Stock Broker Prima Facie Committed Criminal Breach Of Trust By Withholding Share Sale Proceeds Karnataka High Court

The Karnataka High Court on Tuesday dismissed a writ appeal filed by stock broker SIC Stocks and Services Pvt Ltd. The Court upheld a direction requiring the firm to pay over Rs 2.46 crore to a client whose shares were allegedly sold without its consent.

The court observed that the sale proceeds belonged to the client and were held by the broker in trust. It added that the conduct prima facie, amounted to criminal breach of trust.

A Division Bench of Chief Justice Vibhu Bakhru and Justice K S Hemaleka rejected the appeal challenging a February 2026 order of Justice M G S Kamal.

The Single Judge had upheld an Investors Grievance Redressal Committee (IGRC) direction requiring SIC Stocks to pay the balance sale proceeds of shares belonging to WiseTree.

Observing that the proceeds of shares sold by a broker belong to the client and are held in trust, the Division Bench ruled:

"...Prima facie, even if it is accepted that the appellant[Sic Stocks] was forced to sell its shares… the funds received from the sale of shares as a broker is necessarily the property of the respondent no.3[share owner] held in trust. So it does not preclude the respondent from initiating appropriate criminal proceedings for criminal breach of trust…."

During the hearing, the bench remarked:

"…You [SIC Stocks] held WiseTree's property in trust. You sold it… if you held it in trust, you should have made over that money to it immediately..."

SIC Stocks, a stock broking firm engaged in trading on the BSE and National Stock Exchange, is regulated by the Securities and Exchange Board of India (SEBI). The firm had been providing investment-related services to WiseTree.

The dispute arose after WiseTree alleged that SIC Stocks had sold its shares without its consent. It also alleged that the broker failed to remit the entire sale proceeds. SIC Stocks admitted having realised more than Rs 3.51 crore from the sale of shares belonging to WiseTree through intermediaries. While part of the amount was paid, a balance of Rs 2.46 crore remained unpaid.

Following a complaint by WiseTree, BSE's Investors Grievance Redressal Committee directed SIC Stocks to pay over Rs 2.46 crore that remained unpaid from the sale proceeds of the client's shares.

SIC Stocks challenged the order, arguing that a February 2023 Memorandum of Understanding between the parties had turned the dispute into a private arrangement outside SEBI's grievance redressal framework.

The firm said it had agreed to repay WiseTree after selling its property at Prestige Acropolis in Bengaluru.

Justice M G S Kamal rejected the contention in February 2026.

Before the Division Bench, SIC Stocks argued that the parties had voluntarily entered into a settlement arrangement in 2023. According to the firm, this took the dispute outside SEBI's purview.

The bench, however, was not persuaded.

When SIC Stocks argued that sale proceeds are not received immediately upon a transaction, the Court responded:

"….You will get the money on settlement date….You sold the shares. On settlement date, you received cash. Where is it?.... So the money that you received. You paid it to someone else."

The firm attempted to explain that the funds had been converted into assets. It also argued that there had been no intention to breach WiseTree's trust.

Dismissing the appeal, the Division Bench held:

"…We find no infirmity with the decision of the Single Judge. We also note that the shares of the respondent held in trust by the appellant were sold without instructions. The money so received from the sale of shares to the respondent was not made out to it…."

The court further held that even if SIC Stocks had been compelled to sell the shares, the funds realised from the sale were necessarily the property of WiseTree. As a broker, SIC Stocks held those funds in trust for the client.

The appeal was accordingly dismissed. The court clarified that WiseTree was at liberty to realise the amount in accordance with law. It also said that WiseTree could initiate appropriate criminal proceedings for criminal breach of trust.