Every month, market authorities celebrate the rise in new investor accounts. Yet, when it comes to investor protection, key institutions—from regulators to market infrastructure institutions (MIIs)—often appear indifferent, leaving investors to fight long, lonely battles. Sushma Sharma is one such investor who, despite a two-year legal struggle, continues to face harassment from her broker, IIFL Capital Services Ltd, even after receiving an interim relief from the Bombay High Court (HC).
On 8 May 2025, the HC, while hearing an arbitration petition filed by IIFL, directed the broker to immediately return a substantial portion of shares belonging to Ms Sharma. These shares had been allegedly unpledged and sold without her authorisation.
In its interim order, justice Somasekhar Sundaresan ordered IIFL Capital Services to return most of the shares held on behalf of Ms Sharma. "To adjust equities and balance computing interest, IIFL Capital Services shall not hold up the remaining shares in their entirety. IIFL Capital Services is directed to return all the shares of Ms Sharma and withhold only such shares which, at today’s closing market prices (i.e., 8 May 2025), represent 120% of the Rs33 lakh, which is said to be the debit balance. The shares shall forthwith be released by IIFL Capital Services in the aforesaid terms and in any event within a day of the upload of this order on this Court’s website, and an affidavit reporting compliance shall be filed in the registry."
The shares in question were reportedly unpledged due to a technical error and partially sold to meet margin call obligations.
The HC observed that the matter had already been taken up by the investor grievance redressal panel (IGRP) of the National Stock Exchange (NSE) and was suitable for resolution through the NSE’s arbitration mechanism. IIFL was given four weeks to approach the arbitral tribunal, with the Court clarifying that the relief granted was a pro-tem arrangement. The matter is scheduled for further hearing on 19 June 2025.
Responding to Moneylife’s email, IIFL Capital Services says, “The Client viz. Sushma Sharma, mischievously attempted on multiple occasions to transfer the securities from her demat account without paying for the purchase cost. Hence, to protect our interest, IIFL Capital Services has filed an arbitration petition under Section 9 before the Bombay High Court against her.”
“Pursuant to the HC order dated 8 May 2025 in the petition, the Court has directed the Company to withhold only such shares at closing market prices as of 8 May 2025, representing 120% of the debit balance, i.e. Rs33.58 lakh. Hence, the Company is allowed to retain the shares worth of Rs40.30 lakh,” it added.
After the HC order, IIFL Capital Services filed an affidavit seeking details of the target account to transfer the shares from Ms Sharma’s demat account. It says, “In this regard, the company has filed an affidavit in the High Court on 15 May 2025 whereby the company has clearly stated that the rest of the shares would be released only upon the request from the client (Ms Sharma) as the company would need the details of the target account to transfer the shares from the present demat account. It may be noted that as per the depository guidelines, the company would not be able to transfer the securities suo-moto and the client will have to provide online instruction or delivery instruction slip (DIS) for transfer of securities. Further, we would like to inform you that the client's account has already been defreezed and the shares are free to transfer subject to the caveat above."
Ms Sharma opened a trading and demat account with IIFL Capital Services on 21 May 2021, and also opted for the broker's buy-now-pay-later (BNPL) facility. On 16 January 2023, she revoked the power of attorney (PoA) and demat debit and pledge instruction (DDPI) previously granted to the broker.
On 19 May 2023, she bought 500 shares each of Max Healthcare and Olectra Greentech through the BNPL facility and pledged them using a one-time passcode (OTP) with the broker. However, on 22 May 2023, due to what IIFL described as a backend technical error, the shares were inadvertently unpledged. The next day, citing a margin shortfall, IIFL sold the shares under its risk management system.
Although IIFL claimed a debit balance of Rs33 lakh, it continued to retain control over shares worth nearly Rs1.8 crore, far exceeding the stated liability.
Ms Sharma filed a grievance on 30 May 2023 with IIFL, NSE, BSE, and Central Depository Services Ltd (CDSL), also claiming a notional loss of Rs12 lakh.
In response, on 17 July 2023, the NSE’s IGRP dismissed her claims as speculative and awarded her only a token compensation of Rs4,017.50. Dissatisfied, Ms Sharma took the matter to the Uttarakhand state consumer disputes redressal commission. According to the commission’s order dated 9 April 2025, arguments had concluded and judgement was reserved.
Things took a troubling turn in late April. On 25th April and 26 April 2025, Ms Sharma received notifications from CDSL about unauthorised modifications made to her demat account by IIFL Capital Services, acting as her depository participant (DP). A letter dated 27 April 2025 from IIFL confirmed that her demat account had been frozen on the CDSL system on 25 April 2025.
Following this, Ms Sharma wrote to both CDSL and IIFL on 26 April 2025 requesting immediate reversal of the changes. In an email response to Moneylife, CDSL confirmed it had intervened after receiving her complaint on 28 April 2025. CDSL stated that it instructed IIFL to unfreeze the account, as demat accounts cannot be frozen due to non-payment of trading-related dues. The account was finally unfrozen on 6 May 2025, following CDSL's follow-up with the DP.
Ms Sharma also alleged that IIFL had failed to process several off-market share transfer instructions submitted via the CDSL-EASIEST portal in April 2025. CDSL clarified that these transactions could not be completed because IIFL, the DP, did not authenticate them—again citing the alleged debit balance. CDSL added that the issue is under process and it will submit an action taken report within the stipulated 21-day timeframe.
Adding to the pressure, IIFL Capital Services issued a legal demand notice to Ms Sharma on 16 January 2025, seeking recovery of Rs32.51 lakh. Ms Sharma denied the liability in her reply. IIFL subsequently filed an arbitration petition before the Bombay HC, resulting in the current court proceedings.
Despite the Court’s interim order clearly directing IIFL to return the excess shares, the broker’s actions—including freezing the demat account and stalling transfer instructions—suggest an ongoing effort to intimidate the investor rather than seek an amicable or lawful resolution.
This case, once again, exposes the lopsided power dynamic between large brokerage firms and individual investors and the limited effectiveness of existing grievance redressal mechanisms. For now, Ms Sharma’s fight continues—not just for her shares, but for the rights of all retail investors seeking fair treatment in Indian capital markets.
