The Supreme Court of India, in a landmark ruling, has held that oral contracts in stock market transactions are enforceable and can impose joint and several liability. The verdict, delivered in AC Chokshi Share Broker Pvt Ltd v. Jatin Pratap Desai & Anr. (2025 INSC 174), overturned a Bombay High Court decision that had relieved the husband from liability in his wife’s trading losses. The apex court ruled that the arbitration tribunal correctly interpreted the contractual relationship and that judicial intervention was unwarranted.
Background of the Case
The case involved AC Chokshi Share Broker Private Limited (appellant), a registered stock broker with the Bombay Stock Exchange (BSE), and Jatin Pratap Desai and his wife (respondents). In 1999, both respondents opened separate trading accounts with the appellant, allegedly agreeing orally that their accounts would be operated jointly and they would share liability for any trading losses.
By April 2001, following a stock market crash, the debit balance in the wife’s (Respondent No. 2’s) account ballooned to ₹1,18,48,069/-. The appellant broker, following an oral instruction, transferred the credit balance from the husband’s (Respondent No. 1’s) account to offset the wife’s trading losses. However, when the broker later sought to recover the remaining losses from both respondents, the husband disputed his liability, arguing that he never authorized such a transfer.
Arbitral Award and High Court Proceedings
The matter was referred to arbitration under Bye-law 248(a) of the BSE Bye-laws, 1957, which governs disputes between stockbrokers and non-members. The arbitral tribunal ruled in favor of the broker, holding that both husband and wife were jointly and severally liable to repay the outstanding amount of ₹1,18,48,069/- with interest.
The respondents challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, but the Bombay High Court dismissed their petition. However, on further appeal under Section 37, the Division Bench of the High Court set aside the arbitral award against the husband, ruling that he could not be held liable for his wife’s trading losses based on an oral understanding.
Supreme Court’s Decision
A bench comprising Justice Pamidighantam Sri Narasimha and Justice Sandeep Mehta allowed the appeal and reinstated the arbitral award, holding that:
1. Oral Contracts Are Valid and Enforceable – The Court interpreted Bye-law 248(a) of the BSE Bye-laws and concluded that an oral contract undertaking joint and several liability falls within the scope of arbitration.
2. No Jurisdictional Error – The Court rejected the High Court’s reasoning that the arbitration lacked jurisdiction over the husband, emphasizing that the dispute arose from a composite transaction involving both respondents.
3. Arbitral Tribunal’s Findings Were Reasonable – The Court ruled that the arbitral tribunal’s conclusion was based on substantial evidence, including financial transactions and oral representations made by the husband. It held that the tribunal had not committed perversity or patent illegality warranting judicial interference.
4. Stock Market Transactions Often Involve Oral Agreements – The Supreme Court acknowledged that in the stock market, transactions within families often involve an informal, oral understanding of joint responsibility, and such arrangements cannot be disregarded merely due to the lack of written documentation.
Key Observations of the Supreme Court
The Supreme Court emphasized that:
– “In the practical realities of stock market transactions, oral agreements between family members regarding joint liability are common and legally enforceable.”
– “An arbitration clause that covers transactions ‘incidental to or in pursuance of’ stock exchange dealings can include oral undertakings regarding liability.”
– “Judicial interference in arbitral awards should be minimal, and High Courts must not reappreciate evidence or expand their appellate jurisdiction under Section 37.”
The Supreme Court set aside the Bombay High Court’s ruling and upheld the arbitral award in full. The husband and wife are now jointly and severally liable to pay ₹1,18,48,069/- along with 9% annual interest from May 1, 2001, until the date of repayment.
