Client can’t say ‘profits are mine, losses are yours’ to stockbroker: HC

The court held that clients who allow a broker to trade on their behalf and accept the risks of the volatile market cannot later walk away from losses by claiming the stockbroker did not maintain written or recorded pre-trade confirmations

Mumbai: Granting relief to a stockbroking firm, the Bombay High Court held that clients who allow a broker to trade on their behalf and accept the risks of the volatile market cannot later walk away from losses by claiming the stockbroker did not maintain written or recorded pre-trade confirmations.

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The court was hearing a petition filed by Sharekhan against its former clients, Dr Monita and Kisan Khade, both retired medical professionals. The couple had earlier approached the Investors Grievance Redressal Committee (IGRC), alleging unauthorised trading by a Sharekhan agent, Siddhi Jagade, in the Futures and Options (F&O) segment. In January 2022, the IGRC upheld their claim and ordered Sharekhan to cough up 50% of the losses suffered by the couple. A sole arbitrator had confirmed the order which was later also upheld by the Appellate Tribunal constituted under National Stock Exchange of India on June 2, 2023.

Monita had claimed losses of ₹37.69 lakh, while Kisan sought ₹12.60 lakh. In an order on January 31, 2022, the IGRC awarded ₹20.45 lakh to Monita and ₹5.11 lakh to Kisan, citing the broker’s failure to maintain call recordings for pre- and post-trade confirmations as required under a 2018 SEBI circular.

Challenging these orders, Sharekhan argued that while a violation of SEBI norms could attract a penalty, it did not allow clients to wriggle out of trade-related losses after agreeing to taking market risks. Sharekhan contended that having let Siddhi trade on their behalf in the F&O segment, the Khades cannot conveniently adopt the position of retaining profits out of such trades but making the stock broker accountable for losses. Justice Sandeep Marne said that the Khades were trying to propagate the mantra, ‘Profits are mine, but losses are yours’, which cannot be accepted.

Setting aside the order of the tribunal, justice Marne said that cases in which the clients have authorised another person to effect trades on their behalf, they “cannot later turn around and disown the trade transactions by taking a specious plea that the stockbroker did not maintain written/recorded pre-trade confirmations.”