INTRODUCTION
The apex Court of India, in landmark judgement has held that oral contracts in stock market transaction are enforceable and can impose joint and several liability. The judgement, delivered in AC Chokshi Share Broker Pvt Ltd. V Jatin Prtap Desai & Anr. Overturned a Bombay High Court Decision that had relieved the husband from liability in his wife’s trading losses. The court ruled that the arbitration tribunal correctly interpreted the contractual relationship and that judicial intervention was unwarranted.
Recent affirmations of arbitration clauses by the Supreme Court of India hold oral commitments amenable to arbitration, as well. The court allowed an arbitral award against a husband who ran his wife’s demat account without her explicitly giving written consent. The principles have been confirmed whereby arbitration clauses in contracts run beyond written undertakings, covering verbal undertakings as well as duties implied by conduct.
BACKGROUND
The case arose on a petition initiated by a securities firm against a husband for making unauthorized trades through his wife’s demat account. The case contended that though the husband had not got the wife’s permission in writing, he acted according to some oral assurances given by the husband and an implicit understanding between them. The arbitration tribunal ruled for the securities firm, holding liability on the husband’s. This decision was challenged in the High Court and then in the Supreme Court on that oral commitments cannot be arbitrated under the arbitration clause in the agreement.
KEY POINTS
1. Expanding the Scope of Arbitration Clauses: The Supreme Court held that arbitration clauses do not deserve to be narrowly construed and may govern disputes based both on written as well as on oral undertakings.
2. Conduct-Based Obligations: The Court focused on continued operation of husband’s in the demat account and communication with the securities firm established an implied contractual relationship.
3. Arbitral Awards: The scope of judicial intervention in arbitral award is limited under the Section of 34 of the Arbitration and Conciliation Act, 1996.
4. Suggestions for Securities Transactions: This sets a precedent for holding individuals accountable for unauthorized securities trading.
RECENT UPDATE
Since the ruling was delivered by the Supreme Court, legal experts and financial institutions have been busy in analysing its implications to arbitration jurisprudence and securities law. The judgment will eventually impact all future disputes related to unauthorized trading and oral commitments in financial transactions.
CONCLUSION
The most important judgment of the Supreme Court in arbitration law is that arbitration clauses are extended even to oral agreements. It strengthens due diligence by making enforceability of arbitral awards by considering implied contracts that bring in accountability in securities trading and contractual dealings.
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WRITTEN BY: SHIVRANJNI
