Husband Can Be Held Jointly Liable For Wife's Trading Losses, Says Supreme Court
The top court said that while interpreting contracts, courts must acknowledge the practicalities of how parties execute and participate in transactions.
A husband can be made jointly and severally liable for his wife’s stock market debt, the Supreme Court has recently held. The court said that the husband can be made liable based on an oral agreement between the two and by taking into account the nature of their financial dealings.
It said so in a case filed by AC Chokshi, a stockbroker, against a married couple for recovery of debt. In 1999, Jatin Pratap Desai and Heena Jatin Desai approached AC Chokshi for opening trading accounts.
Although the two had separate trading accounts, AC Chokshi contended that Jatin, in 2001, made an attempt to offset his credit balance against the debit balance in his wife’s account. However, due to a stock market crash in 2001, the debit balance in Heena’s account bludgeoned to Rs. 1.18 crore. This was the amount that AC Chokshi was seeking to recover from the couple.
AC Chokshi initiated arbitration to recover the amount, and the arbitral tribunal held the couple to be jointly and severally liable to pay Rs. 1.18 crore along with a 9% rate of interest.
The tribunal held that share transactions in a family are “normally and historically” undertaken by one person, albeit each individual has a separate client code, contract notes, and bank accounts, as these are necessary documentation under tax laws.
However, in an appeal before the Bombay High Court, the arbitral award was partly set aside.
The high court said that Jatin and Heena are two separate legal entities, having separate and distinct accounts and separate client codes, and therefore the award was perverse and illegal. Essentially, the high court said that the award could be enforced only against Heena.
This prompted AC Chokshi to move the apex court.
Overturning the Bombay High Court’s verdict, the top court said that while interpreting contracts, courts must acknowledge the practicalities of how parties execute and participate in transactions and how they understand and perform mutual obligations under the contract.
To facilitate ease of contract and to prevent Jatin from mischievously wriggling out of his liability for the transactions, it is necessary to take into account the reality of the situation, the top court said.
The apex court upheld the arbitral award rendered in 2001. It said that the tribunal had rightly reached the conclusion that there was an oral contract of joint and several liability between Jatin and Heena.
