Member Committee

A claim against a defaulted broker cannot simply be paid out the moment an investor files it. Someone independent has to check the claim is genuine and legitimate before the Investor Protection Fund pays a rupee of it.

That someone is the Member Committee. It stands between the investor's claim and the money, sanctioning what is genuine before the fund's trust actually disburses.

The workbook (Chapter 7, section 7.4, point 9) states the sequence directly: once a trading member has been declared a defaulter, the claims against it shall be placed before the Member Committee (MC) for sanction and ratification. Only after the MC has sanctioned and ratified a claim as legitimate is it sent to the IPF Trust for immediate disbursement of the amount.

This step sits inside a wider default-handling sequence the workbook describes: the exchange issues a circular declaring the broker a defaulter, disseminates the information on its website, issues a public notice inviting claims within a specified period, and intimates clients by email and SMS. Only claims for legitimate investment purposes — not claims arising from speculative transactions — are eligible for compensation at all, and the Member Committee's sanction is where that eligibility check is formally applied before money moves.

A trading member, Orion Broking Ltd, is declared a defaulter by the exchange. Public notice is issued, and clients are invited to file claims within the specified window.

One client, Farhan Sheikh, files a claim for Rs 6,00,000 for shares he had paid for but never received. Another client files a claim for Rs 2,00,000 in notional profit from speculative intraday positions that were never actually settled.

Both claims go before the Member Committee. The MC sanctions Farhan's Rs 6,00,000 claim as a legitimate investment claim and ratifies it, sending it on to the IPF Trust for disbursement. The speculative claim is rejected at the Member Committee stage, because claims arising from speculative transactions are not eligible for IPF compensation at all — the money never reaches the disbursement step.

Chapter 7 (section 7.4, comprehensive guidelines for the Investor Protection Fund) places the Member Committee's sanction step between a broker's default declaration and the IPF Trust's disbursement. Expect a question on the sequence — declare defaulter, invite claims, Member Committee sanctions, IPF Trust disburses — and on which category of claim the MC would reject (speculative transactions).

• The Member Committee sanctions and ratifies; the IPF Trust disburses. These are two different bodies with two different roles in the same process — do not merge them.
• Speculative claims are filtered out at the Member Committee stage, consistent with the IPF's eligibility rule that only legitimate investment claims qualify.
• The MC acts only after a member has already been declared a defaulter — it does not decide whether to declare the default in the first place.
• Do not confuse the Member Committee with the Regulatory Oversight Committee, which separately supervises the Investor Services Fund's contributions and use — different committees, different funds.