Trader vs broker: The 2010 case that helped Vijay Gupta win a compensation from Zerodha

The court also observed that the losses suffered cannot be considered notional.

A trader, who won a compensation claim against a leading brokerage two months back, has said that what helped him was a 2010 judgement by the Delhi High Court.

In August 2023, Vijay Gupta was awarded a compensation of Rs 8,225 by the BSE Grievance Redressal Committee, after he faced a tech issue on Zerodha’s broking platform that delayed his exiting a short position and led to a loss.

Also read: In a far reaching case, a trader wins compensation claim against Zerodha

Gupta relied on a 2010 judgement while fighting his case and asked other traders too to refer to it, during a discussion on X (formerly Twitter) Space.

The judgement Gupta referred to was on a case between Vivek Sharma and Reliance Securities. The brokerage was appealing an order passed by the Additional District Judge, Delhi, which favoured Sharma.

The High Court ruled that it found no reason to differ with the Additional District Judge’s court.

What was the case?

Sharma, who was a client of the brokerage, began facing technical issues in placing his orders after December 2006. He had filed around seven complaints, citing 18 instances where he had faced trouble in executing his buy and sell orders through the brokerage’s internet-based platform.

Sharma said that the brokerage’s system threw up messages such as “in process”, “market is closed”, “order rejected” and “rejected as no response from bank” even though Sharma’s bank account had sufficient money. In some instances, his orders didn’t go through for hours.

Sharma claimed that, without the orders going through, he had suffered heavy financial losses.

He approached an arbitrator, who then initiated proceedings, in which the broker too participated.

The brokerage appealed that arbitral award with the Additional District Judge, who observed that only provisions given under Section 34 (2) of the Arbitration Act can be grounds for challenging the award.

‘Onus of installing system capacity lies with brokers’

The Additional District Judge observed, “Guidelines are apparently issued to stock exchanges to ensure that stock brokers who undertake internet trading of shares should have appropriate software. The ultimate onus of installing adequate system capacity primarily lies with the stock brokers and their companies.”

The judge also did not “find any logic” in the brokerage’s plea that the arbitrator should have looked into the matter in more detail, so as to assess the capacity installed with the brokerage and where the stock exchange failed in its duties to supervise it.

“As rightly concluded by the Ld. Arbitrator, the deficiencies in services which were faced by respondent No.1 (Sharma) were apparently a result of deficiency in the system capacity of the objector company (the brokerage), and, as such, the company cannot distance itself from these consequences,” the observation added.

The court also observed that the losses suffered cannot be considered notional and that if the delayed execution of an order results in ascertainable financial loss because of the deficiency in service by the stockbroker, it is only the stockbroker who has to account for such losses.

Also read: Don’t backtrack, keep escalating: Trader on winning compensation claim against Zerodha

The court said that it could not find anything in the arbitral award as being in conflict with the public policy of the country, rather the award “upholds the public policy of safeguarding the interests of consumers who suffer financial losses on account of deficiency in service at the hand of large financial corporations and companies”.

The Delhi High Court, after hearing submissions made by both parties and after going through the written submissions of the brokerage, found no reason to differ from the Additional District Judge.