The Supreme Court recently ruled that a husband can be made jointly and severally liable for his wife’s stock market debt, based on an oral agreement and the nature of their financial dealings. The case involved AC Chokshi, a stockbroker, who filed for debt recovery against a married couple, Jatin Pratap Desai and Heena Jatin Desai.
Supreme Court Rules Husband Jointly Liable for Wife’s Stock Market Debt
In 1999, the couple opened separate trading accounts with AC Chokshi. However, in 2001, Jatin attempted to offset his credit balance against the debit balance in Heena’s account. Due to a market crash in 2001, Heena’s account balance ballooned to Rs. 1.18 crore, which AC Chokshi sought to recover.
AC Chokshi initiated arbitration, and the arbitral tribunal held both Jatin and Heena jointly and severally liable for the amount, along with a 9% interest rate. The tribunal reasoned that although the couple had separate accounts, family members typically share financial responsibilities, with one person often managing transactions, even if they have separate client codes and documentation for tax purposes.
Supreme Court Overturns High Court Verdict, Upholds Joint Liability for Stock Market Debt
On appeal, the Bombay High Court partially set aside the arbitral award, stating that Jatin and Heena were separate legal entities with distinct accounts, meaning the award was illegal and could only be enforced against Heena.
AC Chokshi then appealed to the Supreme Court, which overturned the High Court’s decision. The Supreme Court emphasized that when interpreting contracts, courts should consider the practicalities of how transactions are executed and mutual obligations performed. It stressed that to prevent Jatin from avoiding liability, the court must acknowledge the real situation. The apex court upheld the arbitral award, confirming that there was an oral agreement of joint and several liabilities between Jatin and Heena.
