Iifl Capital Services Limited Through Authorized Officer Mr. Kiran Lokare vs Sukhadeo Gorakha Bhil

2026:BHC-AUG:17326
1 ArbAppeal128.2025
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
BENCH AT AURANGABAD
ARBITRATION APPEAL NO. 128 OF 2025
WITH
CIVIL APPLICATION NO.14050 OF 2025
. IIFL CAPITAL SERVICES LIMITED
(Formerly IIFL Securities Limited)
A company incorporated under the
Companies Act, 1956,
having its registered office at:
th
7 Floor, Ackruti Centre Point,
Marol MIDC, Andheri (E), Mumbai – 400 093
Through its Authorised Officer,
Mr. Kiran Lokare .. Appellant /
Original Applicant
Versus
. SUKHADEO GORAKHA BHIL,
Adult, Occupation: Business,
R/o. Village Boris,
Tal. & Dist. Dhle – 424 307 .. Respondent /
Original Respondent
...
Advocate for Appellant :
Mr. Kunal Katariya a/w. Mr. Shubham Dhamnaskar, Mr.
Paramjeetsingh Parmar h/f. Mr. Karan Sarosiya
Advocate for Respondent :
Mr. Vikas Gupta a/w. Ms. Akshara Sharad Madake
…
CORAM : ARUN R. PEDNEKER, J.
DATE : 21.04.2026
JUDGMENT:
1. By the present Appeal under Section 37 of the
Arbitration and Conciliation Act, 1996 (for brevity “Arbitration
Act”) the Appellant challenges the Judgment and Order dated

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10.10.2025, passed by the learned Principal District and Sessions
Judge, Dhule dismissing the application under Section 34 of the
Arbitration Act filed by the Appellant and, also, challenges the
Arbitral Award dated 10.03.2025, passed by the sole Arbitrator
directing the Appellant to compensate the Respondent for a sum of
Rs.14,37,200/- for unauthorized trades executed by the Appellant’s
Agent thereby causing financial losses to the Respondent.
2. Appellant has placed on record relevant documents
filed in the proceedings before the Arbitrator. With consent of the
parties heard finally.
FACTS IN BRIEF:
3. Brief facts leading to the filing of the present
Arbitration Appeal are that, the Appellant is trading and clearing
member of recognized stock exchanges such as the National Stock
Exchange (NSE), Bombay Stock Exchange (BSE), Multi Commodity
Exchange of India (MCX) and National Commodity and Derivatives
Exchange Limited (NCDEX) bearing SEBI registration No.
INZ000164132. The Respondent / Client approached the Appellant
to carry out trading activities on the aforementioned exchanges
through the Appellant’s platform and to avail the broking services
provided by the Appellant. The Appellant’s sub-broker / Alliance
Partner Manvendra Pratap Singh through whom the Respondent

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had approached the Appellant. The Respondent accordingly
opened a trading and demat account with the Appellant on
15.07.2024 and was subsequently allotted a unique client code
(UCC): 40354157 by the Appellant. The Respondent was also
provided with an SMS alert facility on his registered mobile
number, so also, e-mail facility, whereby system generated alerts
were regularly sent to the Respondent regarding trade
confirmations, pay-in and pay-outs, debit intimation, margin
requirement etc. In addition to this, as per the applicable norms of
the NSE, the BSE and the Central Depository Services Limited
(CDSL), the Respondent also received details of daily transactions
executed through the Appellant through Electronic Contract Notes,
which is sent to the registered e-mail ID of the Respondent. The
trading period involved in the present case is between 29.07.2024
to 23.09.2024. During this period various transactions occurred in
the account of the Respondent, wherein the Respondent has
suffered losses due to the alleged unauthorized trades by the
Agents of the Appellant. Accordingly, various grievances were
raised leading to invocation of arbitration clause.
4. The case before the Arbitral Tribunal set out by the
Respondent is that the unauthorized trades were executed in his
account without his consent leading to financial losses. He asserted

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before the Arbitrator that he has no knowledge of these trades and
that the Appellant has failed to adhere to regulatory guidelines and
did not exercise due diligence in safeguarding his trading account.
It was stated before the Arbitrator that the Appellant was an
experienced trader, actively participating in derivatives and
asserts that all trades were executed through the Respondent’s
valid login credentials and authenticated via the standard security
procedures. The Respondent alleged that the Appellant’s
representative Vishnu engaged in misleading and deceptive
practices that these actions violated regulatory standards, causing
significant financial loss. The deceptive practice included (a)
assuring guaranteed profit recovery if the Respondent opened a
new demat account and deposited funds with the Appellant, (b)
conducting unauthorized trades without the Appellant’s knowledge
or explicit consent, (c) excessive brokerage charges to maximize
brokerage fees rather than serve the Respondent’s interest, (d)
applying undue pressure to force the Respondent into making
additional deposits.
5. The Respondent contended that the Appellant failed to
honour it’s contractual obligations as a Trading member, leading to
severe financial damage. The Respondent contended that these
unauthorized trades led to substantial losses, worsening his

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financial position. The Respondent incurred total brokerage charge
of Rs.9,48,302/- during the trading period. He contended that the
brokerage was unreasonably high, considering his actual trading
activity. The excess charges indicate brokerage churning, a
practice where brokers execute unnecessary trades to generate
higher brokerage commission. On 19.09.2024, the Respondent
recorded a total loss of Rs.13,26,956/- including direct trading
losses from unauthorized transactions and brokerage and other
charges. The Respondent had contended that these losses were
entirely preventable and resulted from the Respondent’s conduct
and, thus, the Respondent asserted that the Appellant’s agents
intentionally disregarded SEBI regulations, specifically Chapter IV,
Section 18, which prohibits: (i) misleading advertisements or
assurances regarding stock market returns, (ii) promises of
guaranteed profits in trading, (ii) unethical brokerage practices.
6. Thus, the Respondent claimed full refund of trading
losses and brokerage fees of Rs.14,40,000/-, which included
Rs.9,89,701/- as brokerage fees taken from the Respondent.
7. The Appellant defended the claim of the Respondent
client. It was stated by the Appellant that Manvendra Pratap Singh
was a registered sub-broker (Alliance Partner) of IIFL Securities
Ltd. The sub-broker was responsible for procuring clients and

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offering financial products. The Appellant stated that the Appellant
and the sub-broker signed an agreement on 16.05.2022 binding
the sub-broker to SEBI / Exchange rules. The Appellant denied
liability for any alleged misconduct by the sub-broker if it violated
regulatory norms or the agreement. The Appellant contended that
the brokerage is charged as per the exchange rules and agreed
terms. The Respondent had agreed to pay brokerage fees while
opening the account. It is stated that the Alliance Partner had
executed the transaction as per the clients instructions. It is stated
that the Respondent was made fully aware of the terms and
conditions during the account opening process. The Respondent
executed multiple transactions via online mode. Trade
confirmations were sent to the registered mobile number and email
address. The Respondent’s Ledger Statement was consistently
updated, ensuring full transparency. The Respondent made various
pay-in and pay-out transactions, demonstrating a clear awareness
of their financial position. A detailed Ledger Statement indicates
regular transactions, with credits (pay-ins) totalling INR
15,20,000/- and debits (pay-outs) totalling INR 82,800/-
confirming the Respondent’s engagement with the account. The
Respondent had not made Vishnu or the Alliance Partner / Sub-
broker a party to this dispute and thus the Respondent cannot
independently agitate against the Appellant. The Appellant further

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stated that it had no knowledge of the deposit of Rs.14,40,000/-
between 29.07.2024 and 19.09.2024 and of any private agreement
between the Respondent and Vishnu.
8. It was further contended by the Appellant that Vishnu,
Vishal and Manvendra Pratap Singh are not parties to the dispute
and, as such, no vicarious claim can be foisted upon the Appellant
without making them parties to the dispute. The Appellant further
contended that the brokerage charges were pre-agreed. The
Respondent had signed a tariff sheet while opening the account,
agreeing to the brokerage structure. The brokerage is within SEBI
limits. The fees charged were legal and permissible under SEBI
regulations.
9. The Tribunal on considering the rival claims formulated
following issues:
i) Did the Respondent’s representatives
misrepresent past trading successes to induce the
Applicant into trading on the Respondent’s platform ?
(ii) Did the Respondent engage in excessive trading
for generating brokerage commission ?
(iii) Does the non-joinder of the Alliance Partner /
Sub-broker, Manvendra Pratap Singh and his

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employees Vishal and Vishnu, render the claim
defective ?
(iv) Were the trades executed in the Applicant’s
account without explicit authorization ?
(v) Did the Respondent’s representatives use
pressure tactics to force the Applicant into trading ?
(vi) Was there any conflict of interest where the
Respondent prioritized brokerage earnings over the
client’s financial well-being ?
(vii) Do the WhatsApp chats and audio recordings
where the Respondent’s representatives allegedly
admitted misconduct hold legal weight ?
(viii) Whether the Trading Member is responsible for
the acts done by the Authorised Person and his
employees ?
10. The Arbitral Tribunal found that (1) on 18.09.2024
within 66 seconds there was a credit balance of Rs.9,50,128.05/-
which reduced to Rs.36,187.59/- by executing a staggering volume
of trades, (2) the Appellant had failed to produce any record
demonstrating that they had obtained the Respondent’s consent
before executing such an extraordinary volume of trades within a
single trading session and that the Respondent did not have such
an expertise, (3) that Vishnu had persuaded calling the

9 ArbAppeal128.2025
Respondent to invest and later on Vishal who was Vishnu’s boss
also joined in promising Respondent fabulous returns on the
investments. So also, Manvendra Singh was introduced as the
Alliance Partner of the Appellant. Supporting evidence from
WhatsApp messages and audio recordings further corroborates the
Respondent’s statement, (4) when examining the entire sequence
of events, it becomes apparent that the unauthorized trading,
excessive transactions, and manipulative marketing efforts
orchestrated by Manvendra Singh and his team directly benefited
the Appellant by generating abnormal brokerage commission and
this fact would establish that the Appellant is the ultimate
beneficiary of the misconduct perpetrated by its Alliance Partner
and his associates. The Respondent deposited Rs.15.20 Lakh
during the two months from 29.07.2024 to 23.09.2024. Out of this
amount, Rs.82,800/- was paid back to him. The Respondent has
lost the balance amount of Rs.14,37,200/- with the last date of his
Ledger Account on 28.10.2024. This was a systematic erosion of
the funds of the Respondent within a period of two months, (5) The
Arbitrator has noted that the Code of Conduct for Stock Brokers
(Schedule II of the SEBI (Stock Brokers) Regulations, 1992), a
stockbroker is required to uphold high standards of integrity,
promptness, and fairness in all business dealings and to exercise
due skill, care and diligence in conducting operations, (6) the

10 ArbAppeal128.2025
Appellant had failed to adhere to this mandatory Code of Conduct,
(7) upon reviewing the audio recording and WhatsApp messages
exchanged between the Respondent and the Appellants
representatives, the tribunal finds that the Appellants
representatives actively misled the Respondent by presenting a
distorted and overly optimistic portrayal of trading operations.
They promised exorbitant returns, claiming that the Respondent
could earn 25% to 40% in the current month and 60% to 80% or
even 100% in the next month, (8) the Respondent was also enticed
to invest additional capital by promises of large return, (9) it was
found that high pressure sales tactics were adopted coupled with
unrealistic assurances of success.
11. As regards issue of the non-joinder of the Alliance
Partner / Sub-broker, Manvendra Pratap Singh, and his employees
Vishal and Vishnu, the Tribunal found that the responsibility for
the actions of a Sub-broker and his employees ultimately rests with
the Trading Member under whom they operate. Regulatory
frameworks governing stockbroking operations impose an
obligation on the Trading Member to oversee and control the
conduct of its Alliance Partners and Sub-brokers. The Alliance
Partner / Sub-broker, Manvendra Pratap Singh and his employees
Vishal and Vishnu acted as representatives of the Appellant in

11 ArbAppeal128.2025
opening Respondent’s trading account and in the execution of
trades. Their actions were within the scope of their duties under
the Trading Member’s umbrella and ultimately the Trading
Member was the beneficiary of their marketing efforts and trading
operations. The Respondent had an agreement directly with the
Appellant stock broker and has no contractual relationship with
the various persons or their employees and, thus, they are not
required to be made parties.
12. The Tribunal also found that the trades were executed
in the Respondent’s account without explicit authorization, the
Tribunal found that the trading records reveal a series of
transactions executed without the Respondent’s explicit approval.
There is no evidence or prior consent for these trades and no
recording was produced by the Appellant to confirm that the
Respondent authorized them. Unauthorized trading is a grave
violation of investor protection regulations. Every broker has a
legal duty to obtain explicit instructions from the clients before
executing trades from their accounts.
13. The Tribunal found that the Respondent was subjected
to persistent and aggressive persuasion techniques designed to
induce trading decisions that were not in his best interest.

12 ArbAppeal128.2025
14. The Tribunal found that the Appellant prioritized
brokerage earnings over this fiduciary duties. The trading pattern
in the Respondent’s account reveals that the Appellant structured
transactions to maximize it’s brokerage commissions rather than
to align with the Respondents financial objectives. Instead of acting
in a fiduciary capacity, the Appellant’s representatives deliberately
engaged in excessive trading to generate brokerage revenue,
disregarding the Respondent’s interest. The broker’s primary duty
is to serve the best interests of their client, ensuring that trades
are executed with due care and prudence. However, in this case,
financial gain for earning brokerage was prioritized over the
Respondent’s financial well-being.
15. The Award of the Tribunal was challenged before the
District Court in an Application under Section 34 of the Arbitration
Act, which was also rejected and, thereafter, the present
Arbitration Appeal is filed.
CONTENTIONS OF THE APPELLANT:
16. Mr. Kunal Katariya along with Mr. Shubham
Dhamnaskar, Mr. Paramjeetsingh Parmar holding for Mr. Karan
Sarosiya, learned Counsel for the Appellant submits that the
Respondent has not raised any contemporaneous objection to the
trades during or after the disputed period. The allegation of

13 ArbAppeal128.2025
unauthorized trading was raised belatedly only after the
Respondent initiated arbitration in January / February 2025 and
is plainly an afterthought. It is further submitted that the District
Court failed to interfere in the Arbitral Award by holding that the
Arbitral Award runs into 24 pages and, therefore, no reasonable
ground for interference existed, reflects a clear non-application of
mind. The mere length of an Arbitral Award cannot be a substitute
for judicial scrutiny under Section 34 of the Arbitration Act.
17. The Appellant submits that the power of this court
under Section 37 of the Arbitration Act is co-extensive with power
under Section 34 of the Arbitration Act and, as such, this court
should examine the Award and set it aside on the grounds
mentioned in Section 34 of the Arbitration Act.
18. The Appellant further submitted that this court in the
case of Ulhas Dandekar Vs. Sushil Financial Services Pvt. Ltd. &,
Jagadeesa G. Chary Vs. Nirmal Bang Securities Pvt. Ltd., CARB
Petition No-1175 of 2019, decided on 27 March 2025, has clearly
lay down that once there is conscious and knowing participation in
trading, a party cannot subsequently avoid losses, and that absence
of pre-trade authorization is not conclusive proof of unauthorized
trading.

14 ArbAppeal128.2025
19. The Appellant further submitted that the District Court
returns a finding on the aspect of the Arbitral Award not being
contrary to public policy, it fails to return a finding on patent
illegality. There is specific defence raised before the Tribunal
showcasing the Respondent’s knowledge of the trades executed
during the disputed period through documents such as ledger
statements, email log with electronic contract notes, SMS alerts
and order logs. The Arbitral Tribunal, in complete disregard of the
material evidence before it, has rendered an Arbitral Award that is
vitiated by perversity and patent illegality, which the learned
Principal District Judge ought to have interfered with.
20. It is further submitted that the Award is impossible in
it’s making i.e. by ignoring vital evidence or being based on no
evidence or in it’s result it has rendered a finding that is not
possible and is thus, vitiated by perversity as a subset of patent
illegality under Section 34(2A) of the Arbitration Act. The District
Court was bound to examine if the Arbitral Award was vitiated by
perversity and patent illegality under Section 34(2A) of the
Arbitration Act.
21. The Appellant further submitted that the District Court
has erroneously observed that the Appellant had an indirect

15 ArbAppeal128.2025
relationship with Vishnu and Vishal through it’s Alliance Partner
Manvendra Singh, it was vicariously liable for their acts.
22. The Appellant further submitted that an agent’s
unauthorized acts cannot bind the principal when such acts fall
outside the scope of the agent’s express or apparent authority and
that the wrongful acts of Manvendra Singh ought not to bind the
Appellant where such acts fall outside the agent’s scope of
authority. Since, Vishnu and Vishal were not the Appellant’s
agents, the Appellant cannot be held liable for any private
arrangement including sharing of account credentials between
Vishnu and the Respondent.
23. The Appellant further submitted that this court in the
case of Sharekhan Ltd. Vs. Monita Kisan Khade, Arbitration
Petition No.532 of 2024, dated 24.12.2025 has held that in a case
where the client / investor specifically admit that they authorized
another person to effect trades on their behalf, such trades cannot
be disowned by the client / investor.
24. It is further submitted that the receipt of ECNs, SMS,
Ledger Statements and order logs shows that the Respondent had
active participation and knowledge of the trades. The
contemporaneous conduct of the Respondent, including making

16 ArbAppeal128.2025
pay-ins and accepting pay-outs during and after the disputed
period, is wholly inconsistent with the allegation that the trades
were unauthorized.
25. The Appellant further submitted that this court in the
case of Erach Khavar Vs. Nirmal Bang Securities Pvt. Ltd.,
Arbitration Appeal No.12 of 2025, decided on 25 August 2025, had
held that disputes to transactions must be raised within a
reasonable time. It as further held that absence of pre-trade
authorizations does not amout to unauthorized trades and such an
absence at the highest entails disciplinary measures for the stock
broker.
26. The learned counsel for the Appellant submitted that
this court may accordingly set aside the Arbitral Award, so also,
the Order passed by the Principal District Court.
SUBMISSIONS OF THE RESPONDENT:
27. Per contra, Mr. Vikas Gupta along with Ms. Akshara
Sharad Madake, learned Counsel appearing for the Respondent
submitted that the Appellant is a direct beneficiary of the actions of
his Alliance Partner and their employees. He further submitted
that the Appellant has failed to restrain his agents in inducing the
Appellant in unfair manner compromising their returns and is

17 ArbAppeal128.2025
acted in the manner prejudicial to the interest of the Respondent
and only in the interest of the Appellant. The learned counsel
submits that the Alliance Partner has engaged in the trade
prejudicial to the interest of his client and has traded only for the
benefit of the Alliance Partner and the appellant. The Alliance
Partner had made large scale transactions aimed at securing huge
brokerage for Alliance Partner and the stock broker. He submits
that the power of interference in a well reasoned Arbitral Award is
very minimum under Section 34 and once the Arbitral Award is
upheld by the court under Section 34, this court has power of
interference under Section 37, although coextensive with Section
34, is still lessor than the court under Section 34 of the Arbitration
Act. He submitted that the Arbitration Appeal may accordingly be
dismissed.
POINTS FOR CONSIDERATION:
28. Having considered the rival submissions, the question
that arises for consideration is,
{A} In absence of prior written or recorded
instructions for every transactions effected by an
Alliance Partner or his employees through a stock
broker without any objection from the client within
reasonable time, whether the client would be permitted
to wriggle out of losses resulting out of trade
transactions ?

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{B} In the facts of this case, whether the Alliance
Partner and his employees has conducted transactions
without pre-trade authorization in a manner prejudicial
to the interest of the client and only in the interest of
Alliance Partner and the stock broker and, if so,
whether the stock broker is liable for the same ?
CONSIDERATIONS:
29. As regards the first question, whether the Respondent
can wriggle out of the transactions which had taken place between
the July to September 2024 without any objections being raised
within reasonably short time and the objections being raised only
after resultant losses in the transactions, the law in this aspect is
quite clear.
30. The law on the subject is crystalized by the Single
Judge of this Court at the Principal Seat in the case of Ulhas
Dandekar Versus. Sushil Financial Services Pvt. Ltd., CARB
Petition No-1175 of 2019, decided on 27 March 2025, as under:
1. The core issue that falls for consideration in these
Petitions under Section 34 of the Arbitration and
Conciliation Act, 1996 (“the Act”) is whether the
absence of a prior written or recorded instruction for
every transaction effected by a client through a stock
broker would be fatal to a claim by the stock broker to
settle accounts. For the reasons set out in this
judgement, I am unable to agree with the Appellant that
in the facts of this case, he has no liability to pay his
dues owing to admitted absence of such instructions.

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31. The case before the learned Single Judge in case of
Ulhas Dandekar (supra) was that the Petitioner therein had
attempted to wriggle out of losses suffered from trade transactions
accusing the stockbroker of carrying out unauthorised trades. The
contentions raised on behalf of the Petitioner therein was that the
stockbroker had failed to maintain written or recorded
instructions for the trades under challenge and reliance was placed
on NSE Regulations and SEBI Circular mandating maintenance of
record.
32. This Court in the case of Ulhas Dandekar (supra) has
summarised the conclusion at Paragraph No.40 as under:
“40. It would be useful to summarise the conclusions
drawn in this judgment as follows:-
a) Maintenance of prior written or recorded
authorisation of trades given to a stock broker by the
client is an important safety feature to protect against
disputes between brokers and clients, but the same is
not the exclusive and only means of demonstrating that
the client exercised his own agency and autonomy to
approve
of trades;
b) When disputes arise, the arbitral tribunal would be
entitled to examine other appropriate evidence to
return a finding as to what actually transpired – a
feature prominently set out in the SEBI Circular;
c) The reference to situations such as “technical
failure” in which a stock broker may be unable to
produce evidence of order placement, to allow reliance
on other appropriate evidence is not meant to be a
limiting factor for consideration of evidence, but is
meant to ensure that the requirement to secure prior
trade authorisation is important but not determinative
in absolute terms of whether the client traded;

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d) Failure to keep prior written or recorded
authorisation can lead to regulatory sanction but that
would in itself not change the directory nature of the
implications of non-availability of such evidence;
e) Absurd, unintended and chaotic consequences can
arise if the absence of prior written or recorded
authorisation would let the party transacting in the
stock market off the hook and permit such party to
disown the trades in question;
f) In every case, it is for the jurisdictional arbitral
tribunal to assess the evidence at hand, and take an
informed, reasoned and nonarbitrary view as to
whether the client of the stock broker exercised his
conscious and autonomous choice in effecting the
trades under dispute; and
g) The evidence has to be purposively interpreted
bearing in mind the overall regulatory objective and
not in a mechanical and literal manner as if Regulation
3.2.1 of the NSE Regulations were a provision in fiscal
statute.”
33. Subsequently, the Division Bench of this Court at
Principal Seat in the case of Erach Khavar Vs. Nirmal Bang
Securities Pvt. Ltd., Erach Khavar, Arbitration Appeal No.12 of
2025, decided on 25 August 2025, has examined similar position
and has observed at Paragraph No.19, as under:
“19) In our view, violation of NSE Regulations requiring
pretrade authorisations can at the highest be a ground
for penalising of a stock-broker. The same however
cannot be a reason for wriggling out of consequences of
a trade, particularly when the trade transaction is
confirmed by the constituent. Absence of pre-trade
authorisation cannot be permitted to be used as a
handle by a person speculating in shares for the
purpose of wriggling out of losses resulting out of trade
transactions which are confirmed by him. There is a
difference between concept of absence of pre-trade
authorisation and blatantly unauthorised trade. The
present case does not involve the vice of blatantly
unauthorised trades. Reliance by the Appellant on

21 ArbAppeal128.2025
order of this Court in Amit Bharadwaj and judgment in
Bonanza Commodities Brokers Pvt. Ltd. is therefore
inapposite.”
34. The Division Bench of this Court in the case of Erach
Khavar (surpa) has observed that violation of NSE Regulations
requiring pretrade authorisations can at the highest be a ground
for penalising of a stock-broker and the same cannot be a reason for
wriggling out of consequences of a trade, particularly, when the
trade transaction is confirmed by the constituent. Absence of pre-
trade authorisation cannot be permitted to be used as a handle by a
person speculating in shares for the purpose of wriggling out of
losses resulting out of trade transactions which are confirmed by
him. However, the court observed that blatant unauthorized trade
may not fall within this category.
35. In view of the Judgment of Ulhas Dandekar (supra) and
Erach Khavar (supra), consistent position of law is that, if the
client has not objected within a reasonable time to the trades
conducted in absence of pre-trade authorization, the client cannot
wriggle out of the consequences of the trade and cannot be
permitted to wriggle out of loss resulting out of trade transactions.
36. Coming to the next question of misuse of authorization
given by the client to the Alliance Partner, in the instant case, the

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Login ID of the client was given by the client to the employees of
the Alliance Partner. The client failed to raise necessary objection
although he had received the trade confirmations on SMSs and e-
mails. The client had not raised objections to the trade within a
reasonable period of 2-3 days.
37. However, on perusal of the order of the Arbitral Award,
this Court finds that the Arbitrator has recorded a finding that the
transactions were conducted in the manner so as to make profits in
the nature of brokerage commission only to the Alliance Partner
and the Stock Broker – the Appellant herein. The Respondent
having failed to raise objections within the reasonable time would
not absolve the Appellant from taking responsibility of illegal trade.
The Arbitrator on the basis of evidence before it had come to the
conclusion that the client made investment of Rs.14,40,000/- and
that the transactions were manipulated in such a manner that the
broker’s fees alone stood at Rs.9,98,701/-. The transactions were
initiated in such a manner so as to benefit the broker and the
Alliance Partner and not the client. The Arbitrator has rendered a
finding of civil fraud. This finding of the Arbitrator is based on
evidence and, thus, takes away the case in a different dimension.
The present case would fall within the exception carved out in the
case of Erach Khavar (supra), at Paragraph No.19, as quoted

23 ArbAppeal128.2025
above. The Division Bench of this court at Principal Seat in Erach
Khavar (supra) has observed that, the blatant unauthorized trade
may not cover within the principle of wriggling out of consequences
of a trade transactions. The instant case relates to F & O trading
and in the award it is stated that large trades were transacted so as
only to benefit the broker and the Alliance Partner. This finding of
fact cannot be re-examined before this court in Appeal under
Section 37 of the Arbitration Act. Neither the Appellant has placed
before this court any details as to how this particular finding is
perverse or could have never been given on the basis of evidence
before the Arbitrator. There is no patent illegality as regards the
finding rendered and the same is based on record of WhatsApp
recordings and transactions produced before the Arbitrator. The
Arbitrator has also taken into consideration various SMSs and
audio records between Alliance Partner and the Respondent client
and has rendered a finding that the client was persuaded by
promising very high returns and continuous pressure was
maintained. Accordingly, transactions were carried out in the
manner prejudicial to the interest of the Respondent client. The
same finding is being based on the evidence cannot be interfered by
this court.

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38. In Monita Khade (supra), this court has observed that
the principle of not holding broker responsible if the client does not
object to the transactions within a reasonable time and permit
another person to continue effecting trades, the client cannot later
on seek to distance himself / herself from the trades effected on
her / his behalf. Further, the court has observed that the principle
of not holding broker responsible would not apply to blatantly
unauthorised trades, where a stockbroker sells shares of client
without his consent. This would be a case of plain theft, to which
the principle of acquiescence would not apply. Therefore, mere
silence for some time in such a case by a passive investor, who is
incapable of understanding the consequences of contract notes or
text messages, in raising grievance about unauthorised
transactions in his account, would not estop him from claiming
return of stolen shares or claiming value thereof.
39. Thus, the facts of this case, fails within the exceptions
carved out in the case of Erach Khavar and Monita Khade (supra).
40. The question thus, arises is that, whether the Appellant
would be vicariously liable for the transactions. The Appellant has
relied upon the Judgment of the Hon’ble Supreme Court in the case
of Harshad J. Shah and another Vs. L.I.C. of India and others,
(1997) 5 SCC 64, at Paragraph No.18, to contend that the appellant

25 ArbAppeal128.2025
cannot be held liable for the wrongful acts of the Alliance Partner.
Paragraph No.18 of Harshad Shah (supra) is noted below:
“18. The only question is whether the LIC can be held
liable on the basis of the doctrine of apparent authority.
Shri Mathur has invoked the said doctrine and has
relied upon Section 237 of the Indian Contract Act. He
has urged that, by its conduct in receiving the premium
through its agents, the LIC had induced the
policyholders to believe that acts of the agents in
receiving the premium form the policyholders were
within the scope of the agents' authority. Shri Mathur
has laid stress on the fact that respondent No. 3 was
permitted to deposit the amount of Rs. 2,730 towards
premiums with the LIC on August 10, 1987 on behalf of
the insured. We, however, find that in the complaint
that was filed on behalf of the appellants before the
State Commission no such case was set up by the
appellants that the LIC, by its conduct, had induced the
policyholders, including the insured, to believe that the
agents (including respondent No. 3) were authorised to
receive the premium on behalf of the LIC. Nor is there
any material on record which may lend support to the
submission urged on behalf of the appellants that by its
conduct the LIC had induced the policyholders,
including the insured, to believe that agents were
authorised to receive premium on behalf of the LIC. The
only circumstance relied upon by the learned Counsel
for the appellants is the receipt of the amount of Rs.
2,730 by the LIC on August 10, 1987. In this regard, the
submission of Shri Salve is that issuance of the receipt
for the said amount of 2, 730 by the LIC in the name of
the insured does not indicate that the amount was
received through respondent No. 3 and that on the
basis of the said receipt it cannot be said that the LIC
had induced the insured to believe that respondent No.
3 was authorised to receive the amount of premium on
behalf of the LIC. We find considerable merit in this
submission. From the mere fact that respondent No. 3
had obtained bearer cheque for Rs. 2, 730 from the
insured on June 4, 1987 and after encashing the same
from the Bank on June 5 1987, had deposited the said
amount with the LIC on August 10, 1987, it cannot be
said that the LIC induced the insured to believe that
respondent No. 3 had been authorised by the LIC to

26 ArbAppeal128.2025
receive premium on behalf of the LIC. We are, therefore,
unable to hold that the doctrine of apparent authority
underlying Section 237 of the Indian Contract Act can
be invoked in the facts of this case especially when the
LIC has been careful in making an express provision in
the Regulations/Rules, which are statutory in nature,
indicating that the agents are not authorised to collect
any moneys or accept any risk on behalf of the LIC and
they can collect so only if they are expressly authorised
to do so.”
41. Perusal of the above paragraph in the case of Harshad
Shah (supra), it would be seen that the Hon’ble Supreme Court has
observed that, the LIC had made express provision in the
Regulations / Rules, which are statutory in nature, indicating that
the agents are not authorised to collect any monies or accept any
risk on behalf of the LIC and they can collect so only if they are
expressly authorised to do so.
The Hon’ble Supreme Court has further observed that
no case was set up by the Appellant that the LIC by it’s conduct,
had induced the policyholders, including the insured, to believe
that the agents were authorised to receive the premium on behalf
of the LIC. Nor there was any material on record which may lend
support to the submission urged on behalf of the appellants that by
its conduct the LIC had induced the policyholders, including the
insured, to believe that agents were authorised to receive premium
on behalf of the LIC. Thus, in the fact situation the Hon’ble

27 ArbAppeal128.2025
Supreme Court in the case of Harshad Shah cited supra held that
the LIC was not liable for the actions of the agent.
42. The vicarious liability of the employer for the losses
caused to third person through the misdemeanour or neglignece of
an employee is discussed in the case of State Bank of India
(Successor To The Imperial Bank of India) Vs. Shyama Devi,
(1978) 3 SCC 399, at Paragraphs No.24 to 28, as under:
“24. The first of these principles is that the employer is
not liable for the act of the servant if the cause of the
loss or damages arose without his actual fault or privity
and without the fault or neglect of his agents of
servants in the course of their employment. This
principle is best illustrated by the decision of the House
of Lords in Leesh River Tea Co., Ltd. and Ors. v. British
India Steam Navigation Co., Ltd. (supra). The facts of
that case were that during her voyage a ship called at
an intermediate port to discharge part of her original
cargo and load some fresh cargo. The shipowners
engaged a stevedore company to discharge and load. A
servant of the stevedore company stole a brass plate,
which was a cover that could be removed to give access
to a storm valve. Its removal rendered the ship
unseaworthy as sea water could enter when the ship
rolled. The resulting hole in the ship was concealed by
part of the fresh cargo loaded. On her voyage after
leaving the port the ship encountered heavy weather.
Water entered through the hole and damaged part of
the original cargo. In an action for damages by the
owners of the damaged cargo, the shipowners
contended that they were excepted from liability by
Article IV. Rule 2(q) of the Hague Rules, because the
cause of the damage arose without their actual fault or
privity and "without the fault or neglect of the agents or
servants" of the shipowners.
25. Dealing with this argument, Danckwerts, L.J.
observed (at page 597) :

28 ArbAppeal128.2025
It seems to me that the vital point in the case is
whether the theft of the brass plate was made by
the stevedore, at Port Sudan, in the course of his
employment by the shipowners. He was to be
regarded as the agent of the shipowners for the
purpose of unloading and loading cargo. There is
no doubt that this gave him the opportunity to
effect the theft of the plate; but the stevedore was
concerned with cargo and not with the ship or
parts of the ship. When he deliberately stole the
plate he was acting in a way which was
completely outside the scope of his employment
on behalf of the shipowners. The theft could not
have been prevented by any reasonable diligence
of the shipowners through the officers and crew of
the ship.
26. Salmon, L.J., speaking in a similar strain (at page
599) emphasised that the fact that the thief's
employment on board presented him with the
opportunity to steal does not suffice to make the
shipowners liable. The conclusion drawn was :
For an employee to be liable, however, it is not
enough that the employment merely afforded the
servant or agent an opportunity of committing
the crime.
It must be shown that the damage complained of was
caused by any wrongful act of his servant or agent done
within the scope or course of the servant's or agent's
employment, even if the wrongful act amounted to a
crime. For this proposition, Salmon, L.J. referred to
Lloyd v. Grace, Smith & Co. [1912] AC. 716.
27. In United Africa Company Ltd. v. Baka Owoadei
[1955] A.C. 130 the Privy Council laid down that a
master is liable for his servant's fraud perpetrated in
the course of master's business, whether the fraud was
for the master's benefit or not, if it was committed by
the servant in the course of his employment. There is
no difference in the liability of a master for wrongs
whether for fraud or any other wrong committed by a
servant in the course of his employment, and it is a

29 ArbAppeal128.2025
question of fact in each case whether it was committed
in the course of the employment.
28. In that case, the appellant-company, general
merchants, had expressly committed to servants of the
respondent, a transport contractor, at his request,
goods for carriage by road, and the servants stole the
goods, and the evidence established that that
conversion took place in the course of their
employment. The respondent was held liable to the
appellants for the value of the goods. The rule in Lloyd
v. Grace, Smith & Co. (supra) was applied.”
43. Similarly, this court in the case of Messrs. Vurdhman
Bros. Vs. Messrs. Radhakishan Jai Kishan, AIR 1924 NAGPUR 79,
has also dealt with the aspect of liability of the Principal towards
third person for the misfeasances of his agents within the scope of
the authority in the course of his agency as under:
“Sherjan Khan v. Alimuddi ((1916) 43 Cal. 511 = 20
C.W.N. 268 + 34 I.C. 598 = 23 C.L.J. 225) in which it is
held that the principal is liable to third persons in a
civil suit for the frauds and other malfeasances of his
agent in the course of his employment although the
principal did not authorise or justify or participate in,
or, indeed, know of such misconduct or even if he
forbade the acts or disapproved of them. The principal
is not liable for the torts or negligences of his agent in
any matters beyond the scope of the agency unless he
has expressly authorised them to be done, or he has
subsequently adopted them for his own use and benefit/
and the case in 36 Calcutta is mentioned as one of those
recognising the doctrine that acts of fraud by the
agent, committed in the course and scope of his
employment, form no exception to the rule whereby the
principal is held liable for the torts of his agent, even
though ‘he did not in fact authorise the commission of
the fraudulent act, and some of the dicta in the 36
Calcutta case ae stated to be based on a
misapprehension of the expression” for the master’s
benefit.” This case is based on the decision of th eHouse

30 ArbAppeal128.2025
of Lords in Lloyd Vs. Grace ((1912) A.C. 716 = 107 L. T.
531 = 28 T.L.R. 547) which lays down that the
principal is liable for the fraud of his agent acting
within the scope of his authority, whether fraud is
committed for the benefit of the principal or for the
benefit of the agent.”
44. In the instant case, this Court finds that the Respondent
/ Client had opened trading account with the appellant / broker.
The broker has appointed Alliance Partner to transact on his
behalf. As the Respondent / Client had trading account with the
broker, he can pursue the broker individually without making the
Alliance Partner as party to the arbitration proceedings.
Considering the Judgment of the Hon’ble Supreme Court in the
case of Shyama Devi (supra) and the Judgment of this court in the
case of Messrs. Vurdhman Bros. (supra), I hold that the fraudulent
actions of the agent of the Appellant, i.e. Alliance Partner, in
conducting the fraudulent transactions makes the Appellant /
Broker liable for the losses incurred to the client. The Appellant,
stock broker along with the Alliance Partner is the beneficiary of
the illegal transactions and the transactions have taken place in
the course of action within agents authority. The stock broker is
also required, in terms of the regulations, to appoint Alliance
Partner of high integrity. Thus, the stock broker cannot wriggle
out of the Alliance Partners actions, which are in the course of his
agency, although the Broker / Appellant may have not permitted

31 ArbAppeal128.2025
the Alliance Partner to indulge into fraudulent trades. The actions
of the Alliance Partner has resulted in the profits to Stock Broker
and the Broker is liable for the act of Alliance Partner and his
servants. The fact situation in the present case would be covered
under Section 238 of the Indian Contract Act, where the
misrepresentation made or fraud committed by agents acting in
the course of their business for their principal, have the same effect
as committed by the principal and the principal is liable for the
same. A principal is liable for the fraud committed by his agents
acting within the scope of his authority irrespective whether the
fraud is committed for the benefit of the principal or the agent.
This court, thus, finds no reason to interfere with the
Arbitral Award and the impugned order passed by the District
Court.
ORDER:
45. Accordingly, the Arbitration Appeal stands dismissed.
46. In view of dismissal of the Arbitration Appeal,
consequently, the pending Civil Application is also disposed of.
[ARUN R. PEDNEKER, J.]
marathe