A prospective investor is not a consumer within the meaning of the Consumer Protection Act, 1986, and therefore, the Consumer Protection Forum has no jurisdiction to entertain a complaint against a public issue of shares.

Headnote:
CONSUMER PROTECTION ACT, 1986 - Prospective investor is not a consumer - Company trading in shares - Consumer Protection Forum has no jurisdiction - Guiding principles for grant of ad-interim injunction - Venue restrictions - Scope of Section 14.
Fact of the Case:

The appellant, a domestic mutual fund registered with SEBI, was set to launch a public issue of units. The respondent, a voluntary consumer association, filed a complaint before the Calcutta District Consumer Disputes Redressal Forum seeking to restrain the public issue from being floated on the grounds that the appellant's Offering Circular was not approved by SEBI, there were several irregularities in the same, and the basis of allotment was arbitrary, unfair, and unjust. The Forum granted an interim injunction restraining the appellant from proceeding with the issue. The appellant challenged the injunction order before the Calcutta High Court, which dismissed the writ petition without giving reasons. The appellant then filed a civil appeal in the Supreme Court.
Finding of the Court:

The Supreme Court held that a prospective investor is not a consumer within the meaning of the Consumer Protection Act, 1986, and therefore, the Consumer Protection Forum had no jurisdiction to entertain the complaint. The Court also held that the appellant company was not trading in shares and that the guiding principles for the grant of an ad-interim injunction in such cases include the existence of a prima facie case, balance of convenience, and irreparable loss. The Court further held that venue restrictions should be evolved judicially to prevent forum shopping and that Section 14 of the Act does not empower the Forum to grant interim relief.
Issues: 1. Whether a prospective investor is a consumer within the meaning of the Consumer Protection Act, 1986? 2. Whether the appellant company trades in shares? 3. Whether the Consumer Protection Forum has jurisdiction in matters of this kind? 4. What are the guiding principles in relation to the grant of an ad-interim injunction in such areas of the functioning of the capital-market and public issues of the corporate sectors and whether certain ‘venue restriction clauses’ would require to be evolved judicially as has been done in cases such as State of West Bengal & Ors. v. Swapan Kumar Guha and Others and Sanchaita Investments and Others, (1982) 1 SCC 561 etc.? 5. What is the scope of Section 14 of the Act?
Ratio Decidendi: 1. A prospective investor is not a consumer within the meaning of the Consumer Protection Act, 1986, because the shares do not exist until they are allotted and the investor has not purchased any goods or services for consideration. 2. The appellant company was not trading in shares because the creation of share capital without allotment of shares does not bring shares into existence. 3. The Consumer Protection Forum has no jurisdiction in matters of public issues of shares because the prospective investor is not a consumer and the company is not trading in shares. 4. The guiding principles for the grant of an ad-interim injunction in such cases include the existence of a prima facie case, balance of convenience, and irreparable loss. Venue restrictions should be evolved judicially to prevent forum shopping. 5. Section 14 of the Act does not empower the Forum to grant interim relief.
Final Decision: The Supreme Court allowed the civil appeal arising out of SLP(C) No. 272/94 and set aside the injunction order passed by the Consumer Protection Forum. The Court dismissed the civil appeal arising out of SLP(C) No. 321/94, which challenged the dismissal of the writ petition by the Calcutta High Court.

Judgement Key Points

The court in this case held that the Consumer Forum does not have the jurisdiction to adjudicate matters beyond the scope of the specific reliefs provided under the statute, which primarily include final reliefs such as compensation, removal of defects, or replacement of goods. The court emphasized that Section 14 of the relevant Act does not empower the Consumer Forum to grant interim or ad-interim reliefs, including injunctions or other provisional measures. Therefore, the court concluded that the Consumer Forum cannot entertain or decide issues that require adjudication beyond the statutory compensation or the specific remedies explicitly provided for under the law.

JUDGMENT

Mr. S. Mohan, J.—Leave granted.

2. The appellant is a domestic mutual fund registered with Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) under Registration No. MF/905/93/1 dated 5.11.93. the appellant is managed by a Board of Trustees. Pursuant to the SEBI (Mutual Fund) Regulations, the investment management company of the appellant, Morgan Stanley Asset Management India Private Limited was registered with SEBI on 5.11.93. Under such registration Morgan Stanley Asset Management India Private Limited is constituted as the asset management company of the appellant. Morgan Stanley Asset Management India Private Limited is a subsidiary of Morgan Stanley Group Inc. which holds 75% of equity, the balance being held by Indian shareholders such as Housing Development Finance Corporation (SDFC), Stock Holding Corporation of India etc. Morgan Stanley Asset Management India Private Limited was granted certificate of incorporation on 18th October, 1993 by the Registrar of Companies, Bombay. Its Memorandum and Article of Association have also been approved by the SEBI as per the provisions of the said Regulations.

3. The draft scheme of the appellant was approved by the Board of Trustees by Circular Resolution dated 8.11.93. This was forwarded to SEBI for its approval on 10.11.93. The scheme was only scrutinised and examined by the SEBI and SEBI gave its approval and certain amendments were suggested.

Upon receipt of such approval for the scheme, the appellant and the Investment Manager took necessary steps to begin marketing the scheme by issue of advertisements. All advertisements and publicity material were approved by SEBI in writing before publication as required by the Regulations. Pursuant to such approval the appellant commenced advertising the public issue.

4. On 18th December, 1993 the advertisements and hoardings were released. One Piyush Aggarwal filed a suit before the learned Sub-Judge, Tis Hazari Courts, Delhi for injunction restraining the public issue from being floated by the appellant. On 24th December, 1993 an interim order was passed. Aggrieved by the same, the appellant moved the High Court in CM. (M) No. 543 of 1993. On 3rd January, 1994 the said order passed by the learned Sub-Judge was stayed. That was subsequently confirmed on 4th January, 1994. One Dr. Arvind Gupta filed Writ Petition No. 14of 1994 against SEBI. In effect, he sought to stay the public issue from being floated. That writ petition was rejected.

5. On the same grounds, as were urged in the writ petition, the respondent moved the Calcutta District Consumer Disputes Redressal Forum seeking to restrain the public issue from being floated. The principal grounds taken were that the appellant’s Offering Circular was not approved by the SEBI. There are several irregularities in the same. The basis of allotment is arbitrary, unfair and unjust. The appellant was seeking to collect money by misleading the public.

The following order was passed on 4.1.94 by the Calcutta District Consumer Disputes Redressal Forum :

“Petitioner files the complaint today. Register. Issue notice of show cause against OPs.

Considering the utmost urgency of the case as cited by the Ld. Lawyer for the petitioner we are inclined to pass an interim order otherwise the application would be frustrated. Accordingly we direct OP 1 and OP 2 and its men, agent, collecting Banks not to proceed any further with the issue of 30 crores Morgan Stanley Growth Fund Units due to be opened on 6th January, 1994 till proper clarification is made in its prospectus and with the leave of this (b) Ld. Forum. OP 3 i.e. SEBI is also directed not to issue clearances until Regulation 28 of Schedule V of SEBI Regulations is complied by the OP 1 and OP 2.

OP 4 & OP 5 i.e. The Bankers to the offer are specifically restrained from accepting any application form of Morgan Stanley Growth Fund from anybody until further orders from this Ld. Forum.

OPs are at liberty to apply for vacation/

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A prospective investor is not a consumer within the meaning of the Consumer Protection Act, 1986, and therefore, the Consumer Protection Forum has no jurisdiction to entertain a complaint against a public issue of shares.

Cases Referred (4)