Supreme Court holds husband liable for wife’s stock market debt based on oral contract — what does this mean?

The Supreme Court of India, has in a ruling last week, held that a husband is legally liable to repay his wife's stock market debt of around ₹1.18 crore along with 9 per cent interest, based on a verbal contract, according to a report by Bar and Bench.

In its ruling, the apex court noted that a husband can be held “jointly and severally liable for his wife's stock market debts” on the basis of an oral contract and depending on the nature of their financial dealings, it said. We explain.

The Case: AC Choksi Vs Jatin Pratap Desai

According to a case filed by stock brokers AC Chokshi, husband-wife couple Jatin Pratap Desai and Heena Jatin Desai approached them in 1999 to open trading accounts, as per the report.

In 2001, Jatin tried to offset the losses in wife Heena's accounts by transferring some credit against the debt. However, Heena's debt ballooned to ₹1.18 crore due to the 2001 stock market crash and this is when AC Choksi attempted to recover the amount from her husband.

AC Choksi initiated arbitration in the tribunal seeking the ₹1.18 crore, plus interest of 9 per cent. The tribunal held that family transactions are undertaken by one party's accounts due to documentation and tax reasons, but in an appeal set aside the compensation award.

The broker thus approached the Bombay High Court, which held that Jatin and Heena are each separate entities with distinct client codes and accounts and seeking the husband to cover the wife's financial losses was “perverse and illegal”.

Undeterred, AC Choksi moved the SC, which has now held that mutual obligations and practicalities must be taken into account while interpreting contracts, the report noted. It thus upheld the initial arbitration award and ruled that oral contract between husband and wife on debt and financial dealing is enough to hold Jatin “jointly and severally liable” for Heena's stock market debts.

What Does This Mean?

The SC in its judgement took into account Bye-law 248 (a) of Bombay Stock Exchange (BSE) Byelaws,1957, as per the report. It held that despite the couple's separate accounts, since they had agreed to jointly operate their finances, this made Jatin liable for Heena's debt.

Usually, spouses are not automatically liable for each others debts, this ruling thus opens up the interpretation on financial activities such as trading, to consider verbal agreements reached between parties involved.

The SC's judgement came last week on February 12, in the hearing between AC Choksi Stock Brokers v Jatin Pratap Desai.