Stock brokers have a contractual obligation to adjust client balances inter se family accounts when provided under account agreements, emphasizing accountability for unauthorized transactions.

JUDGMENT :

VIBHU BAKHRU, CJ.

1. The appellant [hereinafter referred to as “KSL”] has filed the present appeal under Section 37 of the Arbitration and Conciliation Act, 1996 [A&C Act] impugning an order dated 21.01.2025 [impugned order] passed by the learned Commercial Court in Com. A.P.No.30/2024 captioned M/s. Kotak Securities Limited vs. Mr.Sudeep R Prasad .

2. KSL had filed an application under Section 34 of the A&C Act impugning an arbitral award dated 25.10.2023 [impugned award rendered by an appellate Arbitral Tribunal comprising of three arbitrators [Arbitral Tribunal].

3. The Arbitral Tribunal had rendered the impugned award pursuant to the challenge laid by KSL to an award dated 21.07.2023 passed by the sole arbitrator [hereafter ‘the sole arbitrator’] , appointed under the by-laws of National Stock Exchange of India Limited [NSE]. The sole arbitrator had delivered the said award pursuant to the arbitral proceedings instituted by KSL assailing the order dated 21.10.2022 passed by the Grievance Redressal Committee [GRC] of NSE in a complaint preferred by the respondent.

4. KSL is a registered stock broker with NSE as well as the Bombay Stock Exchange Limited [BSE]. It is also a registered depository participant with CDSL and NDSL.

5. The respondent and his family members had opened trading and DEMAT accounts with KSL.

The complaint

6. The respondent filed a complaint with the GRC alleging that KSL had unauthorisedly sold the following shares:

(i) 180 shares of Larsen & Turbo Limited

(ii) 235 shares of Rashtriya Chemicals and Fertilisers Limited

(iii) 172 shares of Reliance Industries Limited

(iv) 6 shares of Tata Steel Limited

7. The respondent raised a claim of Rs.8,14,391/- being the market value of the said shares as on 18.10.2021. Additionally, the respondent alleged that KSL had violated the settlement rule, which required settling the dues two days after the date of the trade (T+2) rule and instead of settling the dues had charged interest, which was not permissible.

GRC’s decision

8. The GRC found that there were credit balances in the accounts of the family members of the respondent and the said amounts had not been adjusted from the debit balance appearing in the accounts of the respondent at the material time. As on 24.09.2010, there was a net credit balance of Rs.61,507.08 in the accounts of the respondent and his immediate family members. Thus, on a consolidated basis, KSL owed an amount of Rs.61,507.08 to the respondent and his family members. Notwithstanding the same, KSL had charged an amount of Rs.6,67,251/- as interest and depository charges [DP] of Rs.20,849.48. In the aforesaid circumstances, the GRC framed the following points for consideration:

“a. Whether the trading member is justified in charging interest of Rs.6,67,251 considering the fact that post transfer of credit balances from the accounts of parents into the accounts of Sudeep Prasad and Veena Prasad there was credit balance of Rs.6157.08 in the latter accounts

b. Whether the complainant is eligible for compensation of Rs.8,14,391/- being price difference in respect of shares sold by the trading member on 30.6.2020 and on 21.8.2020.

c. Whether there was undue delay in raising the issue in 2020 of interest charged in 2010 d. The trading member has informed that the matter of transfer of credit balances in the family accounts with them bearing claim code: RJR17, RDOP3, Q5764 and VRP80 raised by Mr.Rama Prasad for his and his family accounts was already under litigation hence was su