Mumbai: In a setback to the once popular vyaj badla transactions, the Bombay high court recently held that an aggrieved party cannot take their disputes to the arbitration tribunal set up under the byelaws of the Bombay Stock Exchange. Dismissing a petition filed by a Mahim-based partnership firm against a city broker, a division bench of Justice R M S Khandeparkar and Justice D G Karnik held that the tribunal had no jurisdiction to hear cases arising out of such private transactions.

The reason was that these transactions were not done through the BSE’s computerised online trading system (BOLT). “The disputed vyaj badla transactions are held to be private transactions relating to the private dealings between the (parties) and not the transactions in respect of the dealings in the securities on the exchange,” the judges said in their order.

Vyaj badla transactions were popular during in the 1990s. ‘Vyaj’ means interest in Gujarati, and vyaj badla was a financing mechanism in which money/shares were provided for funding carry forward deals. There was no physical buying or selling-characteris tic of a badla transaction. The vyaj badla financier would lend money for a return. While returns could be as high as 12%-14%, the risks were proportionally high too. However, with complaints of irregularities pouring in, such transaction were briefly banned following the Harshad Mehta scam.

They were legalised in 1996 (with a carry-forward limit of Rs 20 crore per broker) and were banned again in 2001 when the Ketan Mehta scam shook the stock exchange. Though its place has been taken by stock futures, vyaj badla transactions still take place unofficially.

The case was filed by Syntrex Corporation against Malad resident Rajkumar Keshardev, who was a member of the BSE. Keshardev was declared a defaulter in 1998, and Syntrex made a claim of Rs 3.5 lakh against him.

Syntrex claimed that it had lent Keshardev Rs 3 lakh as vyaj badla. This was disputed by the latter.

It filed a case before the tribunal, which dismissed it on the grounds that that there were no contract notes and that the alleged vyaj badla transactions were not done through the BOLT.

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October 2020