Stockbroker liability for losses in trades hinges on adherence to SEBI Circulars; regulatory violations alone do not create client compensation rights without proof of actual loss.

JUDGMENT :

SANDEEP V. MARNE, J.

1) 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. Can stockbroker be made liable to bear the losses incurred by a client in trades in respect of which the stockbroker has failed to follow regulatory Circular issued by Securities and Exchange Board of India is the question this Court is tasked upon to decide in the present Petitions.

2) The Petitions are filed by the Petitioner challenging the Awards passed by the three Member Appellate Tribunal constituted under the Rules, Bye-laws and Regulations of National Stock Exchange of India Ltd. By the impugned Awards, the Appeals preferred by the Petitioner have been dismissed and the Arbitral Awards dated 14 November 2022 passed by the learned Sole Arbitrator are upheld and confirmed. The learned sole Arbitrator had in turn confirmed the order passed by Investors Grievance Redressal Committee (IGRC) dated 31 January 2022 upholding the claim of Respondent and awarded 50% losses incurred by them towards execution of Future & Options Segment.

3) Petitioner- Sharekhan Limited (Sharekhan) is an incorporated entity and a registered stock broker with Securities and Exchange Board of India (SEBI) and is also a member, inter alia of National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Ltd. (BSE). Petitioner provides trading platform to its clients to trade in the stock markets through both modes, online and offline.

4) Respondents, Dr. Monita Kisan Khade (Monita) and Kisan Rajaram Khade (Kisan) herein are the wife and husband, both being medical professionals. They were Petitioner’s clients between 2008 to 2020. They desired carrying out trades in Equity Cash Segment and Future and Options (F&O) Segment of the Stock Exchanges. Accordingly, Demat Accounts were opened. After Respondent- Dr. Monita Kisan Khade (Monita) retired in the year 2015, she joined a class to learn about stock markets and in the class, she met Mrs. Siddhi Pandurang Jagade @ Siddhi Ketan Pednekar (Siddhi). Siddhi claimed herself to be an expert in stock market trading who was also Authorized Person (AP) of Petitioner- Sharekhan. Siddhi won the trust of Monita and all the family accounts of Monita and Kisan were transferred to Siddhi authorizing her to carry out trades, inter-alia, in the F & O Segment. Monita used to give instructions by telephonic calls to Siddhi and it is claimed that no order was placed by her for any F & O Trading. Apparently, several F & O trades were effected on behalf of the couple by Siddhi and losses were incurred in such trades. The shares in the accounts of Monita and Kisan were kept as margin money requirement. To square off the liability incurred towards losses in F&O segment trades, the shares in the accounts of Monita and Kisan kept as margin money, were required to be sold.

5) Monita and Kisan approached IGRC set up by the National Stock Exchange (NSE) claiming the amount of loss suffered by them due to unauthorised trading by Siddhi. Monita claimed amount of Rs.37,69,497/- and Kisan claimed the amount of Rs.12,60,017/-.

6) IGRC passed order dated 31 January 2022 awarding claim of Rs. 20,45,941/- in favour of Monita and Rs. 5,11,742/- in favour of Kisan. IGRC held in its order that no call recording for pre- trade confi