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2018 Supreme(Cal) 455
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
MOUSHUMI BHATTACHARYA, J.
ITC Limited - Appellant
Versus
JP Morgan Mutual Fund India Private Limited & Ors. - Respondent
GA No. 3248, 3249, 3250, 3251, 3252 of 2016 & CS No. 146 of 2016
Decided on : 24-08-2018
Advocate Appeared:
For the Appellant : Mr. S.N. Mookerjee, Sr. Adv. Mr. Samik Kanti Chakraborty, Adv. Mr. Dipendra Nath Chander, Adv.
For the Respondent: Mr. Jishnu Saha, Sr. Adv. Mr. Souvik Mazumdar, Adv. Mr. Rishav Banerjee, Adv. Mr. Ishan Saha, Adv.
The plaint discloses a cause of action for negligence and breach of duty of care against the defendants, as the Scheme Information Documents and SEBI Regulations crystallize the duties and obligations of the defendant nos. 6 to 10, who were projected as skilled repositories of the invested funds.
Headnote:
Negligence - Duty of Care - SEBI (Mutual Fund) Regulations - [DEFENDANT NO. 6 TO 10] - [SEBI (Mutual Fund) Regulations, 1996] - The plaint alleges negligence and breach of fiduciary duties owed by the defendants to the plaintiff, seeking relief for loss suffered in relation to investments made in the funds. The court found that the plaint discloses a cause of action for negligence and breach of duty of care against the defendants, as the Scheme Information Documents and SEBI Regulations crystallize the duties and obligations of the defendant nos. 6 to 10, who were projected as skilled repositories of the invested funds. The court rejected the applications seeking rejection of the plaint and deletion of the defendants' names from the array of parties, stating that even a shred of a cause of action disclosed would be sufficient for the plaint to survive as against the said defendants.
Fact of the Case:
The plaintiff alleged negligence and breach of fiduciary duties owed by the defendants, seeking relief for loss suffered in relation to investments made in the funds. The defendants sought rejection of the plaint and deletion of their names from the array of parties, arguing that the plaint did not disclose a cause of action against them.
Finding of the Court:
The court found that the plaint discloses a cause of action for negligence and breach of duty of care against the defendants, as the Scheme Information Documents and SEBI Regulations crystallize the duties and obligations of the defendant nos. 6 to 10, who were projected as skilled repositories of the invested funds. The court rejected the applications seeking rejection of the plaint and deletion of the defendants' names from the array of parties, stating that even a shred of a cause of action disclosed would be sufficient for the plaint to survive as against the said defendants.
Issues: The issues involved were whether the plaint should be rejected for failing to disclose a cause of action against the defendant nos. 6 to 10 and whether the names of the said defendants should be struck out from the array of parties to the suit.
Ratio Decidendi: The court held that the plaint contains the necessary elements of the tort of negligence, namely a duty of care owed by the defendants, a breach of the duty by the defendants, and the consequences of such breach allegedly suffered by the plaintiff. The court also found that the defendants' names should not be deleted from the array of parties, as even a shred of a cause of action disclosed would be sufficient for the plaint to survive as against the said defendants.
Final Decision: The court rejected the applications seeking rejection of the plaint and deletion of the defendants' names from the array of parties, stating that even a shred of a cause of action disclosed would be sufficient for the plaint to survive as against the said defendants.
MOUSHUMI BHATTACHARYA, J.
1. The instant application has been made on behalf of defendant Nos. 6,7,8,9 and 10 for rejection of the plaint and for striking out the names of the said defendants from the array of parties in the suit. The defendant no.1 is the Trustee Company and the defendant No.2 is the Asset Management Company of J.P. Morgan India Treasury Fund and J.P. Morgan India Liquid Fund. Thetreasury fund and liquid fund are debt funds of J.P. Morgan Mutual Fund. The defendant no. 3 is the Managing Director and Chief Executive Officer of the Asset Management Company; the defendant nos. 4 and 5 are the head of fixed income and the Associate Fund Manager (debts) respectively of the Asset Management Company and are also fund managers of both the Treasury Fund and the Liquid Fund.
2. Defendant nos.1 and 2 issued the Scheme Information Document on which the plaintiff relied and invested a substantial amount of money in the Treasury Fund and the Liquid Fund. The defendant no.6 is the Associate Director and Chairman of the Board of Directors of the Trustee Company (defendant no. 1).
3. The defendant nos. 6 to 10 are the Directors of the Trustee Company (defendant no.1) and are responsible for ensuring that the transactions entered into by the Asset Management Company (defendant no.2) are in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (SEBI MF Regulations) and are also responsible for reviewing the activities carried on by the Asset Management Company. These defendants seek to have their names removed from the array of parties in the suit. The description of the defendant, as stated above, has been taken from the plaint.
4. The plaintiff has alleged negligence and breach of fiduciary duties owed by the defendants to the plaintiff on the basis of which the plaintiff has claimed Rs.39,09,23,135.61/- on account of loss suffered by the plaintiff in relation to the investment made by the plaintiff in the liquid fund of the defendant no. 2.
5. The facts as stated in the plaint which culminated in filing of the present suit are these; Scheme Information Document of the Treasury Fund dated 30th April 2014 and liquid Fund of J.P. Morgan was circulated by the Trustee Company and Asset Management Company (defendant nos. 1 and 2) to potential investors on the website of the defendant nos. 1 and 2, by which the said defendants invited the public to subscribe to units of the Treasury Fund. The Scheme Information Document outlined the investment objective of the Liquid Fund which was to provide reasonable returns and a high level of liquidity to investors. The invitation to the public to subscribe to units of the Treasury Fund and Liquid Fund constituted an offer document within the meaning of the SEBI (Mutual Fund) Regulations. The plaintiff invested a substantial sum of money in the Funds on various dates in 2014 when the Net Asset Value (NAV) of the Funds reflected an attractive value per unit. The plaintiff invested further sums of money in the Funds based on the Net Asset Value of the Funds taken per unit. According to the plaintiff, the defendants were aware at the relevant point of time that the plaintiff intended to hold the investment for at least three years as the same would also enable the plaintiff to enjoy certain benefits under the Income Tax Act, 1961. The Scheme Information Document of both the treasury as well as the Liquid Fund was amended from time to time but the principle terms remained unchanged. On 15th June 2015, the Asset Management Company (defendant no.2) purchased secured bonds worth Rs.2 crore issued by Amtek Auto Limited from Axis Bank at which time the bonds were rated as “AA” by Credit Analysis and Research Limited (care) and BWRAA by brickwork ratings. From May 2015, the bonds started showing signs of poor performance which according to the plaintiff, would be evident from a downgrading of the ratings of the bonds by Care and Brickwork as well as the reports
