Bombay High Court Sets Aside Arbitral Awards Holding Sharekhan Liable For Investor Losses In F&O Trades
The Bombay High Court recently ruled that mere violation of SEBI's trade confirmation circular does not automatically make a broker liable for market losses, and it set aside arbitral awards that directed stockbroker Sharekhan Limited to reimburse investors for losses sustained in Futures and Options (F&O) trading. The Single Bench on 24th December, 2025, decided that investors who...
The Bombay High Court recently ruled that mere violation of SEBI's trade confirmation circular does not automatically make a broker liable for market losses, and it set aside arbitral awards that directed stockbroker Sharekhan Limited to reimburse investors for losses sustained in Futures and Options (F&O) trading. The Single Bench on 24th December, 2025, decided that investors who authorised an individual to trade on their behalf could not thereafter retract those trades and shift losses to the broker. Justice Sandeep V. Marne held that clients who “relied on skills and took the risks in the volatility of the stock market, cannot later turn around and disown the trade transactions”, noting that regulatory violations may invite disciplinary action but do not automatically create civil liability for losses.
The disputes arose out of disagreements between Sharekhan Limited and its clients, Dr. Monita Kisan Khade and Kisan Rajaram Khade, who claimed that Siddhi Jagade, an Authorized Person (AP) of Sharekhan, indulged in unauthorized F&O trades in their accounts, causing large losses. They approached the NSE's Investors Grievance Redressal Committee (IGRC), which awarded 50% of the losses and partially allowed their claims, citing Sharekhan's failure to keep pre-trade and post-trade confirmations as required by the SEBI Circular dated March 22, 2018. The IGRC order was upheld by a Sole Arbitrator and later by the Appellate Arbitral Tribunal as well. Aggrieved, Sharekhan then approached the High Court under Section 34 of the Arbitration Act.
Sharekhan contended that the SEBI circular is both directory and regulatory, and that while violating it can result in regulatory action, it does not allow investors a right to escape losses from the deals they permitted. Contract notes and SMS notifications were delivered on a regular basis, and the investors never objected in real time, according to the submission.
On the other hand, the investors argued that the broker was vicariously liable for the actions of its Authorized Person, that Siddhi had committed fraud, and that Sharekhan had failed to record order confirmations.
The Bombay High Court ruled that merely violating SEBI's regulatory circular on pre-trade confirmations cannot hold a broker accountable for client losses, thereby allowing the petition filed by Sharekhan Limited and setting aside arbitral awards made against the stockbroker by the Investors Grievance Redressal Committee (IGRC), the Sole Arbitrator, and the Appellate Arbitral Tribunal. The Court determined that the arbitral forums' treatment of non-compliance with the SEBI Circular dated March 22, 2018, as determinative of liability constituted a fundamental error.
The court held that the “respondents were trying their luck and cannot be permitted to use SEBI Circular dated 22 March 2018 as a handle for escaping the liabilities arising out of trades they permitted Siddhi to execute. 'Profits are mine, but losses are yours' is the mantra, which Respondents attempt to propagate, which cannot be countenanced”.
The Court observed that when investors knowingly authorise another person to trade on their behalf and consciously accept the risks of market volatility, they cannot later deny responsibility for those trades merely because the broker failed to maintain written or recorded pre-trade confirmations. In cases of blatantly unauthorised trading, the investor cannot be saddled with losses and the broker would be liable. However, where investors admit authorising a third party to trade for them, they cannot disown the resulting trades or losses.
Following the principles laid down in cases of Ulhas Dandekar v. Sushil Financial Services Private Limited, Erach Khavar v. Nirmal Bang Securities Private Limited and Peerless Securities Limited v. Vostok (Far East) Securities Private Limited, the court noted that SEBI/NSE circular violations may attract regulatory action but do not automatically create civil liability for market losses.
Consequently, the Bombay High Court observed that the methodology relied by the arbitral tribunal in computing loss was against the public policy of India under section 34 of the Arbitration and Conciliation Act. It held that since the Respondents claimed compensation for alleged negligence without leading any evidence of loss, the arbitral awards holding Sharekhan Limited liable for investors' losses in F&O trades, were unsustainable. Accordingly, the Bombay High Court allowed Sharekhan's petitions, set aside the IGRC order as well as the awards of the Sole Arbitrator and Appellate Tribunal, and passed no order on costs.
Case Title: Sharekhan Limited v. Monita Kisan Khade & Anr.
Case Nos.: Arbitration Petition Nos. 532 & 557 of 2024
Coram: Justice Sandeep V. Marne
Judgment Pronounced On: 24 December 2025
Counsel for Sharekhan: Mr. Kunal Katariya
Counsel for Respondents: Mr. Chirag Dave