The Supreme Court has sought a closer examination of Central Depository Services (India) Ltd's (CDSL) liability for an investor's shares that were allegedly transferred and pledged by BRH Wealth Kreators Ltd, and has stayed the operation of a Bombay High Court order that upheld an ₹86.02 lakh compensation award against the depository.
While issuing notice and scheduling the next hearing for 10 September 2026 on a special leave petition (SLP) filed by CDSL, a bench comprising justice JB Pardiwala and justice K Vinod Chandran said it needed to 'closely look into the matter' and directed that the Bombay High Court's judgement and order would remain stayed in the meantime.
The Supreme Court's intervention temporarily puts on hold the Bombay High Court's 2 July 2026 judgement which dismissed CDSL's appeal and affirmed both the arbitral award and an earlier single-judge order in favour of investor Daksha Narendra Bhavsar.
The case concerns the alleged misuse of Ms Bhavsar's shares by BRH Wealth Kreators which acted both as her stockbroker and as a depository participant of CDSL. The shares were transferred from her demat account and subsequently pledged by BRH with HDFC Bank to secure borrowings. After BRH defaulted on its obligations, the Bank invoked the pledge and sold the securities to recover its dues.
The dispute has raised questions about a depository's responsibility for the conduct of a depository participant and the extent of CDSL's supervisory obligations under the Depositories Act, SEBI regulations, and its own bye-laws.
According to the case record, Ms Bhavsar had held shares worth about ₹94.56 lakh in her demat account. On 31st July and 23 August 2019, BRH Wealth Kreators allegedly used a power of attorney (PoA) executed by Ms Bhavsar and her late husband to transfer the securities into accounts controlled by the broker without her consent.
Ms Bhavsar's husband had died on 7 June 2019, before the PoA was invoked, leaving her as the sole holder of the demat account.
Ms Bhavsar subsequently approached CDSL to seek conciliation or arbitration regarding the unauthorised transfer of her securities. She was initially advised to approach the police, but her complaint and subsequent review before the National Stock Exchange (NSE) were rejected.
She then approached the securities appellate tribunal (SAT) which, on 6 June 2023, permitted her to initiate arbitration proceedings against CDSL.
A three-member arbitral tribunal was subsequently constituted. On 30 January 2024, the tribunal held CDSL liable under Section 16 of the Depositories Act, 1996, which provides for indemnification of investors for losses caused by the negligence of a depository or its participant.
The tribunal directed CDSL to pay Ms Bhavsar ₹86,02,768, representing the value of her shares on the relevant date, together with simple interest at 9% per annum from the date of the award until full realisation.
The tribunal found that BRH had acted in its capacity as a depository participant when it pledged Ms Bhavsar's securities and had failed to obtain the mandatory pledge request from her before creating the pledge.
It also criticised CDSL for failing to adequately monitor BRH in its capacity as a depository participant and for failing to take timely action after Ms Bhavsar raised her grievance.
CDSL challenged the arbitral award before a single judge of the Bombay High Court under Section 34 of the Arbitration and Conciliation Act, 1996. The single judge dismissed the challenge.
CDSL then approached a division bench. Before the division bench, CDSL argued that its role as a depository was essentially administrative and concerned with maintaining records, while the alleged misuse of Ms Bhavsar's shares occurred through BRH Wealth Kreators' activities as a stockbroker.
CDSL also pointed to a 24 July 2023 SEBI order in which regulatory proceedings against it had been dropped.
Ms Bhavsar, however, argued that CDSL could not avoid liability because BRH Wealth Kreators had acted as its depository participant and agent when the securities were transferred and pledged. She contended that CDSL had failed to enforce supervisory and early-warning mechanisms mandated under the regulatory framework.
On 2 July 2026, the division bench of justice Bharati Dangre and justice Manjusha Deshpande rejected CDSL's appeal and upheld the arbitral award.
The High Court observed that CDSL had been entrusted with protecting investors and had 'remained completely oblivious' to BRH Wealth Kreators' actions. The judgement also rejected the argument that CDSL could distance itself from BRH Wealth Kreators' conduct merely because the latter had simultaneously acted as a stockbroker.
The case has its origins in the wider BRH Wealth Kreators controversy, in which securities belonging to thousands of clients were allegedly misused. The arbitral tribunal had noted that BRH Wealth Kreators' conduct as a depository participant extended to a large number of clients and involved securities worth more than ₹100 crore.
The tribunal had also questioned the regulatory response to the matter, criticising what it described as delays in addressing investor grievances.
During the Supreme Court proceedings, solicitor general Tushar Mehta handed over a demand draft of ₹1.05 crore to Ms Bhavsar's counsel. The amount represented the award amount along with accrued interest.
The Supreme Court issued notice on CDSL's plea, made it returnable on 10 September 2026 and permitted dasti service. It also stayed the operation of the Bombay High Court judgement while allowing CDSL to recover the amount from BRH Wealth Kreators, subject to the final outcome of the Supreme proceedings in the apex court.
The stay does not finally decide whether CDSL is liable to compensate Ms Bhavsar. The Supreme Court will now examine CDSL's challenge to the Bombay High Court's decision.
The case could have wider implications for the liability of depositories and their participants in cases involving unauthorised transfer, pledge or misuse of investors' securities. At the centre of the dispute is the extent to which a depository can be held responsible for negligence or regulatory failures involving a depository participant acting in a dual capacity as a stockbroker and DP.
The Supreme Court's order has, therefore, temporarily reopened a dispute that had appeared to have been settled in Ms Bhavsar's favour after the arbitral tribunal's award and two successive Bombay High Court orders.
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