The Supreme Court of India has recently ruled in the matter of AC Choksi Share Broker vs. Jatin Pratap Desai that a husband may be held liable for his wife's stock exchange debt based on an oral agreement. The judgment followed a verdict by the Bombay Stock Exchange (BSE) arbitration panel previously that held that the husband was responsible for the trading loss incurred by his wife, setting the stage for a fierce court fight.

What was the dispute about?

The argument concerns the stock market debts the wife had made through her trading account, which was jointly operated with the husband. The stockbroker demanded repayment of the outstanding debit balance in the wife's trading account after a severe loss in the market crash. The couple operated different accounts, yet they had made a compromise to jointly operate the accounts and share all the costs from their trades.

To compensate his wife for her loss, the husband transferred a large amount of money from his account. But after a dip in the market, his debit balance shot up and the stockbroker sought arbitration so that he could get paid back by both the husband and wife.

Why was the husband liable?

The key issue of the case was whether or not the husband was liable for the wife's debt without a valid written agreement. The Supreme Court held that the husband was liable based on their oral agreement that they would jointly conduct financial activities, including the stock market trades.

While in general, spouses do not become responsible for one another's debts, the Court ruled that the common understanding to be in charge of the accounts jointly in this particular scenario made the husband responsible. The Supreme Court agreed with the arbitration tribunal's ruling that both the husband and wife were equally responsible for the trading debts.

The ruling has set a precedent in cases involving financial agreements between spouses. The Supreme Court dismissed the husband’s argument, confirming the jurisdiction of the arbitral tribunal under Bye-law 248 (a) of the Bombay Stock Exchange Byelaws, 1957.

As a result, the husband is required to repay Rs 1,18,48,069, along with nine percent annual interest on the outstanding amount. 

This decision is important as it shows that financial arrangements between spouses are treated legally. While it is not common for one spouse to be held liable for the other's debts, the Court's decision illustrates that joint agreements, even those made verbally, can bind both parties legally in some financial transactions.

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