A depository is liable to indemnify investors for losses due to negligent acts of its Depository Participant, demonstrating the interconnected responsibilities of financial institutions in preventing fraud.

JUDGMENT :

Sandeep V. Marne, J.

THE CHALLENGE

1) The Petition, filed under Section 34 of the Arbitration and Conciliation Act, 1996, (Arbitration Act) seeks invalidation of the Award dated 30 January 2024 passed by the Arbitral Tribunal. By the impugned Award, the Tribunal has allowed the claim of Respondent No.1 to the extent of Rs.86,02,768/- with direction to the Petitioner to pay the awarded sum to the First Respondent, being the value of her lost shares on the date of dispute. The Tribunal has also awarded simple interest at the rate of 9% p.a. on the awarded sum.

FACTS

2) The Petitioner-Central Depository Services Ltd. (CDSL) is a company established under the provisions of Companies Act, 1956 and also a Depository under section 12(1-A) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) and a facilitator for holding securities in a dematerialized form. Respondent No.2-BRH Wealth Kreators Limited (BRH) is a Kolkata based public limited company and registered as a stock- broker with the Stock Exchanges. It is also a registered Depository Participant (DP) with the Petitioner. Respondent No.1 earlier held a Demat account of Karvy Stock Broking Limited. However, on account of compulsory closure of the said account, Respondent No.1 opened demat account with Respondent No.2-BRH on 27 June 2018. Respondent No.1 and her late husband jointly executed a Power of Attorney (POA) dated 29 June 2018 in favour of Respondent No.2. The husband of Respondent No.1 expired on 7 June 2019, which fact was apparently not communicated to Respondent No.2 or to the Petitioner. Acting on the Power of Attorney executed by Respondent No.1, Respondent No.2-BRH transferred equity shares from the demat account of Respondent No.1 to the Trading Member/ Clearing Member Client Account (TM/CM Account) of Respondent No.2 bearing BO ID: 1204630000023100, (First TM/CM Account). By such transfer, the title in the equity shares owned by Respondent No.1 got transferred to the TM/CM account of BRH. Petitioner claims to have issued SMS alert of such transfer on the registered mobile number of Respondent No.1. The shares of various beneficial owners (including the shares of Respondent No.1) lying in the First TM/CM account of Respondent No.2 were transferred to another dematerialized account also being second Respondent’s distinct TM/CM Client Account with BO ID:1204630000021137 (Second TM/CM Account). It appears that in the aforesaid manner, Respondent No. 2 transferred shares of 9493 clients into the Second TM/CM Account.

3) On the strength of having acquired title in the transferred shares, BRH pledged the shares in the second TM/CM account with HDFC Bank Limited (HDFC Bank) for the purpose of availing loan facility against the pledged shares. It appears that the Petitioner accepted the request for creation of pledge on the ground that the title in the shares had transferred to the Second TM/CM Account of Respondent No.2.

4) On the 30 of September 2019, National Stock Exchange (NSE), being the Market Infrastructure Institute (MII) responsible for monitoring and overseeing the activities of BRH, passed an o