Husbands may be liable for the wives’ stock market losses, a Supreme Court ruling has indicated while disposing a 24 years old matter.
“The arbitral award dated February 26, 2004 is upheld in its entirety and respondent no. 1 (husband) is jointly and severally liable, along with respondent no. 2 (wife), to pay the appellant the arbitral sum of ₹1,18,48,069 along with 9 per cent interest per annum from May 5, 2001 till date of repayment as has been directed by the arbitral tribunal,” ruled a division bench of Justices Pamidighantam Sri Narasimha, and Manoj Mishra.
Trading troubles
The matter involves an appeal by A C Chokshi Share Broker against a ruling by the division bench of the Bombay High Court. The respondents were a couple who opened a joint trading account with the broking firm. Due to market crash, the debit balance in respondent no. 2’s account bludgeoned to over ₹1.18 crore as on April 12, 2001, which was the recoverable amount in arbitration.
The arbitration was initiated by the broking firm. The arbitral tribunal found that both respondents were jointly and severally liable for repaying the debit balance in respondent no. 2’s account. The couple moved to the High Court, where the single judge bench set aside the arbitral award. However, the division bench of the High Court allowed the appeal and set aside the arbitral award only against him. Then the broking firm moved to the Supreme Court.
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“The issue arising in the present appeal is whether respondent no. 1, who is the husband of respondent no. 2, could have been made a party to the arbitration that was invoked by the appellant, who is a registered stock broker, and held to be jointly and severally liable for the debit balance that had accrued in the wife’s (respondent no. 2’s) account with the appellant,” the division bench of the apex court highlighted in its order.
After going through all the arguments made, the bench listed reasoning for allowing the appeal. First, the by-law of the Bombay Stock Exchange provides for arbitration between members and non-members of the BSE. Accordingly going by the involvement of husband in transactions conducted by the wife, “we have held that an oral contract undertaking joint and several liability falls within the scope of the arbitration clause and the arbitral tribunal could exercise jurisdiction over respondent no. 1,” the bench mentioned.
Second, going by the settled jurisprudence on the scope of judicial intervention under Arbitration and Conciliation Act, 1996, the bench held that the arbitral tribunal arrived at a reasonable conclusion, based on evidence, as to the joint and several natures of the respondents’ liability. “The arbitral award does not suffer from perversity and patent illegality as has been held by the High Court in the Section 37 appeal, and therefore, we have upheld the arbitral award in its entirety,” the court said.