July 20th, 2026

A. Cover Story

[A.1] Broker is liable for unauthorised trades despite automated SMS and Email confirmations to the client

In the recent case of IIFL Capital Services Ltd v. Sukhadeo Gorakha Bhil, the Bombay High Court (April 21st, 2026) addressed a situation where a client’s account was systematically drained through unauthorised trades executed by an alliance partner of IIFL Capital Services Ltd. Over a two-month period, the client was misled by promising guaranteed returns. High-pressure tactics were used, ultimately resulting in a loss of approximately Rs. 14.37 lakhs, with brokerage fees alone accounting for nearly Rs. 10 lakhs. While the broker argued that the client’s failure to object to automated SMS and email confirmations within a reasonable timeframe should absolve them of liability but the court disagreed. Let us understand the factual matrix and issue wise analysis of this case.

Factual Matrix

The relationship between the respondent (client) and the appellant started when the client opened a trading and demat account at the appellant’s alliance partner (a sub-broker) on July 15th, 2024. Between July 29th, 2024, and September 23rd, 2024, the client’s account experienced significant activity. The client alleged that representatives of the alliance partner executed trades without his consent, utilised pressure tactics, promised guaranteed high returns, and deliberately generated excessive brokerage charges. During this period, the client deposited about Rs. 15.20 lakhs and received only about Rs. 0.83 lakhs back, resulting in a loss of approximately Rs. 14.37 lakhs. The broker’s fees alone during these transactions accounted for about Rs. 9.98 lakhs.

When the matter was taken before an Arbitral Tribunal, the Tribunal noted that on September 18th, 2024, a credit balance of approximately Rs. 9.50 lakhs was drastically reduced within 66 seconds due to a staggering volume of trades. The broker provided no record of the client’s consent for such trade volumes. Evidence from WhatsApp messages and audio recordings corroborated the client’s claims of being misled by promises of exorbitant returns.

The broker argued that the trades were executed via valid login credentials and that the client failed to object to electronic contract notes, SMS alerts, and ledger updates within a reasonable time. However, the Arbitral Tribunal held the broker responsible for the acts of its alliance partner, concluding that the transactions were manipulated to benefit the broker through abnormal brokerage. It awarded the client approximately Rs. 14.37 lakhs.

The District Court dismissed the broker’s application to set aside this award under section 34 of the Arbitration and Conciliation Act. In appeal, the Bombay High Court subsequently dismissed the broker’s appeal.

The ruling can be analysed through following issues and conclusions:

Issue No. 1: Whether a client who failed to object to electronic trade confirmations (SMS/email) within a reasonable time is precluded from claiming that the underlying trades were unauthorised.

The Court acknowledged the principle of acquiescence, that is, a passive investor cannot typically ignore alerts and later challenge trades after incurring losses. However, the Court clarified that this rule serves to prevent speculative investors from avoiding the consequences of market fluctuations. It is not an absolute bar. The broker is generally protected only where the client’s failure to object is the only factor. Thus, in ordinary circumstances, failure to object within a reasonable time precludes a client from challenging trades.

Issue No. 2: Whether the general rule of acquiescence applies to trades that are blatantly unauthorised or fraudulent in nature.

The Court held that the rule of acquiescence does not apply to blatantly unauthorised trades. Evidence (WhatsApp logs, audio recordings) confirmed that the alliance partner used high-pressure tactics and manipulated trading volumes for the sole benefit of the broker/partner through excessive brokerage (churning). Since the trades were designed to commit a civil fraud on the client, the client’s silence did not stop them from seeking recovery.

Issue No. 3: Whether a stockbroker is liable under section 238 of the Indian Contract Act, 1872, for the fraudulent acts committed by its alliance partner (sub-broker) within the course of their agency.

The court rejected the broker’s argument that it was not responsible for its sub-broker’s misconduct. The court explained that under section 238, the fraud of an agent acting within the scope of their authority binds the principal, regardless of whether the principal personally benefited or authorised the specific fraudulent act. As in this case, the alliance partner was acting under the broker’s umbrella, and the transactions generated significant brokerage for the broker, the principal should bear the liability for the agent’s misconduct.

B. Case Laws

[B.1] The new management after CIRP cannot shift registered office if an appeal is pending against the resolution plan

In the recent case of Jeel Kandla Service v. Union of India, the Calcutta High Court (May 15th, 2026) addressed whether a corporate debtor can shift its registered office while appeal against its approved resolution plan remained pending before the NCLAT.

HNGIL, a company, having undergone Corporate Insolvency Resolution Process (CIRP), sought to relocate its office from West Bengal to Maharashtra. The Regional Director (RD) granted permission but the High Court intervened. The Court clarified that the second proviso to Rule 30(9) of the Companies (Incorporation) Rules, 2014, imposes a strict embargo on such relocation if any appeal against a resolution plan is pending. Because the RD had acted in violation of this procedural bar, the High Court set aside the permission to shift the registered office.

The court also emphasised that statutory authorities cannot circumvent corporate regulations by alleging that the provisions of IBC overrides all other statutes. This ruling serves as a vital reminder that IBC implementation does not grant immunity from broader corporate law compliance. Investors and new management teams must ensure all regulatory hurdles specifically those under the Companies Act and its rules are cleared before attempting major structural changes like shifting of registered office from one state to other state.

[B.2] The legal representative of a deceased party can challenge arbitral award under section 34

In the recent case of V.K. John v. S. Mukanchand Bothra and HUF, the Supreme Court (April 20th, 2026) addressed the procedural rights of heirs after the death of a party to an arbitration agreement. In this dispute, an arbitral award was enforced against a legal representative who was not part of the original proceedings. The legal representative challenged the award via a petition under Article 227 of the Constitution rather than through the Arbitration and Conciliation Act.

The Court clarified that the Arbitration Act is a complete code, and legal representatives, who essentially step into the shoes of the deceased, must follow the statutory mechanism for challenging awards. The Court ruled that a legal representative qualifies as a party under Section 34, and therefore, cannot bypass the Act by invoking constitutional jurisdiction.

This decision reaffirms that arbitration proceedings are not extinguished by a party’s death. Further, it mandates strict adherence to the Section 34 to challenge the process, signalling that courts will resist extraordinary judicial interference via Article 227 or Section 115 CPC.

[B.3] Supreme Court explains a situation where a non-signatory to a contract can initiate arbitration

In the case of Elecon Engineering Company Ltd v. Bhartiya Rail Bijlee Company Ltd, the Supreme Court of India (May 7th, 2026) ruled that a collaborator who executes a Deed of Joint Undertaking (DJU) can be considered a veritable party to the main contract between the employer and the contractor, thereby entitling them to invoke the arbitration clause contained within it.

As per the facts of the case, an employer awarded a contract for a coal handling plant to a contractor. To meet technical qualification requirements, the contractor collaborated with the appellant (collaborator) and executed a Deed of Joint Undertaking (DJU) in favour of the employer. The collaborator assumed joint and several liabilities for the contract’s performance. After the contractor entered liquidation, the employer directly called upon the collaborator to fulfil its obligations under the DJU. When the collaborator subsequently sought to invoke the arbitration clause found in the main employer-contractor contract, the employer refused, citing a lack of privity of contract. The High Court rejected the collaborator’s Section 11 petition, finding no inextricable connection. The Collaborator appealed to the Supreme Court.

An issue wise analysis of Supreme Court’s decision is as follows:

Issue No. 1: Whether a collaborator, tied to an employer-contractor agreement through a mandatory Deed of Joint Undertaking (DJU), qualifies as a veritable party entitled to invoke the arbitration clause contained in the main contract.

The Supreme Court examined the bid documents and the DJU, noting that the collaboration was a prerequisite for the Contractor’s eligibility. The Court held that the DJU was not a peripheral document but an inextricable part of the main contract. The post-breach conduct, specifically the tripartite agreement and the employer’s direct correspondence requiring the collaborator to fulfil the contract, evidenced that the collaborator was an essential, inseparable participant in the project’s performance.

Thus, the court decided that a collaborator is bound by a mandatory DJU as a veritable party and is entitled to invoke the main contract’s arbitration clause.

Issue No. 2: Whether a subsequent tripartite agreement entered into between the employer, contractor, and collaborator effectively supersedes or eclipses the original arbitration clause contained in the employer-contractor contract.

The respondent argued that the tripartite agreement lacked an arbitration clause, thereby nullifying any prior arbitration rights. The court rejected this, clarifying that the tripartite agreement was merely a mechanism to ensure payments directly to the collaborator due to the contractor’s insolvency. It was a measure of performance assurance, not a new, independent contract intended to extinguish the collaborator’s preexisting obligations or rights arising from the DJU and the main contract.

[B.4] Court upheld lender’s right to secure loan obligations as an interim measure

In a significant ruling, the High Court of Calcutta in Srei Equipment Finance Ltd v. Bengal Shrishti Infrastructure Development Ltd (June 24th, 2026) emphasised that lenders are not left without recourse when borrowers fail to materialise security structures such as mortgages.

The dispute involved a lender who disbursed over Rs. 275 crores for the ‘Shristi Nagar Project’ to the borrower who failed to execute a mortgage over the property. The borrower cited that as the No-Objection Certificate was pending from local authorities, he could not create mortgage over the immovable property. Although the lender had already initiated proceedings under the Insolvency and Bankruptcy Code (IBC) where moratorium was not declared yet, the Court affirmed that this does not bar them from seeking interim relief under Section 9 of the Arbitration and Conciliation Act to protect their interests.

The Court ruled that the lender had established a prima facie case required under section 9. Thus, it directed the borrower to create a Debt Service Reserve (DSR) within a fortnight. This ruling underscores that contractual security obligations remain enforceable, and that courts will proactively protect lenders against prejudice, even while insolvency proceedings remain pending.

C. Do you know?

[C.1] All about New Development Bank and its relation with Companies Act, 2013

The New Development Bank (NDB), formerly known as the BRICS Development Bank, is a multilateral financial institution established by the BRICS nations (Brazil, Russia, India, China, and South Africa). It was created to mobilise resources for infrastructure and sustainable development projects in emerging markets and developing countries. The idea to establish this bank was proposed by India at the 4th BRICS Summit in New Delhi in 2012. However, the agreement to establish the bank was signed at the 6th BRICS Summit in Fortaleza, Brazil, on July 15, 2014.

The NDB formally came into existence as a legal entity on July 7, 2015, following its inaugural meeting of Board of Governors in Ufa, Russia. The NDB was initially focused on the five founding members, but the bank began its expansion as a global multilateral institution in 2021 by admitting new members such as Bangladesh, Egypt, the United Arab Emirates, and Uruguay, followed by Algeria, Ethiopia, Colombia, and Uzbekistan. The headquarters of NDB is in Shanghai, China, and it maintains regional offices various locations. In India, the regional office is in Gujarat International Finance Tec-City.

The NDB is considered a landmark in international development finance for several key reasons. Rather than acting as a rival to the World Bank or the International Monetary Fund, the NDB is designed to complement them. For example, it addresses the significant infrastructure financing gap in developing nations. Its establishment also represents a shift in global financial architecture as it gives emerging economies a greater say in governance. The NDB was founded on principles of equal voting power among its founding members unlike traditional institutions where western powers hold significant sway. The NDB actively encourages the use of local currencies in financing projects. This strategy helps member countries reduce their dependence on the US dollar and mitigate the risks associated with global currency volatility. The bank’s mandate prioritises social and environmental sustainability. It focuses on sectors such as clean energy, transportation, digital infrastructure, water and sanitation, and urban development, which aligns with the national development priorities of its member states. Further, the bank has demonstrated its utility in times of global instability. It provided a US$10 billion Emergency Assistance Program during the COVID-19 pandemic to support the economic recovery of its members. The NDB serves as a key pillar in the ongoing effort to reshape international economic cooperation and foster industrialisation across the Global South. Overall, it provides a flexible and alternative source of funding tailored to the specific needs of emerging economies.

The Ministry of Corporate Affairs (MCA) issued a notification no. S.O. 3140(E) dated June 16th, 2026, excluding the New Development Bank (NDB) from the definition of body corporate under Section 2(11)(ii) of the Companies Act, 2013. Thus, the NDB is no longer classified as a body corporate for the purposes of the specified section. This exclusion exempts the NDB from certain compliance requirements and regulatory definitions that apply to corporate entities under the Companies Act, acknowledging its status as an international financial institution.