Broker not responsible if clients’ orders are vague

A stock-broker cannot be held responsible if a client gives vague and complex instructions (on price, time of order, cash and futures based on future price and market movement), observed the Bombay High Court.

The Court ruled thus while quashing an Arbitration Tribunal award, constituted by the NSE, in a dispute between Kotak Securities Ltd and an investor (Gaurav Goel). The Tribunal awarded Rs 26 lakh plus interest to Goel for the failure of the Branch Manager of Kotak Securities to act on the alleged written instructions of the investor during the time (December 2004-January 2005) when he was away from Lucknow.

Before leaving town, Goel claims to have handed over a sheet containing his written instructions to the Branch Manager to invest on his behalf, along with a post-dated cheque for Rs 5 lakh. The substance of the investor's complaint was that the Branch Manager (of Kotak Securities) did not act on his written instructions, and had he done so, he would have made a profit of Rs 16.5 lakh. This was the alleged error of omission on the part of the broker, with the error of commission being overzealousness in buying securities the respondent had not asked for. Criticising the arbitration tribunal for readily agreeing to the claim of the respondent and granting compensation of Rs 26 lakh with interest of 12 per cent per annum, the Bombay High Court not only quashed the award of compensation but also held that in a volatile market for shares, brokers cannot be expected to comply with fanciful orders containing so many ifs and buts. One can haul the broker over the coals only when he has been given clear-cut instructions, it said. These extracts from the judgment are relevant:

“Therefore, daily and timely oral instructions and/or telephonic instructions and/or such communication are possible and recognised mode. There is no bar that no written instructions can be given to do the transaction, but to give such instructions in question for one month by putting everything in writing including the rate, date without assessment and without verifying the position of the day and/or of the week is quite impracticable and impossible. This casts unnecessary burden on the trader to keep unnecessary watch and exercise his discretion and/or commercial sense in case of change of circumstances.”

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