I am enclosing a detailed record of my correspondence with Reliance Securities Ltd, a stock broking and financial investment company involved in wealth management.
The objective is to make people aware of certain unfair trade practices in this segment of financial management. As they say, forewarned is fore-armed.
I would appreciate comments, suggestions from the investing fraternity and most importantly, their considered legal opinion on the issues raised in the following documents. LEGAL NOTICE
Copy of Reliance's Offer letter:
OFFER LETTER
Dear Sir,
We are confirming the following:
DEAL TYPE: OUR SELL/YOUR PURCHASE
ISIN NUMBER :INE866107578
SECURITY NAME : 12.00% India Infoline Finance Limited
SECURITY NATURE: SECURED NON CONVERTIBLE DEBENTURES
COUPON RATE: 12%
INTEREST PAYMENT DATE: MONTHLY - starting 1st November 2013 onwards
ALLOTMENT DATE: 30th Sept 2013
PUT/CALL OPTION: NA
REDEMPTION DATE : September 30, 2016
LAST INTEREST PAYMENT DATE: 1st Feb 2014
FACE VALUE(Rs.) : 1000.00*Compare with quoted price
QUANTUM : (Rs.) 5, 00, 000(500 bonds)
PRICE(Rs.) : 105*Compare with quoted face value
DEAL DATE: 31st Jan 2014
VALUE DATE : 31st Jan 2014
PRINCIPAL AMOUNT :(Rs.) 5, 25, 000.00
NO. OF DAYS - 1
ACCRUED/EX INTEREST(Rs.) - 164.28
SETTLEMENT AMOUNT(Rs.) : 5, 24, 835.62
PAYMENT MODE : OFF-MARKET/DIRECT TRANSFER
PAYMENT NARRATION PAYMENT TO: Reliance Securities Ltd. For Reliance Securities Ltd. Client's Name and Signature Text of complaint letter to SEBI:
February 7, 2014 Securities & Exchange Board of India,
Bangalore 560025.
Dear Sir,
Sub: Purchase of 12% SECURED NC Debentures of India Infoline Finance
Ltd.(IIFLFINN8) from M/s Reliance Securities Ltd.(a Reliance Capital Co.) -
I was approached during late December and early January by a representative of M/s Reliance Capital Ltd. by name Mr. Vijay Bhat to purchase 12% secured NC bonds of IIFL.
I was told that the bonds had been purchased by Reliance Securities in bulk during the initial offer in 2013 and that as these were not available in the retail market. Reliance Securities was now making these available in the retail market at a premium. I thereafter visited the office of M/s Reliance Securities Ltd. at Jayanager 4th block on 10th Main. I was handed an'offer' sheet detailing the terms under which the bonds were being made available to the public. A copy of the same is being appended for your perusal.
It is my contention that the'offer letter' contains a glaring and perhaps deliberate misrepresentation of the face value and market price of the bonds. As you can see, the face value of the bond is mentioned as Rs.1000 while the market price is mentioned as Rs.105.Mr. Bhatt, who has conveniently ceased to be associated with the company(I was told he had'left') on the day on which the payment for the bonds were effected on 31st January 2014, took great pains to convince me that these bonds were not available in the local market and that Reliance was therefore making these available to retail investors like me at a minimum investment of Rs.5, 25, 000 for 500 bonds.
I was told that the figure of Rs.105 was the current market price of the bonds in the market and that Reliance was selling the bonds at the'market price'. Also, the market price was likely to appreciate in value to a level of around Rs.108 at which price he advised me to sell the bonds to recover the premium I was paying on the bonds(Rs.25000/-).
I should like to state here at the outset that I had no misgivings at any point of time as regards paying the premium since I was then seeking either a mutual fund or a debt instrument that gave me a return of something more than the current bank rate of around 10%. The net return of around 11.6% was an acceptable proposition for me.
However, what strikes me as sneaky and unethical is the way they labored on the following points, ALL of which were FALSE AND MISLEADING:
1.Their insistence that these bonds were not available in the retail market and that this therefore justified their offering these to the retail investors at a premium. I discovered later when the bonds figured in my DP and Trading account held with M/s Sharekhan that they were tradeable in small lots and that I could have easily have purchased these from the market at a price of around Rs. 1005 per Rs.1000 bond instead of the effective price of Rs.1050 that I had paid to M/s Reliance Securities Ltd.
2.The'price' of Rs.105 mentioned in their'offer letter' is a deliberate and glaring error intended to hoodwink the investor into believing that he was paying the market price for the bonds when he was in actual fact paying an'off-market premium' arbitrarily determined by Reliance Securities. When questioned on this later, their Regional Head, Mr. Uday, informed me that the additional amount infact covered brokerage and other incidental expenses. What prevented M/s Reliance Securities from mentioning these in a transparent manner in their offer letter?
3.The laborer explanation offered by the representatives leads the casual investor(lulled by the name of Reliance Capital into a false sense of security and confidence) into believing that as the'price' he has paid is the market price, he can recover the premium whenever he sells the bonds at the future market price. It is only later when one sees the price of the bond mentioned as Rs. 1005 and not Rs. 105 on the DP or trading account that one realizes the gravity of the mis-statement.
I have addressed an e-mail to M/s Reliance Securities Ltd. on February 4(copy enclosed) immediately on noticing the discrepancy in my trading account and realized the fact that I had become the victim of a deliberate heist. I also spoke to Mr. Uday, the Branch Head, (Mr. Vijay, the Product Manager who had sold me the bonds had conveniently'left' and refused to receive my call) and reiterated my demand made in the e-mail that a sum of Rs.22, 500/- be refunded to me immediately. Mr. Uday told me rudely that the sum was not refundable as it represented the'premium' charged by Reliance but he had no answer to my question as to why this had not been mentioned in the'offer letter' in a transparent manner. Mr.Uday also told me that since I had already accepted the terms set by Reliance by signing the offer letter, I could not now question the terms.
I would like to bring to the notice of Mr. Uday and M/s Reliance Securities that it is a very important tenet of the law relating to agreements that if the'offer letter' is itself bad in law, then the agreement that follows is also bad and is voidable at the option of the buyer.
I am requesting SEBI with this letter to advise me on whether the above line of reasoning is correct and tenable under the law and whether action can be brought to bear on M/s Reliance Securities for'fraud, misrepresentation and cheating'. Complainant March 12, 2014
To
The Director,
Reliance Securities Ltd.,
11th floor, R-Tech IT Park,
Western Express Highway,
Goregaon East,
Mumbai 400063.
Dear Sir,
Sub: Legal Notice under the Consumer Protection Act, 1986
Ref: Letter no. NSE/ISC/2014/14022111234801450/170214-5 dated Feb 17, 2014 regarding the complaint of Mr. Shyamsunder Vajpey(the complainant)
Please refer to your letter ref nil dated nil(!) addressed to Mr. Rakesh Raghunath of Investor Services Cell, NSE, Bangalore in connection with the complaint referred to above and copied to me.
The nub of the issue lies in the last para of your letter where you are quick to point out that'it is nowhere mentioned in the offer document that the said security is not available in the retail market.'
Since you set so much store by what is NOT mentioned in the offer letter, we shall dwell only on this aspect, viz on WHAT IS NOT MENTIONED IN THE OFFER LETTER:
1.The offer letter does not mention that the'price' quoted by you is a composite price and includes among other things a premium that is applicable apparently only in the wholesale market segment, which is at variance with the premium in the retail market and of which the average investor may not necessarily be in the know PLUS a hefty brokerage of around 3.5%.
2.I have discussed the issue of brokerage with NSE and have been told that there is a cap of 2.5% on off-market trades. The fact that you have nevertheless brazenly chosen to foist such unacceptably high brokerage charges and have stooped to concealing the same from the investor speaks volumes of your intentions and your very clever manoeuvres in trying to skirt the law.
3.You claim in your letter that the price quoted by you in the offer letter is on'percentage basis', the percentage apparently reflecting the premium that the bond commands in the secondary market but there is no such mention in the offer letter. There is an unacceptable'assumption' here that the customer understands and accepts payment of such premium(particularly as there is a variance in the premium for market and off market trades).
4.Throughout my more than a month-long interaction with your staff, I have encountered nothing but reluctance and prevarication from your staff in revealing the composite elements that make up your so-called percentage basis price of Rs.105/.
As a matter of fact, I now understand that the real percentage price of the bond is not 1.05% but 1.015% and the rest of the 0.035% is adjusted towards brokerage outside of the investor's knowledge. In other words, the price mentioned in the offer letter should have been Rs.101.5 and not Rs.105.This amounts to a deliberate misstatement of the price.
5.Brokerage charges are normally added on and never an integral part of the'price' quoted - in other words prices quoted are normally net of brokerage charges and add-on taxes - these are shown separately. Your hiding such charges within a composite price is a deliberate denial of information to the investor on the basis of which he can make a reasoned judgment on the quality and desirability of the investment.
6.Coupled with the fact that your offer letter hides more than it reveals, there seems to be a concerted effort on your part to bilk the customer into accepting charges he knows nothing about. If this is what you call'standard industry practice', then perhaps it requires a great deal of scrutiny from market regulators. But then you have conveniently got rid of their intervention by running your scheme in the secondary market where there are obviously lesser safeguards for the investor and you are given an open hand to conduct your nod-and-wink transactions. Unfortunately(for you), placing yourself outside the purview of the NSE does not place you outside the purview of the law, particularly the one relating to'unfair trade practices.'
7.The concealment of relevant information in the offer letter gives a free hand to your marketing staff to embellish facts with blatant and outrageous lies of which there is unfortunately no record since the whole thing has transpired on the verbal plane. It is no wonder then that you should gleefully mention that'it is nowhere mentioned in the offer document that the said security is not available in the retail market.'
8.I trust that I need hardly mention that what has often been passed off as'standard industry practice' has been subsequently termed illegal in the past.'Standard industry practice' is not necessarily a synonym for fair and legal trade practices, nor can it be an excuse for breaking or setting aside the law.The lust for lucre shuns all fetters, including those of the law.
In the event, you are hereby informed that I am well within my rights to treat the entire transaction as malafide and bad in law and call upon you to forthwith refund all monies paid by me for the bonds and take back the same. I am also making a representation to the State Consumer Tribunal to consider awarding me damages to the tune of Rs.50, 000/- for causing me excessive mental distress and trauma arising from your attempts at cheating me of my hard-earned money.
I would like to state for the record that I am a senior citizen with grave health concerns having suffered two heart attacks over the past 10 years.
Please note that this is a legal notice as recognized under the Consumer Protection Act, 1986 and that if you fail to respond positively within a period of 15 days from the date of receipt of this letter, I shall be constrained to take up the matter with the Consumer Courts at your costs and consequences.
Yours sincerely, Complainant
