Kiran Raj

The Supreme Court has upheld an arbitral tribunal’s decision holding both husband and wife jointly and severally liable for outstanding dues in the wife's trading account. The court ruled that an oral agreement between the parties regarding shared liability was valid and enforceable under the Bombay Stock Exchange (BSE) Bye-laws. Setting aside a High Court order that had exempted the husband from liability, the Supreme Court held that the arbitral award did not suffer from any jurisdictional error, perversity, or patent illegality. The husband is now required to pay ₹1,18,48,069 with 9% interest per annum from May 1, 2001, until the date of repayment.

The case originated from a dispute between a stock brokerage firm and a married couple who had opened separate trading accounts with the firm in 1999. The broker alleged that the husband had assured joint and several liability for transactions conducted in the wife's account.

At the end of the settlement period in January 2001, the husband's account had a credit balance of ₹7,40,020, which increased to ₹9,40,020 after an additional deposit. Meanwhile, the wife's account had a debit balance of ₹7,77,058, which escalated to ₹11,40,413 in February 2001. The broker transferred ₹9,40,020 from the husband’s account to offset losses in the wife's account, allegedly based on his oral instructions. However, a stock market crash in April 2001 further increased the wife’s outstanding balance to ₹1,18,48,069.

The broker initiated arbitration under BSE Bye-law 248(a), seeking recovery of ₹1,27,36,670, including interest, from both the husband and wife. In response, the husband contended that he was wrongly impleaded, arguing that his account was separate and that he had never agreed to joint liability. He also claimed that the broker had transferred funds from his account without his express consent, in violation of SEBI guidelines, and filed a counterclaim to recover the amount. The wife alleged unauthorized transactions in her account and denied her husband’s liability.

The arbitral tribunal ruled in favor of the broker, holding both spouses jointly and severally liable for the outstanding amount. The tribunal found that:

• The husband frequently managed both trading accounts and had given oral instructions to transfer funds.

• The couple had a financial arrangement where liabilities were shared despite having separate client accounts.

• The broker's reliance on an oral understanding was reasonable given the nature of their dealings.

The tribunal dismissed the husband's counterclaim, stating that the adjustment of funds between accounts was valid under the circumstances.

Both spouses filed petitions under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside the arbitral award. The High Court’s single judge upheld the award, ruling that the husband had implicitly agreed to joint liability.

However, on appeal under Section 37, a division bench of the High Court set aside the award against the husband, reasoning that:

1. Lack of Jurisdiction: The tribunal had no authority to adjudicate a dispute against the husband, as he was not a direct party to the transactions in his wife’s account. The alleged oral agreement was a private arrangement outside the scope of BSE Bye-law 248(a), which governs disputes related to stock exchange transactions.

2. Perversity in Findings: The tribunal’s conclusion that the spouses were jointly liable was deemed unsupported by documentary evidence. Since their trading accounts were legally separate, joint liability could not be inferred merely from their marital relationship.

3. Violation of SEBI Guidelines: The transfer of funds from the husband’s account without written authorization was held to be illegal, rendering the award unsustainable.

The Supreme Court overturned the High Court’s decision and upheld the arbitral tribunal’s award. It made the following key findings:

1. Tribunal’s Jurisdiction Upheld: The court ruled that an oral agreement establishing joint liability is covered under BSE Bye-law 248(a), which includes claims "arising out of or incidental to" stock exchange transactions. The husband’s active role in managing both accounts and his conduct in financial dealings with the broker justified his inclusion in the arbitration.

2. No Perversity in the Tribunal’s Findings: The tribunal’s conclusion that the couple functioned as a single financial unit was based on oral testimony, transactional patterns, and affidavits from witnesses familiar with their dealings. Since the finding was based on evidence, it could not be set aside as perverse.

3. Legality of Fund Transfers: The court held that Bye-law 247A, which regulates fund transfers between client accounts, permits adjustments for liabilities where joint responsibility exists. The husband's liability for the wife's debts, as determined by the tribunal, validated the transfer.

The Supreme Court concluded that the High Court had exceeded its jurisdiction under Section 37 by reassessing evidence and substituting its findings for those of the arbitral tribunal. It upheld the tribunal’s ruling, making both spouses liable for repayment.

Case Title: AC Chokshi Share Broker Private Limited v. Jatin Pratap Desai & Anr.
Case Number: Civil Appeal No. of 2025 (Arising Out of SLP (C) No. 18393 of 2021)
Bench: Justice Pamidighantam Sri Narasimha and Justice Sandeep Mehta

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