Bombay HC Upholds CDSL's Liability To Pay ₹86 Lakh to Defrauded Investor

Moneylife Digital Team 04 July 2026

Economy & Nation

The Bombay High Court on Thursday upheld an arbitral award directing Central Depository Services (India) Limited (CDSL) to compensate a Mumbai-based investor for shares worth ₹86.02 lakh that were fraudulently pledged and siphoned off by stockbroking firm BRH Wealth Kreators. A division bench of Justices Bharati H. Dangre and Manjusha A. Deshpande rejected CDSL's challenge, affirming the 1 December 2025 order of a single-judge bench that had ruled in favour of investor Daksha Narendra Bhavsar.

Bhavsar held a demat account with BRH, a Kolkata-based firm registered both as a stockbroker and as a depository participant (DP) with CDSL. On 31 July 2019, BRH misused a power of attorney executed by Bhavsar and her late husband to transfer her shares into its own trading accounts. BRH then pledged the shares with HDFC Bank to secure a loan for itself. When BRH defaulted, HDFC Bank invoked the pledge and sold the shares on the open market to recover its dues.

The Court noted the fraud was far from isolated: BRH's misconduct as DP extended to 9,493 clients whose securities were similarly misused. Rejecting CDSL's argument that BRH had acted only as a broker, the bench held that since BRH's actions also fell within its capacity as DP, liability under Section 16 of the Depositories Act, 1996 was attracted — the moment any DP role comes into play, however minor, the depository's liability follows. It further found that BRH had failed to obtain the mandatory 'Pledge Request' from Ms Bhavsar before pledging her shares, as required under SEBI regulations and CDSL's own Bye-Laws, amounting to serious manipulation of its clients.

The underlying arbitral award had directed CDSL to pay Ms Bhavsar ₹86 lakh the value of her shares on the date of dispute along with 9% simple interest per annum from the award date until full payment. Before arbitration, Ms Bhavsar had approached CDSL directly but was told to approach the police since the shares had been debited on the basis of the POA; her complaint and subsequent review before the NSE were also rejected.

With the High Court's dismissal of CDSL's petition, the arbitral award now stands finally upheld, reinforcing that depositories cannot escape liability for the fraud of their agents acting in a dual broker-DP capacity.

We had covered this case earlier when the original arbitral award was reported, prior to the High Court's confirmation. See Moneylife's earlier report for background on the arbitration proceedings and tribunal's findings:https://www.moneylife.in/article/cdsl-asked-to-pay-rs8602-lakh-award-with-9-percentage-interest-to-investor-in-brh-wealth-kreators-case/73269.html

Comments

User

Kamal Garg

1 month ago

No leniency should be there in such cases where investors' shares have been fraudulently misused/pledged by a broker holding even a valid POA and that the DP/broker should be held responsible and punished by the judicial authorities.

Economy & Nation

Target Gautam Patel: Will Judges Judge without Fear?

Sucheta Dalal, 03 July 2026

They picked the wrong judge to intimidate. But the real damage could be to every citizen who depends on an independent judiciary. The recent disclosures by retired Bombay High Court judge, Gautam Patel, about the threats and...

Economy & Nation

Here Is Why Bombay High Court Placed Probe Reports on Threats to Justice Gautam Patel in Sealed Cover

Bar and Bench 03 July 2026

The Bombay High Court on Thursday said that status reports on the probe into threats against retired High Court Justice Gautam S Patel and his family will remain confidential and are not to be shared or reported by media (Bombay Bar...

Economy & Nation

Supreme Court Sets aside NCLT Judgement for Relying on Hallucinated AI-generated Citations

SN Thyagarajan (Bar and Bench) 02 July 2026

The Supreme Court on Thursday set aside a National Company Law Tribunal (NCLT) judgment on Essel Infraprojects insolvency after finding that the tribunal had relied on non-existent, fake and hallucinated judgments/ precedents...

Economy & Nation

SIR in Maharashtra: PUCL Warns of Risks to Vulnerable Voters, Calls for Coordinated Action To Minimise Deletions

Moneylife Digital Team 01 July 2026

The Maharashtra unit of the People's Union for Civil Liberties (PUCL) has expressed concern over the ongoing special intensive revision (SIR) of electoral rolls in the state, warning that the exercise could disproportionately affect...