the contention that the complainant suffered a loss of Rs 42,142 on account of missing entry of 65 additional shares was based upon an “assumption” that 130 shares would necessarily have been allotted and not by concrete evidence, Majumdar underscored.
Therefore, her claim of Rs 40,00,000 towards compensation was rejected.
Key takeaways for consumers
Majumdar stated that the judgment affirms the position that any compensation claimed alleging financial loss on account of deficiency of services must be based on actual proof of the entitlement and loss suffered and not mere projection or assumption.
On the other hand, service providers, particularly banks who facilitate IPO-related payments or services, ought to exercise due care and diligence while entering and processing customer information. In case of such negligence, banks would be liable for compensation.