The Delhi High Court dismissed Trustline Securities’ appeal and upheld the setting aside of an NSE Appellate Arbitral Award that allowed recovery against a client. The Court held that trades executed without margin money, signed contract notes, or client authorization were unauthorized and violative of mandatory NSE/SEBI norms. Presumptions based on client conduct could not cure regulatory breaches, rendering the award patently illegal under Sections 34 and 37 of the Arbitration Act.

Legal Issue

Whether the NSE Appellate Arbitral Award dated 08.02.2019, which allowed the broker’s recovery claim of nearly ?20 lakhs, was sustainable despite absence of margin money, signed contract notes, and proof of client authorization, or whether it was patently illegal and liable to be set aside under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

Brief Facts

Trustline Securities Ltd., a trading member of the National Stock Exchange (NSE), opened a trading account for Hanish Singla in December 2007. Between December 2007 and June 2008, trades were executed in this account. Trustline claimed that Singla owed ?19,97,439.70, supported by electronic contract notes (ECNs), SMS alerts, and cheques issued by Singla, some of which were dishonoured.

Singla disputed the trades, alleging they were unauthorized and carried out unilaterally by the broker without instructions. He also argued that the ECNs were sent to an email ID created and controlled by Trustline itself, and that no signed contract notes or contemporaneous records of orders existed.

Trustline initially filed a civil suit for recovery, which was decreed ex parte in 2011 but later set aside. The matter was referred to arbitration. The Sole Arbitrator (25.09.2018) rejected Trustline’s claim, holding that trades were unauthorized, margin requirements were violated, and contract notes were unproven. On appeal, the NSE Appellate Tribunal (08.02.2019) reversed the award, presuming client awareness from conduct, cheques issued, and past trading relations, and allowed Trustline’s claim.

Singla challenged the appellate award under Section 34. The District Judge (06.06.2024) set aside the appellate award, restoring the Sole Arbitrator’s findings. Trustline then appealed under Section 37 to the Delhi High Court.

Judgment

The Division Bench dismissed Trustline’s appeal with costs of ?1,00,000, upholding the District Judge’s order. The Court held that margin requirements and issuance of signed contract notes are mandatory under NSE and SEBI regulations. The absence of contemporaneous records, order books, or client acknowledgments rendered the trades unauthorized.

The Court emphasized that brokers must strictly comply with regulatory norms. Trading without margin money, accepting third-party cheques, and continuing trades despite negative balances cannot be validated retrospectively. The appellate tribunal’s reliance on “conduct” and presumption of awareness was contrary to law and amounted to patent illegality.

The Court relied on its earlier precedent in Trexim Corporation Ltd. v. Fortis Securities Ltd. (2012), which held that margin money and contract notes are compulsory, and violation undermines the very framework of exchange trading. It also noted that Trustline had previously faced SEBI action for unauthorized trading and non-issuance of contract notes, settled by a consent order, which corroborated the respondent’s case.

The Court rejected Trustline’s argument that regulatory requirements in 2007–08 were less robust, holding that NSE regulations mandating margins and record-keeping were already in force. The excuse that records were not preserved beyond five years was termed “preposterous,” since litigation had been pending since 2010, making preservation imperative.

The Court clarified that under Section 34, an award can be set aside for patent illegality if it contradicts substantive law or contract terms. The appellate award ignored mandatory NSE/SEBI rules and binding precedent, and was therefore rightly set aside. Under Section 37, the High Court cannot revive such an award. The Sole Arbitrator’s rejection of Trustline’s claim was restored.

The judgement reinforces that brokers must strictly adhere to NSE/SEBI regulations on margins, contract notes, and record-keeping. It clarifies that “client conduct” or presumption of awareness cannot substitute compliance with mandatory norms. It strengthens jurisprudence on patent illegality, showing that arbitral awards contrary to exchange regulations and precedent will be set aside. It also underscores that brokers must preserve records beyond statutory minimums when litigation is foreseeable.

Access the official judgement/order here

Case Name

M/s Trustline Securities Limited v. Hanish Singla

Neutral Citation

2025:DHC:11474-DB

Date

18 December 2025 (Judgment reserved on 24 November 2025)

Bench

Hon’ble Mr. Justice Anil Kshetrapal
Hon’ble Mr. Justice Harish Vaidyanathan Shankar
(Delhi High Court, Division Bench