Delhi High Court Slaps ₹1 Lakh Costs On Securities Brokerage That Undertook Trades Without Client Mandate

The Delhi High Court recently pulled up a stock brokerage firm for indulging in unauthorised trading and “sharp practices” aimed at earning commission income at the cost of investors. It also imposed a costs of Rs 1 lakh for prolonged harassment of its client. Dismissing an appeal by Trustline Securities Limited, the court held that trades executed without client instructions and without mandatory margin money were illegal and showed “scant regard” for the regulatory framework meant to protect investors. A Division Bench of Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar upheld a district court order restoring an arbitral award that had rejected Trustline's claim of about Rs 20 lakh against its client, Hanish Singla. The court said the broker's conduct was “patently illegal” and squarely contrary to the rules of the National Stock Exchange and the Securities and Exchange Board of India. Trades allegedly carried out in Singla's account during 2007–08 lay at the heart of the dispute. Trustline claimed the client owed it nearly ₹20 lakh for those transactions. A sole arbitrator had rejected the claim, holding that the trades lacked any instructions and were executed even without margin money in the account. However, an appellate arbitral tribunal of the NSE overturned that finding, noting that the regulatory framework at the time was “not very robust” and inferring authorisation from the parties' conduct. That appellate award was later set aside by the district court in June 2024, restoring the original award in favour of the investor. Before the High Court, Trustline argued that margin money served only as a risk-mitigation tool and was not a pre-condition for trading, and that it was not required to preserve voice recordings or detailed records beyond five years. The investor countered that the broker had traded unilaterally, without any consent or margin deposit, and had even permitted trading despite a negative balance, purely to generate brokerage. Rejecting the broker's defence, the court held that margin requirements were mandatory even during the relevant period and that trades could not be executed without confirmed instructions. It said the appellate arbitral tribunal's reliance on an evolving regulatory mechanism was wholly unsustainable. “Undoubtedly, the trades as carried out by the Appellant were patently illegal and against the regulatory mechanism that has been put in place for the protection of the investors,” the court observed. The court was particularly scathing about the plea that records were unavailable. Since the parties had been litigating since 2010, it said the broker knew the documents were crucial. The argument that records were only required to be preserved for five years was described as “preposterous,” with the court noting that the duty to maintain and produce records lay squarely on the trading member. “Apart from the fact that the Appellant is clearly guilty of sharp practices and carrying out unauthorised trades merely to generate income by way of commissions for the alleged trades, we are also of the view that the Respondent has been at the unfortunate receiving end of unnecessary and continued harassment by the Appellant, having been forced to continue litigating since the year 2010, and that too in respect of acts and omissions that were done in the year 2007-2008.” , it said. It added that the appeal was “totally meritless and mere eyewash” and appeared designed to “overwhelm the Respondent with a view to induce litigation fatigue.” The appeal was dismissed with costs of Rs 1 lakh, payable within two weeks. Case Title: Trustline Securities Limited v. Hanish SinglaCase Number: FAO (COMM) 204/2024For Appellants: Advocates Ashish Mohan, Hemant ManjlaniFor Respondents: Advocate Alok Sinha, Aakash Saini and Deepansha Saini and Pinkush Singla Click Here To Read/Download Order

Delhi High Court Slaps ₹1 Lakh Costs On Securities Brokerage That Undertook Trades Without Client Mandate

Shivani PS

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