Arbitral Tribunal Had Jurisdiction Over Husband for Wife’s Trading Losses; Supreme Court Upholds Joint and Several Liability

A bench of Justices Pamidighantam Sri Narasimha and Sandeep Mehta heard the civil appeal arising from SLP (C) No. 18393 of 2021 concerning whether an oral undertaking by a husband could bring him within the scope of arbitration under Bombay Stock Exchange Bye-law 248(a) and be made jointly and severally liable for a debit balance in his wife’s trading account.

The Court allowed the appeal, set aside the Division Bench order of the Bombay High Court and upheld the arbitral award holding both spouses jointly and severally liable for the recoverable debit balance. The Court held that an oral contract undertaking joint and several liability fell “within the scope of the arbitration clause” in Bye-law 248(a) and that the arbitral tribunal’s finding on joint liability was a possible view based on evidence and not perverse. The Court, in its reasoning, observed: “First, by interpreting Bye-law 248(a) of the Bombay Stock Exchange Bye-laws, 1957 … 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. Second, considering the settled jurisprudence on the scope of judicial intervention under Section 34 and Section 37 of the Act, we have held that the arbitral tribunal arrived at a reasonable conclusion, based on evidence, as to the joint and several nature of the respondents’ liability. The arbitral award does not suffer from perversity and patent illegality … and therefore, we have upheld the arbitral award in its entirety.” The Court further cautioned against a “hyper-technical approach” to jurisdictional objections and rejected the High Court’s characterisation of the oral understanding as a “private” transaction outside Bye-law 248(a).

Background

The appellant AC Chokshi Share Broker Pvt. Ltd., a BSE member-broker, invoked arbitration under Bye-law 248(a) to recover losses arising from transactions executed in respondent no. 2’s (wife’s) account after the 2001 market crash. Both spouses had executed separate client registration forms in 1999. The broker claimed an oral understanding that both would operate accounts jointly and be jointly liable; the husband had a credit balance which the broker alleged it adjusted to offset the wife’s escalating debit balance. The arbitral tribunal found the transactions authorised, accepted oral evidence and documentary indicia of joint conduct, dismissed the husband’s counterclaim and held both respondents jointly and severally liable for Rs. 1,18,48,069/- with interest.

Separate Section 34 petitions were dismissed by a single judge of the Bombay High Court which found an implied oral agreement and no jurisdictional error. On Section 37 appeal the Division Bench set aside the award only qua respondent no. 1, holding (i) the oral undertaking was a separate “private” transaction outside Bye-law 248(a) so the tribunal lacked jurisdiction, and (ii) the tribunal’s finding of joint liability was perverse and contrary to Bye-law 247A/SEBI guidelines requiring express authorisation for account adjustments.

Before the Supreme Court, the broker argued the husband had not disputed the arbitration clause, had participated in proceedings and filed a counterclaim, and that Bye-law 248(a)’s wide language covered disputes “incidental to” exchange transactions including an oral guarantee. The respondents contended they remained separate legal entities and that the husband’s liability was a private obligation not covered by Bye-law 248(a). The Supreme Court found the arbitral tribunal’s factual conclusion on an oral joint-and-several undertaking to be evidence-based and thus not perverse; the tribunal could exercise jurisdiction over the husband under Bye-law 248(a) and the account adjustment was permissible under Bye-law 247A and broker’s lien provisions. The Court held the High Court erred by reappreciating evidence under Section 37 and raised a waiver point that the husband had participated and did not timely raise a Section 16 jurisdictional plea. The appeal was allowed, the Division Bench order dated 29.04.2021 was set aside, and the arbitral award dated 26.02.2004 was upheld in full.

Case Details: Case No.: 2025 INSC 174 Case Title: AC Chokshi Share Broker Private Limited v. Jatin Pratap Desai & Anr. Appearances: For the Petitioner(s): Mr. Dhruv Mehta, Senior Advocate For the Respondent(s): Mr. Mayilsamy K, Advocate