Dealmoney Commodities P Ltd vs Vijay Vithal Sawant & Anr 2026 BHC-OS 4506

Synopsis

This Bombay High Court judgment disposes of two petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award passed by the Appellate Panel of Arbitrators of the National Stock Exchange. The dispute arose from unauthorized trading in the Futures and Options (F&O) segment in the accounts of two senior citizen respondents (husband and wife) by the petitioner stockbroker's relationship managers. The Arbitral Tribunal had held the trades to be unauthorized and directed the petitioner to compensate the respondents. The High Court partially upheld the award, confirming the finding of unauthorized trades but modifying the compensation to the original portfolio value with interest, setting aside the award of scrip value as on the date of the award which was not prayed for.

1. Case Identification & Coram

Citation: 2026:BHC-OS:4506

Court: High Court of Judicature at Bombay

Jurisdiction: Ordinary Original Civil Jurisdiction (Commercial Division)

Petition Nos.: Commercial Arbitration Petition (L) No. 1665 of 2025 and Commercial Arbitration Petition (L) No. 1700 of 2025

Coram: Hon'ble Justice Sharmila U. Deshmukh

Nature of Bench: Single Judge

Date of Pronouncement: 17th February 2026

Date of Reservation: 19th January 2026

2. Legal Framework & Relevant Provisions
The judgment engages with arbitration law, securities regulations, and contract law:

• Arbitration Law:
  Section 34 of the Arbitration and Conciliation Act, 1996: Provision for setting aside arbitral awards on grounds of patent illegality, perversity, or contravention of fundamental policy of Indian law.
  Section 28(2) of the Arbitration and Conciliation Act, 1996: Arbitral tribunal to decide ex aequo et bono (according to what is fair and reasonable) only if expressly authorized by parties.

• Securities Regulations:
  SEBI Circular dated 22nd March, 2018: Consolidates requirements for prevention of unauthorized trading by stock brokers, including evidence of client placing orders (physical records, telephone recordings, email, internet logs, mobile messages).
  Regulation 3.4.1 of NSE Regulations: Related to trading authorization.
  Bye-laws of National Stock Exchange of India Limited: Governing arbitration mechanism.

• Key Precedents:
  Ulhas Dandekar v. Sushil Financial Services Private Limited – SEBI circular requirements are directory, not mandatory; tribunal can examine other evidence to determine what transpired.
  Erach Khavar v. Nirmal Bang Securities – Distinction between absence of pre-authorization and blatantly unauthorized trades; principle of not holding broker responsible does not apply to blatantly unauthorized trades.
  Sharekhan Limited v. Monita Kisan Khade – Mere silence by passive investor incapable of understanding consequences does not amount to acquiescence in unauthorized trades.
  Associate Builders v. Delhi Development Authority – Scope of Section 34; perversity when finding based on no evidence or ignoring vital evidence.
  TJSB Sahakari Bank Ltd. v. Amritlal P. Shah – Awarding relief not prayed for violates fundamental policy of Indian law.
  John Peter Fernandes v. Saraswati Ramchandra Ghanate – Arbitrators cannot decide based on fairness and equity without express authorization.

3. Relevant Facts of the Case

• The petitioner (Dealmoney Commodities) is a registered trading member with NSE and BSE and a SEBI-registered depository participant.

• The respondents (Vijay Vithal Sawant and Pradnya Vijay Sawant) are husband and wife, senior citizens, who opened trading accounts with the petitioner in September 2019, initially opting for cash segment trading.

• On 17th January 2020, the respondents opted for trading in Futures and Options (F&O) segment. The first F&O trade was executed on 21st January 2020.

• Multiple F&O trades were effected, resulting in losses wiping out the respondents' entire portfolio.

• On 9th August 2020, the respondents approached the Grievance Redressal Committee (GRC) of NSE, alleging unauthorized trades by the petitioner's relationship manager who had persuaded them with assurances of profits.

• The GRC held that the petitioner complied with procedural formalities except pre-call recordings, and closed the case for Vijay Sawant while directing payment of Rs.3,05,286/- to Pradnya Sawant.

• The respondents invoked arbitration. The Learned Sole Arbitrator allowed their claim vide Award dated 7th May 2024.

• The petitioner appealed to the Appellate Panel of Arbitrators, which upheld the finding of unauthorized trades but modified the award to grant prevalent scrip rate/price as on the date of the Sole Arbitrator's award.

• The petitioner filed the present Section 34 petitions challenging the appellate award.

4. Issues Before the High Court
The primary issues for determination were:

1. Whether the Arbitral Tribunal's finding that the F&O trades were unauthorized suffers from patent illegality or perversity warranting interference under Section 34 of the Arbitration Act?

2. Whether the SEBI Circular dated 22nd March 2018 mandating pre-trade confirmations is mandatory or directory, and whether its non-compliance alone renders trades unauthorized?

3. Whether the Appellate Tribunal erred in awarding prevalent scrip rate as on the date of the award, which was not a relief prayed for by the respondents?

4. Whether the Award can be partially set aside by severing the portion granting unclaimed relief?

5. Ratio Decidendi & Court's Reasoning

The Court partially allowed the petitions. The ratio decidendi can be summarized as:

• Nature of SEBI Circular Requirements: Following Ulhas Dandekar, the Court held that the requirements of the SEBI Circular dated 22nd March 2018 regarding pre-trade confirmations are directory, not mandatory. Non-compliance may invite regulatory sanction but does not automatically render trades unauthorized. The Arbitral Tribunal is entitled to examine all attendant circumstances and evidence to determine what actually transpired.

• Finding of Unauthorized Trades: The Appellate Tribunal did not rest its decision solely on non-compliance with the SEBI circular but considered multiple factors:
  Transcripts of call recordings showed the respondent was coached to respond with "yes" or "ok" to scripted calls.
  The relationship manager initiated calls; the respondent did not initiate trades.
  Misrepresentation of benefits of F&O segment without apprising of associated risks.
  Respondent's lack of familiarity with complex F&O trading (senior citizen, not an experienced trader).
  Failure to consider respondent's investment goals or incapability to operate computer systems for F&O trading.
  Termination of relationship managers by the petitioner lent credence to allegations of unauthorized activities.

• Blatantly Unauthorized Trades: Applying Erach Khavar and Sharekhan Limited, the Court held that this was a case of "blatantly unauthorized trades" where the petitioner's employees traded without any authorization. The principle that a constituent cannot disown trades upon incurring losses applies only where trading is done by the constituent's authorized person, which was absent here.

• Passive Investor Protection: The respondent's silence despite receiving SMS logs and contract notes did not amount to acquiescence. A passive investor incapable of understanding the consequences of such communications cannot be held to have ratified unauthorized trades.

• Award of Unclaimed Relief: Following TJSB Sahakari Bank and John Peter Fernandes, the Court held that the Appellate Tribunal erred in awarding prevalent scrip rate as on the date of the award "in interest of fairness, equity and justice." Arbitrators cannot decide based on fairness and equity without express authorization under Section 28(2). Granting relief not prayed for violates the fundamental policy of Indian law.

• Severability: The erroneous portion of the award (scrip value) could be severed from the rest of the award. The original relief sought (original portfolio value with interest) was restored.

6. Legal Principles Established/Reinforced

While the judgment does not establish entirely new law, it clarifies and reinforces several principles in the context of stockbroker-client disputes:

• Directory Nature of SEBI Circulars: The requirements of SEBI Circulars regarding pre-trade confirmations are directory, not mandatory. Failure to comply invites regulatory action but does not automatically determine civil liability between broker and client.

• Blatantly Unauthorized Trades Distinguished: A clear distinction exists between (a) trades placed by the client's authorized person which the client seeks to disown upon incurring losses, and (b) trades initiated by the broker's employees without any authorization. In the latter case (blatantly unauthorized trades), the broker cannot escape liability.

• Protection of Vulnerable Investors: Senior citizens and passive investors who are incapable of understanding complex trading instruments like F&O and the consequences of contract notes are entitled to protection. Silence in such cases does not amount to acquiescence or ratification.

• Call Transcript Analysis: Courts and tribunals can analyze call transcripts to determine who initiated the trade. If the broker's employee initiated the call and the client merely responded with monosyllabic affirmatives, this indicates lack of independent trading decision by the client.

• No Award Beyond Prayer: Arbitral tribunals cannot award relief not prayed for by the claimant, even on grounds of fairness and equity, unless expressly authorized by the parties under Section 28(2). Such awards violate the fundamental policy of Indian law.

• Severability of Award: Under Section 34, courts can partially set aside an award by severing the portion that suffers from patent illegality while upholding the remainder.

7. Judicial Analysis & Examination

The Court's analytical approach was structured:

• Scope of Section 34: The Court first reiterated the narrow scope of interference under Section 34 – perversity exists only when findings are based on no evidence or ignore vital evidence, or when no reasonable person would arrive at such conclusion.

• Examination of SEBI Circular: The Court analyzed the directory nature of the circular following Ulhas Dandekar, rejecting the petitioner's argument that absence of pre-trade confirmation automatically rendered the award liable to be set aside.

• Factual Analysis: The Court examined the factual matrix:
  Respondents were senior citizens with no experience in F&O trading.
  Call transcripts showed initiation by petitioner's employee and coached responses.
  No affidavit from the relationship manager denying misrepresentation.
  Termination of relationship managers supported the respondents' case.
  Complete wipeout of portfolio without any payout to respondents.

• Legal Characterization: The Court characterized the trades as "blatantly unauthorized" applying the distinction from Erach Khavar and Sharekhan Limited.

• Relief Analysis: The Court examined the relief claimed by respondents (original portfolio value with interest) and found that the Appellate Tribunal's award of scrip value as on award date was beyond the prayer and without authorization under Section 28(2).

• Severability: The Court applied the principle of severability to strike down only the erroneous portion while upholding the finding of unauthorized trades and restoring the original compensation.

8. Critical Analysis & Final Outcome

• Critical Analysis: The judgment strikes a careful balance between the restrictive scope of Section 34 and the need to correct clear errors in arbitral awards. The Court correctly refused to interfere with the factual finding of unauthorized trades, recognizing that the Appellate Tribunal had considered multiple factors beyond mere non-compliance with the SEBI circular. The analysis of call transcripts to determine who initiated trades is particularly significant – in an era where recorded calls are standard evidence, tribunals must look beyond the mere existence of a call to its content and context. The Court's distinction between "absence of pre-authorization" and "blatantly unauthorized trades" provides clarity for future cases. The protection extended to senior citizen passive investors who are incapable of understanding complex trading instruments and technical communications is both legally sound and socially necessary. However, the partial setting aside of the award for granting unclaimed relief is also correct – arbitrators must operate within the bounds of the claims made and cannot act as amiable compositeurs without express authorization. The severability approach adopted by the Court is pragmatic and prevents the entire award from being set aside for a curable error.

• Final Outcome:
  The finding that the F&O trades were unauthorized was upheld.
  The portion of the Appellate Tribunal's award granting prevalent scrip rate as on the date of the Sole Arbitrator's award was set aside.
  The relief granted by the Learned Sole Arbitrator was restored:
  Respondent Vijay Vithal Sawant entitled to receive original portfolio value of Rs.17,76,581/- with interest @18% p.a. from the date of first complaint (10th August 2020) till payment.
  Respondent Pradnya Vijay Sawant entitled to receive original portfolio value of Rs.15,32,073/- with interest @18% p.a. from the date of first complaint till payment.
  Costs of Rs.25,000/- awarded.
  Both petitions were partly allowed in the above terms.
  Pending interim applications were disposed of.