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by Admin
17 December 2025 4:09 PM
Supreme Court Upholds Arbitral Award Holding Husband and Wife Jointly Liable for Trading Losses In a significant ruling on arbitration law, the Supreme Court of India, on February 10, 2025, in AC Chokshi Share Broker Private Limited v. Jatin Pratap Desai & Anr., set aside a High Court judgment that had overturned an arbitral award holding a husband jointly and severally liable with his wife for losses in a stock trading account. The Court reaffirmed that arbitral tribunals are the final fact-finding authorities, and judicial intervention is only permitted in cases of perversity or patent illegality.
"Once an arbitral tribunal has rendered a reasoned award based on appreciation of evidence, courts cannot substitute their own findings merely because they hold a different view. Judicial intervention must be minimal to preserve the finality of arbitration," the Supreme Court observed.
The Court further clarified that an oral contract creating joint liability for financial transactions in a trading account is well within the jurisdiction of the BSE arbitration framework. It held that the High Court had exceeded its jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, by reappreciating evidence and substituting its own conclusions.
"Arbitration under stock exchange bye-laws covers disputes arising out of trading transactions, including oral agreements on financial liability. The High Court’s approach in treating such an agreement as a private arrangement beyond the scope of arbitration was legally flawed," the bench observed.
Broker Claims Joint Liability for Trading Losses, Arbitral Tribunal Upholds It
The dispute arose when AC Chokshi Share Broker Private Limited, a registered stockbroker, initiated arbitration against Jatin Pratap Desai and his wife, seeking recovery of outstanding dues from the wife's trading account.
The arbitral tribunal found that the couple had a long-standing practice of jointly managing trading transactions, with instructions often given interchangeably. Based on this conduct, it held that both the husband and wife were jointly and severally liable for the debit balance in the wife’s trading account.
The tribunal also noted that the husband’s separate trading account had a credit balance, which was transferred to the wife’s account based on his oral instructions. The broker relied on this practice, asserting that the couple had an understanding that losses in one account could be offset by funds from the other.
The High Court, however, set aside this arbitral finding, ruling that:
The husband and wife had separate trading accounts, agreements, and client codes, and joint liability could not be presumed.
The oral understanding of financial responsibility was a private transaction, which did not fall within the ambit of arbitration under Bye-law 248(a) of the Bombay Stock Exchange (BSE) Bye-laws.
The broker’s transfer of funds between accounts violated SEBI regulations requiring written authorization.
Overturning this ruling, the Supreme Court reinstated the arbitral award, holding that the High Court had no basis to interfere with well-reasoned factual findings of the arbitral tribunal.
"A finding of joint liability based on a long history of financial transactions and conduct cannot be said to be perverse. The High Court erred in substituting its own conclusions in an area where the arbitral tribunal was the final authority," the Court ruled.
"Oral Contracts Can Form the Basis of Joint Liability in Trading Transactions" – Supreme Court on Arbitration Jurisdiction
The High Court had held that the husband’s oral promise to cover his wife’s trading losses was a separate agreement and was not arbitrable under Bye-law 248(a) of the BSE.
Rejecting this conclusion, the Supreme Court ruled that oral agreements concerning financial liability arising out of trading transactions fall well within the jurisdiction of arbitration under stock exchange rules.
"An arbitration clause is not limited to written agreements alone. When parties have conducted themselves in a manner indicating joint financial liability, an oral contract is sufficient to establish arbitrability. The High Court’s rigid interpretation ignored the commercial realities of stock market dealings," the Court observed.
The Supreme Court relied on past precedents, including P.R. Shah, Shares & Stock Brokers Pvt. Ltd. v. B.H.H. Securities Pvt. Ltd., where it was held that arbitration under BSE Bye-laws can extend to composite transactions involving multiple parties when financial liability is intertwined.
The bench categorically ruled: "A trading relationship cannot be viewed in isolation from its commercial reality. Where parties operate accounts jointly, give instructions interchangeably, and net off balances regularly, the conclusion of joint and several liability is neither illegal nor perverse. The arbitral tribunal correctly exercised jurisdiction, and the High Court's intervention was unwarranted."
"Courts Must Not Interfere in Arbitration Unless There is Clear Perversity or Patent Illegality"
The High Court had invoked 'patent illegality' as a ground to overturn the arbitral award, stating that: Joint liability was inferred based on an alleged oral contract, despite separate client agreements and accounts.
The broker’s adjustment of funds between accounts violated SEBI guidelines requiring written authorization.
The Supreme Court rejected both findings, ruling that neither met the threshold of "patent illegality" under Section 34 of the Arbitration Act.
On the issue of joint liability, the Court stated: "The arbitral tribunal’s finding was based on witness testimonies, transaction patterns, and past dealings. A conclusion that a married couple jointly managed their trading accounts and assumed liability together is not so outrageous that it shocks the conscience of the court. The High Court had no basis to set aside this finding."
On the issue of funds transfer violating SEBI rules, the Court ruled: "Once the arbitral tribunal found that joint liability existed, Bye-law 247A of the BSE permitted fund adjustments. Additionally, Bye-law 227(a) provides brokers with lien over client funds when outstanding liabilities exist. Therefore, the tribunal’s decision was legally sound."
The Supreme Court emphasized that courts must not reappreciate evidence in arbitration matters, particularly in Section 37 appeals.
"The role of courts is not to second-guess arbitral findings but to ensure that the process remains fair and lawful. The High Court wrongly reappreciated evidence and overstepped its jurisdiction under Section 37," the Court held.
Final Decision: Supreme Court Restores Arbitral Award, Orders Payment of Rs. 1.18 Crore with Interest
Setting aside the High Court’s order, the Supreme Court reinstated the arbitral award in its entirety, holding that:
The husband is jointly and severally liable for his wife’s trading losses.
The broker was justified in adjusting the credit balance from the husband's account to offset the wife’s debts.
The arbitral tribunal’s findings were based on evidence and did not suffer from any perversity or illegality.
The Court directed the respondents to pay Rs. 1,18,48,069/- along with 9% interest per annum from 01.05.2001 until repayment.
"Arbitral awards, when reasoned and lawful, must be respected. Courts must exercise restraint and not interfere in commercial arbitrations without compelling reasons," the bench concluded.
A Strong Precedent for Arbitration Finality
This ruling strengthens the principle of minimal judicial interference in arbitration, reinforcing that courts should not reappreciate evidence or override reasonable arbitral findings.
By affirming that oral contracts in financial dealings can be arbitrable under stock exchange rules, the judgment clarifies the scope of arbitration in the securities market.
Above all, the Supreme Court’s message was clear:
"The sanctity of arbitration must be preserved. If courts continue to second-guess arbitral awards, the very purpose of having an alternative dispute resolution mechanism will be defeated."
