In a big decision, the Bombay High Court has ruled that Central Depository Services (India) Ltd (CDSL) is responsible for paying back an investor, Daksha Narendra Bhavsar, for the dishonest actions of its partner, BRH Wealth Kreators Limited.
On June 27, 2018, Daksha Bhavsar opened a demat account with BRH Wealth Kreators Limited after her previous account was closed. She and her husband gave BRH permission to manage their account. Sadly, her husband passed away on June 7, 2019, but this information wasn't shared with BRH or CDSL.
On July 31, 2019, BRH misused the given permission to transfer shares from Daksha's account to its own trading accounts. BRH then used these shares as collateral to get a loan from HDFC Bank. When BRH couldn't repay the loan, HDFC sold the shares.
Daksha Bhavsar approached the Securities Appellate Tribunal (SAT) after NSE refused her compensation claims, stating she hadn't traded on their platform. SAT allowed her to start arbitration proceedings against CDSL.
The Arbitral Tribunal found CDSL responsible for paying Daksha Rs. 86,02,768, the value of her lost shares, plus interest. They concluded that BRH acted both as a broker and a depository participant, making CDSL responsible for BRH's carelessness under Section 16 of the Depositories Act.
"The Tribunal held that it would be unfair if only NSE is made to pay for its mistakes in the form of gross misuse of client’s permission for the purpose of pledging securities," noted the judgment.
Judge Sandeep V. Marne agreed with the tribunal's decision on December 1, 2025, rejecting CDSL's appeal. He emphasized that CDSL, as a depository, was responsible for its partner's (BRH's) actions.
This ruling reinforces the accountability of depositories for the actions of their partners, ensuring investor protection. It also highlights the importance of proper oversight and following rules to prevent such frauds.
This case sets an example for how similar issues might be handled in the future, holding depositories accountable for their partners' actions, even if those actions are dishonest.
