Bombay High Court Upholds ₹33 Lakh Award Against Dealmoney Commodities For 'Blatantly Unauthorised' F&O Trades

The Bombay High Court has recently upheld an arbitral finding that Dealmoney Commodities Pvt Ltd executed “blatantly unauthorised” Futures and Options trades in the accounts of a retired couple, which resulted in the depletion of their investment portfolio, and restored compensation of over Rs. 33 lakh with 18 percent interest.

A Single Bench of Justice Sharmila U. Deshmukh confirmed the investors' entitlement to Rs. 17,76,581 and Rs.15,32,073 respectively, with interest at 18 percent per annum from August 10, 2020, till payment, along with costs of Rs 25,000.

“The call transcripts precisely prove that the initiation of the trade was not by the Respondent but by the Petitioner's employee without any authorisation which renders the trades blatantly unauthorised. ,” the court observed.

It further observed that the concept of pre-trade and post-trade confirmation applies only where the trade is initiated by the investor himself and not by the broker.

"From the transcript it is evident that the initiation of trade was by the Petitioner's employee and not by the Respondent. The concept of pre-trade and post-trade confirmation applies where the trading is by the Respondent or by the authorised person of the Respondent. In those cases, the trading member would seek confirmation as to whether the trading is done by the Respondent or authorised by the Respondent, which may be pre-trade and post trade. The pre-trade/post trade confirmations loses significance where the material on record shows initiation of the trade by the trading member's employee."

Vijay Vithal Sawant and his wife Pradnya Sawant had opened trading accounts with the broker in September 2019 and initially opted to trade in the cash segment. On January 17, 2020, they activated the Futures and Options segment. Between January 21 and June 18, 2020, multiple derivative trades were executed in their accounts, resulting in losses and erosion of their portfolio.

In August 2020, the couple approached the NSE Grievance Redressal Committee alleging that the broker's relationship manager had carried out unauthorised trades and misrepresented the benefits of trading in the F&O segment. The GRC granted limited relief to one of them while rejecting the other's claim.

The couple then took the dispute to arbitration. On May 7, 2024, the Sole Arbitrator ruled that the F&O trades were unauthorised and ordered restoration of the original portfolio value with interest. The broker then challenged the decision before the NSE Appellate Panel, which upheld the finding of unauthorised trading but modified the relief by awarding the prevailing scrip value as on the date of the award.

Challenging that decision under Section 34 of the Arbitration and Conciliation Act, the broker argued before the High Court that the tribunal had ignored SMS logs, electronic contract notes, ledger statements and call recordings which, according to it, reflected confirmation of trades. It contended that absence of strict compliance with SEBI's March 22, 2018 circular on pre-trade consent did not by itself render the trades unauthorised.

The investors maintained that the trades were initiated by the broker's employee and that they had merely responded “yes” or “ok” during confirmation calls after being coached.

Justice Deshmukh reiterated the limited scope of interference under Section 34 and held that the Appellate Panel had not rested its decision solely on non-compliance with the SEBI circular. It had examined the surrounding circumstances, including transcripts indicating that the initiation of trades came from the broker's employee and not the investors.

The Court held that the finding of unauthorised trading was a plausible view based on the cumulative assessment of the material on record and did not warrant interference.

However, on the question of relief, the Court held that the Appellate Panel had erred in granting the prevailing scrip value as on the date of the arbitral award since that relief had not been claimed by the investors. Terming that portion of the award “clearly erroneous”, the Court severed it and restored the amounts awarded by the Sole Arbitrator.

For the Petitioner (Dealmoney Commodities Pvt. Limited ): Advocates Kunal Katariya and Ashmita Goradia, instructed by Ms. Prakruti Joshi 

For the Respondents (Vijay Vithal Sawant and Pradnya Vijay Sawant): Advocate Suneet Moholkar