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Bombay High Court Reaffirms Upon the Unavoidable Liability of the Stockbroker for Unauthorised Trades

Overview

In this case, the Aurangabad Bench of Bombay High Court came before an appeal filed under Section 37 of the Arbitration and Conciliation Act 1996. It challenged an order passed by the District and Sessions Judge Dhule, which upheld an arbitral award passed on 10 March 2025. 

The dispute arose from certain allegations pertaining to trading in an unauthorised manner and excessive deductions as to brokerage, which were carried out through the appellant’s Alliance Partner and its representatives. It was claimed by the respondent that the execution of the trades was done without his consent causing heavy financial losses.

It was upon the High Court to determine whether the appellant, the stockbroker, could avoid the liability by relying upon the confirmations as to trade sent via SMS and email, and whether the acts of Alliance Partner could legally bind the principal company.

 

Facts of the Case

IIFL Capital Services Ltd., the appellant herein is a registered trading member of stock exchanges NSE and BSE. On 15 July 2024, a trading and demat account was opened by the respondent, Sukhadeo Bhil, through the Alliance Partner of the appellant, Manvendra Pratap Singh.

Between July 2024, and September 2024, an amount of around ?15.20 lakhs was deposited by the respondent into the account. As per him, the Alliance Partner was assured by representatives as to guaranteed profits and was persuaded to continue investing money. 

It was alleged by the respondent that several transactions were executed without his knowledge or instructions. The record showed an unusual high frequency of trades within a very short period. 

The respondent further argued that these transactions were carried out to generate brokerage charges. Around ?9.48 lakhs were collected as brokerage while the respondent incurred loss of nearly ?14.40 lakhs. 

To deal with the same, arbitration proceedings were initiated to seek refund of the amount, and an award was passed by the arbitral tribunal in favour of the respondent. The award was challenged by the appellant under Section 34 before the District Court, Dhule, but it was dismissed. Aggrieved by the same, the appellant approached the Bombay High Court under Section 37.

 

Legal Issues

  1. Whether the transactions amounted to unauthorised trading and fraudulent brokerage activity.
  2. Whether the stockbroker appellant was liable, vicariously for the acts committed by its Alliance Partner during the course of business.
  3. Whether the failure in raising instant objections after receiving confirmations as to trade amounted to accepting those transactions.
  4. Whether there existed any ground warranting interference under Section 37 of the Arbitration and Conciliation Act 1996.

 

Decision

The appeal was dismissed by the Bombay High Court, while the arbitral award was upheld.

It was observed that although the clients are generally expected to raise immediate objections after receiving confirmation as to trade, the current scenario involved clear signs of unauthorised trading. The material on record showed systematic depletion of the funds of the respondent mainly to generate brokerage. 

The Court further held that the appellant was vicariously responsible for the acts committed by its Alliance Partner during the course of business. While placing its reliance on Section 238 of the Indian Contract Act, the Court held that a principal is responsible for the acts committed by its agent while acting within the scope of authority. 

At last, finding no patent illegality in the arbitral award, the High Court refused to interfere with the same under Section 37 of the Act.

 

Case Reference:- IIFL Capital Services Limited Vs. Sukhadeo Gorakha Bhil Arbitration Appeal No. 128 of 2025 and Civil Application No. 14050 of 2025 (SJB, Before Arun R. Pedneker, J.)