IIFL CAPITAL SERVICES LIMITED v. SUKHADEO GORAKHA BHIL

2 ArbAppeal128.202510.10.2025, passed by the learned Principal District and SessionsJudge, Dhule dismissing the application under Section 34 of theArbitration Act filed by the Appellant and, also, challenges theArbitral Award dated 10.03.2025, passed by the sole Arbitratordirecting the Appellant to compensate the Respondent for a sum ofRs.14,37,200/- for unauthorized trades executed by the Appellant’sAgent thereby causing financial losses to the Respondent.2.Appellant has placed on record relevant documentsfiled in the proceedings before the Arbitrator. With consent of theparties heard finally.FACTS IN BRIEF:3.Brief facts leading to the filing of the presentArbitration Appeal are that, the Appellant is trading and clearingmember of recognized stock exchanges such as the National StockExchange (NSE), Bombay Stock Exchange (BSE), Multi CommodityExchange of India (MCX) and National Commodity and DerivativesExchange Limited (NCDEX) bearing SEBI registration No.INZ000164132. The Respondent / Client approached the Appellantto carry out trading activities on the aforementioned exchangesthrough the Appellant’s platform and to avail the broking servicesprovided by the Appellant. The Appellant’s sub-broker / AlliancePartner Manvendra Pratap Singh through whom the Respondent 3 ArbAppeal128.2025had approached the Appellant. The Respondent accordinglyopened a trading and demat account with the Appellant on15.07.2024 and was subsequently allotted a unique client code(UCC): 40354157 by the Appellant. The Respondent was alsoprovided with an SMS alert facility on his registered mobilenumber, so also, e-mail facility, whereby system generated alertswere regularly sent to the Respondent regarding tradeconfirmations, pay-in and pay-outs, debit intimation, marginrequirement etc. In addition to this, as per the applicable norms ofthe NSE, the BSE and the Central Depository Services Limited(CDSL), the Respondent also received details of daily transactionsexecuted through the Appellant through Electronic Contract Notes,which is sent to the registered e-mail ID of the Respondent. Thetrading period involved in the present case is between 29.07.2024to 23.09.2024. During this period various transactions occurred inthe account of the Respondent, wherein the Respondent hassuffered losses due to the alleged unauthorized trades by theAgents of the Appellant. Accordingly, various grievances wereraised leading to invocation of arbitration clause.4.The case before the Arbitral Tribunal set out by theRespondent is that the unauthorized trades were executed in hisaccount without his consent leading to financial losses. He asserted 4 ArbAppeal128.2025before the Arbitrator that he has no knowledge of these trades andthat the Appellant has failed to adhere to regulatory guidelines anddid not exercise due diligence in safeguarding his trading account.It was stated before the Arbitrator that the Appellant was anexperienced trader, actively participating in derivatives andasserts that all trades were executed through the Respondent’svalid login credentials and authenticated via the standard securityprocedures. The Respondent alleged that the Appellant’srepresentative Vishnu engaged in misleading and deceptivepractices that these actions violated regulatory standards, causingsignificant financial loss. The deceptive practice included (a)assuring guaranteed profit recovery if the Respondent opened anew demat account and deposited funds with the Appellant, (b)conducting unauthorized trades without the Appellant’s knowledgeor explicit consent, (c) excessive brokerage charges to maximizebrokerage fees rather than serve the Respondent’s interest, (d)applying undue pressure to force the Respondent into makingadditional deposits. 5.The Respondent contended that the Appellant failed tohonour it’s contractual obligations as a Trading member, leading tosevere financial damage. The Respondent contended that theseunauthorized trades led to substantial losses, worsening his 5 ArbAppeal128.2025financial position. The Respondent incurred total brokerage chargeof Rs.9,48,302/- during the trading period. He contended that thebrokerage was unreasonably high, considering his actual tradingactivity. The excess charges indicate brokerage churning, apractice where brokers execute unnecessary trades to generatehigher brokerage commission. On 19.09.2024, the Respondentrecorded a total loss of Rs.13,26,956/- including direct tradinglosses from unauthorized transactions and brokerage and othercharges. The Respondent had contended that these losses wereentirely preventable and resulted from the Respondent’s conductand, thus, the Respondent asserted that the Appellant’s agentsintentionally disregarded SEBI regulations, specifically Chapter IV,Section 18, which prohibits: (i) misleading advertisements orassurances regarding stock market returns, (ii) promises ofguaranteed profits in trading, (ii) unethical brokerage practices.6.Thus, the Respondent claimed full refund of tradinglosses and brokerage fees of Rs.14,40,000/-, which includedRs.9,89,701/- as brokerage fees taken from the Respondent.7.The Appellant defended the claim of the Respondentclient. It was stated by the Appellant that Manvendra Pratap Singhwas a registered sub-broker (Alliance Partner) of IIFL SecuritiesLtd. The sub-broker was responsible for procuring clients and 6 ArbAppeal128.2025offering financial products. The Appellant stated that the Appellantand the sub-broker signed an agreement on 16.05.2022 bindingthe sub-broker to SEBI / Exchange rules. The Appellant deniedliability for any alleged misconduct by the sub-broker if it violatedregulatory norms or the agreement. The Appellant contended thatthe brokerage is charged as per the exchange rules and agreedterms. The Respondent had agreed to pay brokerage fees whileopening the account. It is stated that the Alliance Partner hadexecuted the transaction as per the clients instructions. It is statedthat the Respondent was made fully aware of the terms andconditions during the account opening process. The Respondentexecuted multiple transactions via online mode. Tradeconfirmations were sent to the registered mobile number and emailaddress. The Respondent’s Ledger Statement was consistentlyupdated, ensuring full transparency. The Respondent made variouspay-in and pay-out transactions, demonstrating a clear awarenessof their financial position. A detailed Ledger Statement indicatesregular transactions, with credits (pay-ins) totalling INR15,20,000/- and debits (pay-outs) totalling INR 82,800/-confirming the Respondent’s engagement with the account. TheRespondent had not made Vishnu or the Alliance Partner / Sub-broker a party to this dispute and thus the Respondent cannotindependently agitate against the Appellant. The Appellant further 7 ArbAppeal128.2025stated 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 agreementbetween the Respondent and Vishnu. 8.It was further contended by the Appellant that Vishnu,Vishal and Manvendra Pratap Singh are not parties to the disputeand, as such, no vicarious claim can be foisted upon the Appellantwithout making them parties to the dispute. The Appellant furthercontended that the brokerage charges were pre-agreed. TheRespondent had signed a tariff sheet while opening the account,agreeing to the brokerage structure. The brokerage is within SEBIlimits. The fees charged were legal and permissible under SEBIregulations.9.The Tribunal on considering the rival claims formulatedfollowing issues:i)Did the Respondent’s representativesmisrepresent past trading successes to induce theApplicant into trading on the Respondent’s platform ?(ii)Did the Respondent engage in excessive tradingfor generating brokerage commission ?(iii)Does the non-joinder of the Alliance Partner /Sub-broker, Manvendra Pratap Singh and his 8 ArbAppeal128.2025employees Vishal and Vishnu, render the claimdefective ?(iv)Were the trades executed in the Applicant’saccount without explicit authorization ?(v)Did the Respondent’s representatives usepressure tactics to force the Applicant into trading ?(vi)Was there any conflict of interest where theRespondent prioritized brokerage earnings over theclient’s financial well-being ?(vii)Do the WhatsApp chats and audio recordingswhere the Respondent’s representatives allegedlyadmitted misconduct hold legal weight ?(viii)Whether the Trading Member is responsible forthe acts done by the Authorised Person and hisemployees ?10.The Arbitral Tribunal found that (1) on 18.09.2024within 66 seconds there was a credit balance of Rs.9,50,128.05/-which reduced to Rs.36,187.59/- by executing a staggering volumeof trades, (2) the Appellant had failed to produce any recorddemonstrating that they had obtained the Respondent’s consentbefore executing such an extraordinary volume of trades within asingle trading session and that the Respondent did not have suchan expertise, (3) that Vishnu had persuaded calling the 9 ArbAppeal128.2025Respondent to invest and later on Vishal who was Vishnu’s bossalso joined in promising Respondent fabulous returns on theinvestments. So also, Manvendra Singh was introduced as theAlliance Partner of the Appellant. Supporting evidence fromWhatsApp messages and audio recordings further corroborates theRespondent’s statement, (4) when examining the entire sequenceof events, it becomes apparent that the unauthorized trading,excessive transactions, and manipulative marketing effortsorchestrated by Manvendra Singh and his team directly benefitedthe Appellant by generating abnormal brokerage commission andthis fact would establish that the Appellant is the ultimatebeneficiary of the misconduct perpetrated by its Alliance Partnerand his associates. The Respondent deposited Rs.15.20 Lakhduring the two months from 29.07.2024 to 23.09.2024. Out of thisamount, Rs.82,800/- was paid back to him. The Respondent haslost the balance amount of Rs.14,37,200/- with the last date of hisLedger Account on 28.10.2024. This was a systematic erosion ofthe funds of the Respondent within a period of two months, (5) TheArbitrator has noted that the Code of Conduct for Stock Brokers(Schedule II of the SEBI (Stock Brokers) Regulations, 1992), astockbroker is required to uphold high standards of integrity,promptness, and fairness in all business dealings and to exercisedue skill, care and diligence in conducting operations, (6) the 10 ArbAppeal128.2025Appellant had failed to adhere to this mandatory Code of Conduct,(7) upon reviewing the audio recording and WhatsApp messagesexchanged between the Respondent and the Appellantsrepresentatives, the tribunal finds that the Appellantsrepresentatives actively misled the Respondent by presenting adistorted and overly optimistic portrayal of trading operations.They promised exorbitant returns, claiming that the Respondentcould earn 25% to 40% in the current month and 60% to 80% oreven 100% in the next month, (8) the Respondent was also enticedto invest additional capital by promises of large return, (9) it wasfound that high pressure sales tactics were adopted coupled withunrealistic assurances of success. 11.As regards issue of the non-joinder of the AlliancePartner / Sub-broker, Manvendra Pratap Singh, and his employeesVishal and Vishnu, the Tribunal found that the responsibility forthe actions of a Sub-broker and his employees ultimately rests withthe Trading Member under whom they operate. Regulatoryframeworks governing stockbroking operations impose anobligation on the Trading Member to oversee and control theconduct of its Alliance Partners and Sub-brokers. The AlliancePartner / Sub-broker, Manvendra Pratap Singh and his employeesVishal and Vishnu acted as representatives of the Appellant in 11 ArbAppeal128.2025opening Respondent’s trading account and in the execution oftrades. Their actions were within the scope of their duties underthe Trading Member’s umbrella and ultimately the TradingMember was the beneficiary of their marketing efforts and tradingoperations. The Respondent had an agreement directly with theAppellant stock broker and has no contractual relationship withthe various persons or their employees and, thus, they are notrequired to be made parties.12.The Tribunal also found that the trades were executedin the Respondent’s account without explicit authorization, theTribunal found that the trading records reveal a series oftransactions executed without the Respondent’s explicit approval.There is no evidence or prior consent for these trades and norecording was produced by the Appellant to confirm that theRespondent authorized them. Unauthorized trading is a graveviolation of investor protection regulations. Every broker has alegal duty to obtain explicit instructions from the clients beforeexecuting trades from their accounts.13.The Tribunal found that the Respondent was subjectedto persistent and aggressive persuasion techniques designed toinduce trading decisions that were not in his best interest. 12 ArbAppeal128.202514.The Tribunal found that the Appellant prioritizedbrokerage earnings over this fiduciary duties. The trading patternin the Respondent’s account reveals that the Appellant structuredtransactions to maximize it’s brokerage commissions rather thanto align with the Respondents financial objectives. Instead of actingin a fiduciary capacity, the Appellant’s representatives deliberatelyengaged in excessive trading to generate brokerage revenue,disregarding the Respondent’s interest. The broker’s primary dutyis to serve the best interests of their client, ensuring that tradesare executed with due care and prudence. However, in this case,financial gain for earning brokerage was prioritized over theRespondent’s financial well-being.15.The Award of the Tribunal was challenged before theDistrict Court in an Application under Section 34 of the ArbitrationAct, which was also rejected and, thereafter, the presentArbitration Appeal is filed.CONTENTIONS OF THE APPELLANT:16. Mr. Kunal Katariya along with Mr. ShubhamDhamnaskar, Mr. Paramjeetsingh Parmar holding for Mr. KaranSarosiya, learned Counsel for the Appellant submits that theRespondent has not raised any contemporaneous objection to thetrades during or after the disputed period. The allegation of 13 ArbAppeal128.2025unauthorized trading was raised belatedly only after theRespondent initiated arbitration in January / February 2025 andis plainly an afterthought. It is further submitted that the DistrictCourt failed to interfere in the Arbitral Award by holding that theArbitral Award runs into 24 pages and, therefore, no reasonableground for interference existed, reflects a clear non-application ofmind. The mere length of an Arbitral Award cannot be a substitutefor judicial scrutiny under Section 34 of the Arbitration Act.17.The Appellant submits that the power of this courtunder Section 37 of the Arbitration Act is co-extensive with powerunder Section 34 of the Arbitration Act and, as such, this courtshould examine the Award and set it aside on the groundsmentioned in Section 34 of the Arbitration Act.18.The Appellant further submitted that this court in thecase of Ulhas Dandekar Vs. Sushil Financial Services Pvt. Ltd. &,Jagadeesa G. Chary Vs. Nirmal Bang Securities Pvt. Ltd., CARBPetition No-1175 of 2019, decided on 27 March 2025, has clearlylay down that once there is conscious and knowing participation intrading, a party cannot subsequently avoid losses, and that absenceof pre-trade authorization is not conclusive proof of unauthorizedtrading. 14 ArbAppeal128.202519.The Appellant further submitted that the District Courtreturns a finding on the aspect of the Arbitral Award not beingcontrary to public policy, it fails to return a finding on patentillegality. There is specific defence raised before the Tribunalshowcasing the Respondent’s knowledge of the trades executedduring the disputed period through documents such as ledgerstatements, email log with electronic contract notes, SMS alertsand order logs. The Arbitral Tribunal, in complete disregard of thematerial evidence before it, has rendered an Arbitral Award that isvitiated by perversity and patent illegality, which the learnedPrincipal District Judge ought to have interfered with.20.It is further submitted that the Award is impossible init’s making i.e. by ignoring vital evidence or being based on noevidence or in it’s result it has rendered a finding that is notpossible and is thus, vitiated by perversity as a subset of patentillegality under Section 34(2A) of the Arbitration Act. The DistrictCourt was bound to examine if the Arbitral Award was vitiated byperversity and patent illegality under Section 34(2A) of theArbitration Act.21.The Appellant further submitted that the District Courthas erroneously observed that the Appellant had an indirect 15 ArbAppeal128.2025relationship with Vishnu and Vishal through it’s Alliance PartnerManvendra Singh, it was vicariously liable for their acts.22.The Appellant further submitted that an agent’sunauthorized acts cannot bind the principal when such acts falloutside the scope of the agent’s express or apparent authority andthat the wrongful acts of Manvendra Singh ought not to bind theAppellant where such acts fall outside the agent’s scope ofauthority. Since, Vishnu and Vishal were not the Appellant’sagents, the Appellant cannot be held liable for any privatearrangement including sharing of account credentials betweenVishnu and the Respondent.23.The Appellant further submitted that this court in thecase of Sharekhan Ltd. Vs. Monita Kisan Khade, ArbitrationPetition No.532 of 2024, dated 24.12.2025 has held that in a casewhere the client / investor specifically admit that they authorizedanother person to effect trades on their behalf, such trades cannotbe 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 hadactive participation and knowledge of the trades. Thecontemporaneous conduct of the Respondent, including making 16 ArbAppeal128.2025pay-ins and accepting pay-outs during and after the disputedperiod, is wholly inconsistent with the allegation that the tradeswere unauthorized.25.The Appellant further submitted that this court in thecase of Erach Khavar Vs. Nirmal Bang Securities Pvt. Ltd.,Arbitration Appeal No.12 of 2025, decided on 25 August 2025, hadheld that disputes to transactions must be raised within areasonable time. It as further held that absence of pre-tradeauthorizations does not amout to unauthorized trades and such anabsence at the highest entails disciplinary measures for the stockbroker.26.The learned counsel for the Appellant submitted thatthis 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. AksharaSharad Madake, learned Counsel appearing for the Respondentsubmitted that the Appellant is a direct beneficiary of the actions ofhis Alliance Partner and their employees. He further submittedthat the Appellant has failed to restrain his agents in inducing theAppellant in unfair manner compromising their returns and is 17 ArbAppeal128.2025acted in the manner prejudicial to the interest of the Respondentand only in the interest of the Appellant. The learned counselsubmits that the Alliance Partner has engaged in the tradeprejudicial to the interest of his client and has traded only for thebenefit of the Alliance Partner and the appellant. The AlliancePartner had made large scale transactions aimed at securing hugebrokerage for Alliance Partner and the stock broker. He submitsthat the power of interference in a well reasoned Arbitral Award isvery minimum under Section 34 and once the Arbitral Award isupheld by the court under Section 34, this court has power ofinterference under Section 37, although coextensive with Section34, is still lessor than the court under Section 34 of the ArbitrationAct. He submitted that the Arbitration Appeal may accordingly bedismissed.POINTS FOR CONSIDERATION:28.Having considered the rival submissions, the questionthat arises for consideration is,{A}In absence of prior written or recordedinstructions for every transactions effected by anAlliance Partner or his employees through a stockbroker without any objection from the client withinreasonable time, whether the client would be permittedto wriggle out of losses resulting out of tradetransactions ? 18 ArbAppeal128.2025{B}In the facts of this case, whether the AlliancePartner and his employees has conducted transactionswithout pre-trade authorization in a manner prejudicialto the interest of the client and only in the interest ofAlliance 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 Respondentcan wriggle out of the transactions which had taken place betweenthe July to September 2024 without any objections being raisedwithin reasonably short time and the objections being raised onlyafter resultant losses in the transactions, the law in this aspect isquite clear.30.The law on the subject is crystalized by the SingleJudge of this Court at the Principal Seat in the case of UlhasDandekar Versus. Sushil Financial Services Pvt. Ltd., CARBPetition No-1175 of 2019, decided on 27 March 2025, as under:1. The core issue that falls for consideration in thesePetitions under Section 34 of the Arbitration andConciliation Act, 1996 (“the Act”) is whether theabsence of a prior written or recorded instruction forevery transaction effected by a client through a stockbroker would be fatal to a claim by the stock broker tosettle accounts. For the reasons set out in thisjudgement, I am unable to agree with the Appellant thatin the facts of this case, he has no liability to pay hisdues owing to admitted absence of such instructions. 19 ArbAppeal128.202531.The case before the learned Single Judge in case ofUlhas Dandekar (supra) was that the Petitioner therein hadattempted to wriggle out of losses suffered from trade transactionsaccusing the stockbroker of carrying out unauthorised trades. Thecontentions raised on behalf of the Petitioner therein was that thestockbroker had failed to maintain written or recordedinstructions for the trades under challenge and reliance was placedon NSE Regulations and SEBI Circular mandating maintenance ofrecord.32.This Court in the case of Ulhas Dandekar (supra) hassummarised the conclusion at Paragraph No.40 as under:“40. It would be useful to summarise the conclusionsdrawn in this judgment as follows:-a) Maintenance of prior written or recordedauthorisation of trades given to a stock broker by theclient is an important safety feature to protect againstdisputes between brokers and clients, but the same isnot the exclusive and only means of demonstrating thatthe client exercised his own agency and autonomy toapproveof trades;b) When disputes arise, the arbitral tribunal would beentitled to examine other appropriate evidence toreturn a finding as to what actually transpired – afeature prominently set out in the SEBI Circular;c) The reference to situations such as “technicalfailure” in which a stock broker may be unable toproduce evidence of order placement, to allow relianceon other appropriate evidence is not meant to be alimiting factor for consideration of evidence, but ismeant to ensure that the requirement to secure priortrade authorisation is important but not determinativein absolute terms of whether the client traded; 20 ArbAppeal128.2025d) Failure to keep prior written or recordedauthorisation can lead to regulatory sanction but thatwould in itself not change the directory nature of theimplications of non-availability of such evidence;e) Absurd, unintended and chaotic consequences canarise if the absence of prior written or recordedauthorisation would let the party transacting in thestock market off the hook and permit such party todisown the trades in question;f) In every case, it is for the jurisdictional arbitraltribunal to assess the evidence at hand, and take aninformed, reasoned and nonarbitrary view as towhether the client of the stock broker exercised hisconscious and autonomous choice in effecting thetrades under dispute; andg) The evidence has to be purposively interpretedbearing in mind the overall regulatory objective andnot in a mechanical and literal manner as if Regulation3.2.1 of the NSE Regulations were a provision in fiscalstatute.”33.Subsequently, the Division Bench of this Court atPrincipal Seat in the case of Erach Khavar Vs. Nirmal BangSecurities Pvt. Ltd., Erach Khavar, Arbitration Appeal No.12 of2025, decided on 25 August 2025, has examined similar positionand has observed at Paragraph No.19, as under:“19) In our view, violation of NSE Regulations requiringpretrade authorisations can at the highest be a groundfor penalising of a stock-broker. The same howevercannot be a reason for wriggling out of consequences ofa trade, particularly when the trade transaction isconfirmed by the constituent. Absence of pre-tradeauthorisation cannot be permitted to be used as ahandle by a person speculating in shares for thepurpose of wriggling out of losses resulting out of tradetransactions which are confirmed by him. There is adifference between concept of absence of pre-tradeauthorisation and blatantly unauthorised trade. Thepresent case does not involve the vice of blatantlyunauthorised trades. Reliance by the Appellant on 21 ArbAppeal128.2025order of this Court in Amit Bharadwaj and judgment inBonanza Commodities Brokers Pvt. Ltd. is thereforeinapposite.”34.The Division Bench of this Court in the case of ErachKhavar (surpa) has observed that violation of NSE Regulationsrequiring pretrade authorisations can at the highest be a groundfor penalising of a stock-broker and the same cannot be a reason forwriggling out of consequences of a trade, particularly, when thetrade transaction is confirmed by the constituent. Absence of pre-trade authorisation cannot be permitted to be used as a handle by aperson speculating in shares for the purpose of wriggling out oflosses resulting out of trade transactions which are confirmed byhim. However, the court observed that blatant unauthorized trademay not fall within this category.35.In view of the Judgment of Ulhas Dandekar (supra) andErach Khavar (supra), consistent position of law is that, if theclient has not objected within a reasonable time to the tradesconducted in absence of pre-trade authorization, the client cannotwriggle out of the consequences of the trade and cannot bepermitted to wriggle out of loss resulting out of trade transactions.36.Coming to the next question of misuse of authorizationgiven by the client to the Alliance Partner, in the instant case, the 22 ArbAppeal128.2025Login ID of the client was given by the client to the employees ofthe Alliance Partner. The client failed to raise necessary objectionalthough he had received the trade confirmations on SMSs and e-mails. The client had not raised objections to the trade within areasonable 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 thetransactions were conducted in the manner so as to make profits inthe nature of brokerage commission only to the Alliance Partnerand the Stock Broker – the Appellant herein. The Respondenthaving failed to raise objections within the reasonable time wouldnot absolve the Appellant from taking responsibility of illegal trade.The Arbitrator on the basis of evidence before it had come to theconclusion that the client made investment of Rs.14,40,000/- andthat the transactions were manipulated in such a manner that thebroker’s fees alone stood at Rs.9,98,701/-. The transactions wereinitiated in such a manner so as to benefit the broker and theAlliance Partner and not the client. The Arbitrator has rendered afinding of civil fraud. This finding of the Arbitrator is based onevidence and, thus, takes away the case in a different dimension.The present case would fall within the exception carved out in thecase of Erach Khavar (supra), at Paragraph No.19, as quoted 23 ArbAppeal128.2025above. The Division Bench of this court at Principal Seat in ErachKhavar (supra) has observed that, the blatant unauthorized trademay not cover within the principle of wriggling out of consequencesof a trade transactions. The instant case relates to F & O tradingand in the award it is stated that large trades were transacted so asonly to benefit the broker and the Alliance Partner. This finding offact cannot be re-examined before this court in Appeal underSection 37 of the Arbitration Act. Neither the Appellant has placedbefore this court any details as to how this particular finding isperverse or could have never been given on the basis of evidencebefore the Arbitrator. There is no patent illegality as regards thefinding rendered and the same is based on record of WhatsApprecordings and transactions produced before the Arbitrator. TheArbitrator has also taken into consideration various SMSs andaudio records between Alliance Partner and the Respondent clientand has rendered a finding that the client was persuaded bypromising very high returns and continuous pressure wasmaintained. Accordingly, transactions were carried out in themanner prejudicial to the interest of the Respondent client. Thesame finding is being based on the evidence cannot be interfered bythis court. 24 ArbAppeal128.202538.In Monita Khade (supra), this court has observed thatthe principle of not holding broker responsible if the client does notobject to the transactions within a reasonable time and permitanother person to continue effecting trades, the client cannot lateron seek to distance himself / herself from the trades effected onher / his behalf. Further, the court has observed that the principleof not holding broker responsible would not apply to blatantlyunauthorised trades, where a stockbroker sells shares of clientwithout his consent. This would be a case of plain theft, to whichthe principle of acquiescence would not apply. Therefore, meresilence for some time in such a case by a passive investor, who isincapable of understanding the consequences of contract notes ortext messages, in raising grievance about unauthorisedtransactions in his account, would not estop him from claimingreturn of stolen shares or claiming value thereof.39.Thus, the facts of this case, fails within the exceptionscarved out in the case of Erach Khavar and Monita Khade (supra).40.The question thus, arises is that, whether the Appellantwould be vicariously liable for the transactions. The Appellant hasrelied upon the Judgment of the Hon’ble Supreme Court in the caseof 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 ArbAppeal128.2025cannot 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 heldliable on the basis of the doctrine of apparent authority.Shri Mathur has invoked the said doctrine and hasrelied upon Section 237 of the Indian Contract Act. Hehas urged that, by its conduct in receiving the premiumthrough its agents, the LIC had induced thepolicyholders to believe that acts of the agents inreceiving the premium form the policyholders werewithin the scope of the agents' authority. Shri Mathurhas laid stress on the fact that respondent No. 3 waspermitted to deposit the amount of Rs. 2,730 towardspremiums with the LIC on August 10, 1987 on behalf ofthe insured. We, however, find that in the complaintthat was filed on behalf of the appellants before theState Commission no such case was set up by theappellants that the LIC, by its conduct, had induced thepolicyholders, including the insured, to believe that theagents (including respondent No. 3) were authorised toreceive the premium on behalf of the LIC. Nor is thereany material on record which may lend support to thesubmission urged on behalf of the appellants that by itsconduct the LIC had induced the policyholders,including the insured, to believe that agents wereauthorised to receive premium on behalf of the LIC. Theonly circumstance relied upon by the learned Counselfor the appellants is the receipt of the amount of Rs.2,730 by the LIC on August 10, 1987. In this regard, thesubmission of Shri Salve is that issuance of the receiptfor the said amount of 2, 730 by the LIC in the name ofthe insured does not indicate that the amount wasreceived through respondent No. 3 and that on thebasis of the said receipt it cannot be said that the LIChad induced the insured to believe that respondent No.3 was authorised to receive the amount of premium onbehalf of the LIC. We find considerable merit in thissubmission. From the mere fact that respondent No. 3had obtained bearer cheque for Rs. 2, 730 from theinsured on June 4, 1987 and after encashing the samefrom the Bank on June 5 1987, had deposited the saidamount with the LIC on August 10, 1987, it cannot besaid that the LIC induced the insured to believe thatrespondent No. 3 had been authorised by the LIC to 26 ArbAppeal128.2025receive premium on behalf of the LIC. We are, therefore,unable to hold that the doctrine of apparent authorityunderlying Section 237 of the Indian Contract Act canbe invoked in the facts of this case especially when theLIC has been careful in making an express provision inthe Regulations/Rules, which are statutory in nature,indicating that the agents are not authorised to collectany moneys or accept any risk on behalf of the LIC andthey can collect so only if they are expressly authorisedto do so.”41.Perusal of the above paragraph in the case of HarshadShah (supra), it would be seen that the Hon’ble Supreme Court hasobserved that, the LIC had made express provision in theRegulations / Rules, which are statutory in nature, indicating thatthe agents are not authorised to collect any monies or accept anyrisk on behalf of the LIC and they can collect so only if they areexpressly authorised to do so.The Hon’ble Supreme Court has further observed thatno case was set up by the Appellant that the LIC by it’s conduct,had induced the policyholders, including the insured, to believethat the agents were authorised to receive the premium on behalfof the LIC. Nor there was any material on record which may lendsupport to the submission urged on behalf of the appellants that byits conduct the LIC had induced the policyholders, including theinsured, to believe that agents were authorised to receive premiumon behalf of the LIC. Thus, in the fact situation the Hon’ble 27 ArbAppeal128.2025Supreme Court in the case of Harshad Shah cited supra held thatthe LIC was not liable for the actions of the agent.42.The vicarious liability of the employer for the lossescaused to third person through the misdemeanour or neglignece ofan 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 isnot liable for the act of the servant if the cause of theloss or damages arose without his actual fault or privityand without the fault or neglect of his agents ofservants in the course of their employment. Thisprinciple is best illustrated by the decision of the Houseof Lords in Leesh River Tea Co., Ltd. and Ors. v. BritishIndia Steam Navigation Co., Ltd. (supra). The facts ofthat case were that during her voyage a ship called atan intermediate port to discharge part of her originalcargo and load some fresh cargo. The shipownersengaged a stevedore company to discharge and load. Aservant of the stevedore company stole a brass plate,which was a cover that could be removed to give accessto a storm valve. Its removal rendered the shipunseaworthy as sea water could enter when the shiprolled. The resulting hole in the ship was concealed bypart of the fresh cargo loaded. On her voyage afterleaving the port the ship encountered heavy weather.Water entered through the hole and damaged part ofthe original cargo. In an action for damages by theowners of the damaged cargo, the shipownerscontended that they were excepted from liability byArticle IV. Rule 2(q) of the Hague Rules, because thecause of the damage arose without their actual fault orprivity and "without the fault or neglect of the agents orservants" 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 iswhether the theft of the brass plate was made bythe stevedore, at Port Sudan, in the course of hisemployment by the shipowners. He was to beregarded as the agent of the shipowners for thepurpose of unloading and loading cargo. There isno doubt that this gave him the opportunity toeffect the theft of the plate; but the stevedore wasconcerned with cargo and not with the ship orparts of the ship. When he deliberately stole theplate he was acting in a way which wascompletely outside the scope of his employmenton behalf of the shipowners. The theft could nothave been prevented by any reasonable diligenceof the shipowners through the officers and crew ofthe ship.26. Salmon, L.J., speaking in a similar strain (at page599) emphasised that the fact that the thief'semployment on board presented him with theopportunity to steal does not suffice to make theshipowners liable. The conclusion drawn was : For an employee to be liable, however, it is notenough that the employment merely afforded theservant or agent an opportunity of committingthe crime.It must be shown that the damage complained of wascaused by any wrongful act of his servant or agent donewithin the scope or course of the servant's or agent'semployment, even if the wrongful act amounted to acrime. For this proposition, Salmon, L.J. referred toLloyd 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 amaster is liable for his servant's fraud perpetrated inthe course of master's business, whether the fraud wasfor the master's benefit or not, if it was committed bythe servant in the course of his employment. There isno difference in the liability of a master for wrongswhether for fraud or any other wrong committed by aservant in the course of his employment, and it is a 29 ArbAppeal128.2025question of fact in each case whether it was committedin the course of the employment.28. In that case, the appellant-company, generalmerchants, had expressly committed to servants of therespondent, a transport contractor, at his request,goods for carriage by road, and the servants stole thegoods, and the evidence established that thatconversion took place in the course of theiremployment. The respondent was held liable to theappellants for the value of the goods. The rule in Lloydv. Grace, Smith & Co. (supra) was applied.”43.Similarly, this court in the case of Messrs. VurdhmanBros. Vs. Messrs. Radhakishan Jai Kishan, AIR 1924 NAGPUR 79,has also dealt with the aspect of liability of the Principal towardsthird person for the misfeasances of his agents within the scope ofthe authority in the course of his agency as under:“Sherjan Khan v. Alimuddi ((1916) 43 Cal. 511 = 20C.W.N. 268 + 34 I.C. 598 = 23 C.L.J. 225) in which it isheld that the principal is liable to third persons in acivil suit for the frauds and other malfeasances of hisagent in the course of his employment although theprincipal did not authorise or justify or participate in,or, indeed, know of such misconduct or even if heforbade the acts or disapproved of them. The principalis not liable for the torts or negligences of his agent inany matters beyond the scope of the agency unless hehas expressly authorised them to be done, or he hassubsequently adopted them for his own use and benefit/and the case in 36 Calcutta is mentioned as one of thoserecognising the doctrine that acts of fraud by theagent, committed in the course and scope of hisemployment, form no exception to the rule whereby theprincipal is held liable for the torts of his agent, eventhough ‘he did not in fact authorise the commission ofthe fraudulent act, and some of the dicta in the 36Calcutta case ae stated to be based on amisapprehension of the expression” for the master’sbenefit.” This case is based on the decision of th eHouse 30 ArbAppeal128.2025of Lords in Lloyd Vs. Grace ((1912) A.C. 716 = 107 L. T.531 = 28 T.L.R. 547) which lays down that theprincipal is liable for the fraud of his agent actingwithin the scope of his authority, whether fraud iscommitted for the benefit of the principal or for thebenefit 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 hisbehalf. As the Respondent / Client had trading account with thebroker, he can pursue the broker individually without making theAlliance Partner as party to the arbitration proceedings.Considering the Judgment of the Hon’ble Supreme Court in thecase of Shyama Devi (supra) and the Judgment of this court in thecase of Messrs. Vurdhman Bros. (supra), I hold that the fraudulentactions of the agent of the Appellant, i.e. Alliance Partner, inconducting 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 ofthe illegal transactions and the transactions have taken place inthe course of action within agents authority. The stock broker isalso required, in terms of the regulations, to appoint AlliancePartner of high integrity. Thus, the stock broker cannot wriggleout of the Alliance Partners actions, which are in the course of hisagency, although the Broker / Appellant may have not permitted 31 ArbAppeal128.2025the Alliance Partner to indulge into fraudulent trades. The actionsof the Alliance Partner has resulted in the profits to Stock Brokerand the Broker is liable for the act of Alliance Partner and hisservants. The fact situation in the present case would be coveredunder Section 238 of the Indian Contract Act, where themisrepresentation made or fraud committed by agents acting inthe course of their business for their principal, have the same effectas committed by the principal and the principal is liable for thesame. A principal is liable for the fraud committed by his agentsacting within the scope of his authority irrespective whether thefraud is committed for the benefit of the principal or the agent.This court, thus, finds no reason to interfere with theArbitral Award and the impugned order passed by the DistrictCourt.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