SEBI Act does not bar Consumer Courts from granting refund in investment fund mismanagement cases

In a landmark ruling, the Chandigarh State Consumer Disputes Redressal Commission has held that the Securities and Exchange Board of India (SEBI) Act does not prevent Consumer Courts from granting refund in cases of mismanagement of investment funds. The Commission directed Kotak Mahindra Bank and Peninsula Brookfield India Real Estate Fund to refund Rs 19,78,743.53 to the complainant as the remaining principal, and to pay a lump-sum compensation of Rs 1,00,000 for harassment and mental agony, and Rs 35,000 as litigation costs.

The order was passed on a complaint filed by 93-year-old Harmohan Singh Sethi of Mohali, represented by Advocate Pankaj Chandgothia. The complainant alleged that he was induced by Kotak Wealth Management, Chandigarh, to invest Rs 1 crore in the Peninsula Brookfield India Real Estate Fund, with assurances of professional wealth management, regulatory compliance, and targeted gross returns of 21 per cent per annum.

Sethi pointed out that the Contribution Agreement dated July 19, 2013, was a pre-printed and incomplete contract signed in Chandigarh without full disclosure. He claimed that despite the expiry of the maximum tenure, the fund was illegally extended and ultimately closed in 2022, and the full principal amount was not returned, with the payout reduced to Rs 94 lakh.

Kotak Mahindra Bank and the fund managers pleaded that the investments were subject to market risks, particularly in the real estate sector, and that delays occurred due to ongoing litigation. They contended that such issues did not constitute deficiency of service, especially when management decisions were taken in good faith, and that the Commission’s jurisdiction was barred under Section 15Y of the SEBI Act, 1992.

After hearing the arguments, the Commission held the opposite parties guilty of deficiency of service. Regarding the jurisdictional objection, the Commission clarified that Section 15Y of the SEBI Act bars civil courts only in matters that an Adjudicating Officer or the Securities Appellate Tribunal is empowered to determine. It does not expressly or impliedly oust the jurisdiction of Consumer Commissions constituted under special beneficial legislation.

The Commission noted that the complaint sought refund of the invested amount, interest, and compensation for deficiency in service and unfair trade practice, rather than regulatory or penal action under securities law. Such relief falls squarely within the scope of the Consumer Protection Act, 2019, which expressly provides that its provisions are in addition to, and not in derogation of, any other law in force, thereby creating concurrent and supplemental remedies.

The regulatory jurisdiction of SEBI to enforce market discipline and impose penalties operates independently from the compensatory and remedial jurisdiction of the Consumer Commission to address individual grievances. In the absence of any statutory exclusion, the remedy under the Consumer Protection Act remains available, and the Commission rejected the objection regarding lack of jurisdiction.