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

2 months 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.