No Automatic Broker Liability for F&O Losses, Bombay HC Sets Aside NSE IGRC Awards against Sharekhan

Moneylife Digital Team 05 January 2026

Investor Interest

Setting aside a series of arbitral awards that had held stockbroker Sharekhan Ltd responsible for losses suffered by two investors in futures and options (F&O) trading, the Bombay High Court has ruled that regulatory lapses by a broker do not automatically translate into civil liability when trades are authorised by clients.

In an order last month, the bench of justice Sandeep V Marne allowed petitions filed by Sharekhan and quashed orders passed by National Stock Exchange's (NSE’s) investors grievance redressal committee (IGRC), a sole arbitrator and an appellate arbitral tribunal. The arbitral forums had directed the broker to compensate Dr Monita Kisan Khade and Dr Kisan Rajaram Khade for a portion of their trading losses, along with brokerage refunds, interest and costs.

The dispute stemmed from losses incurred by the doctor couple in F&O trades executed between 2019 and 2021. The Khades alleged that these trades were carried out without their consent by an authorised person (AP) linked to Sharekhan and that the broker failed to maintain pre-trade and post-trade confirmations as mandated under a 2018 circular issued by market regulator Securities and Exchange Board of India (SEBI). On this basis, arbitration panels had awarded them 50% of their claimed losses.

The High Court, however, took a different view. It held that failure to strictly comply with the SEBI circular on recording client instructions is a regulatory issue that may invite action from the market regulator or stock exchanges, but does not by itself make a broker liable to reimburse trading losses. The Court emphasised that such guidelines are directory in nature and intended to aid in the presentation of evidence, rather than to create automatic civil consequences.

Justice Marne noted that the investors had authorised the AP to operate their accounts and had received contract notes and SMS alerts for the trades without raising timely objections. In speculative segments like F&O, the Court observed, clients cannot later disown losses simply because trades turned unfavourable, particularly when there is no proof that the transactions were blatantly unauthorised.

The judgement was critical of the arbitral tribunals’ approach of awarding exactly half the claimed losses without establishing how the broker’s conduct caused quantifiable damage. Describing this method as irrational, the Court says compensation cannot be based on rough balancing or guesswork in the absence of evidence linking regulatory non-compliance to the losses suffered.

The High Court also rejected the argument that the broker should be vicariously liable for every act of its authorised person or AP, clarifying that while brokers remain responsible for their agents, clients who knowingly permit such agents to trade on their behalf must bear the commercial risks associated with such transactions.

By setting aside all earlier awards, the Court relieved Sharekhan of liability amounting to over ₹25 lakh, including interest and costs. No costs were imposed by the High Court.

The ruling reinforces recent judicial trends that draw a clear distinction between regulatory breaches and civil liability in securities disputes. It may also influence how arbitration panels handle complaints in high-risk segments such as derivatives trading, where retail investor losses have surged in recent years.

While reminding brokers to strengthen oversight of authorised persons to avoid regulatory action, the judgement also sends a signal to investors to closely monitor their trading accounts and raise objections promptly.

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