The Bombay High Court has set aside an earlier decision and recently ruled that failure to maintain SEBI-mandated trade confirmations alone does not automatically make a broker liable for losses sustained in Futures & Options trade if it arises due to procedural lapses. The court overturned awards directing Sharekhan to bear 50% of clients’ speculative deficits — noting that investors who delegated silently must own the associated risks of speculative trading.
“This is yet another case of investors seeking to recover from stockbroker losses incurred in trades executed by their trusted person taking advantage of the stockbroker’s failure to maintain pre and post trade confirmations,” the verdict from Justice Sandeep V Marne, delivered on December 24, stated.
What is the case?
Two arbitration petitions filed by the brokerage had challenged earlier awards that directed Sharekhan to bear 50% of losses suffered by two clients during F&O transactions executed through an authorised person. The brokerage noted that the SEBI circular in question was “directory and not mandatory” — with the Bombay HC in agreement.
The dispute arose after investors alleged that unauthorised F&O trades had led to heavy losses in their accounts. They claimed that the authorised person had executed trades without proper instructions and laid the blame squarely upon Sharekhan. The investors had also cited a SEBI circular from 2018 as part of their case. The circular in question called on brokers to maintain evidence of order placement, including call recordings or written instructions.
The Investors Grievance Redressal Committee had accepted part of the complaint — concluding that Sharekhan failed to maintain pre-trade and post-trade confirmations as required by SEBI. It also found investor negligence due to a lack of monitoring. The committee awarded brokerage reversal and 50% of the trading losses — later approved by an appellate arbitral tribunal.
Sharekhan had subsequently approached the Bombay High Court.
Court turns to previous verdicts
The Bombay HC relied heavily on previous judgements — including the case of Ulhas Dandekar v. Sushil Financial Services and Erach Khavar v. Nirmal Bang Securities. The judgement on December 24 cited excerpts from the previous verdict to underscore its decision.
“There cannot be an absolute proposition that the absence of evidence of an authorisation is evidence of absence of authorisation. The thick line sought to be drawn between authorisation of a trade and knowledge of a trade does not resonate with me,” it quoted from Ulhas Dandekar.
Bombay HC set aside brokerage refund
The win came days after a separate Bombay High Court order set aside an arbitral award directing Sharekhan to refund Rs 4.87 lakh in brokerage. The court held that the arbitral tribunal had irrationally treated the same 2007 contract between the parties as valid for permitting trades but invalid for charging brokerage. Justice Marne said such a conclusion was fundamentally incompatible with contract law principles — ruling the awards “egregiously perverse and unsustainable”.