GUWAHATI: The Supreme Court on Tuesday, February 11, ruled that a husband can be held jointly and severally liable for the debit balance in his wife's stock trading account based on an oral agreement and their financial dealings.
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The ruling was delivered by a bench comprising Justice PS Narasimha and Justice Sandeep Mehta, affirming the jurisdiction of an arbitral tribunal in such matters under Bye-law 248(a) of the Bombay Stock Exchange (BSE) Byelaws, 1957.
The case revolved around whether a husband could be made a party to arbitration initiated by a registered stockbroker seeking to recover a debit balance from his wife’s trading account. The dispute arose when the wife’s account, operated jointly with her husband, accumulated significant losses.
The broker argued that the couple had an oral agreement to share liabilities, and funds were transferred from the husband’s account to cover the shortfall. Following a stock market crash, the debit balance escalated, leading the broker to initiate arbitration for recovery.
The husband contested his inclusion in the arbitration proceedings, citing the absence of written authorisation as required by SEBI guidelines. However, the arbitral tribunal ruled in favour of the broker, holding both spouses liable based on evidence of the husband’s involvement in financial transactions. Although the tribunal acknowledged SEBI’s requirement for written consent, it justified its decision based on the couple’s financial arrangements.
Subsequently, the respondents challenged the ruling under Section 34 of the Arbitration and Conciliation Act, but a single judge of the Bombay High Court dismissed their plea. On appeal under Section 37, a division bench overturned the tribunal’s ruling against the husband, stating that oral agreements could not override official trading records and SEBI regulations.
The Supreme Court set aside the High Court's decision, reinstating the tribunal’s verdict. It held that the oral agreement establishing joint liability was incidental to stock market transactions and fell within the tribunal’s jurisdiction.
The court also noted that the husband's active role in managing both accounts reinforced his liability. It further ruled that SEBI guidelines did not explicitly prohibit such oral arrangements in stock trading.
The ruling reaffirmed the validity of oral agreements in financial dealings and strengthened the authority of arbitral tribunals in stock exchange disputes.
