It is noted that the specific risk management norms are left to be decided by the concerned stock broker. In the instant case the crucial factor is that whether the risk management measure taken by the Appellant was really adequate or the Appellant had taken chance, leaving the risk factor uncovered. It is evident from the trading data available that the carry forward position of Shri Bajaj was very high in certain settlements. It is true that ARBL scrip being a ‘A’ Group scrip, carry forward was allowed with adequate margin back up. Perhaps any diligent broker would have taken a little more pain to actually find out Shri Bajaj’s actual creditworthiness a little more carefully during the trading period i.e. Sett 37 to Sett 50 in view of his purchase position pattern. The Appellant seems to have not done any exercise in this regard. It is noted that the average carry forward position in each settlement during settlements A- 37 to A-49 was around 1 lakh shares. The total value of the shares traded by the Appellant for Shri Bajaj at the then prevailing market rate was very high. Delivery taken by Shri Bajaj during the said period was negligible. It is noted that at the end of settlement No.A-49, the Appellant had an outstanding open position of 92653 shares in the name of Shri Bajaj, but the Appellant purchased 3 lakh shares at the start of Sett.A-50, when the price was ruling its 52 weeks’ high. According to the Appellant in the absence of any specific norms laid down by the Respondent, it had traded for Shri Bajaj, based on its subjective satisfaction. It is true that in the absence of any specific parameter, as stated by the Appellant, the Appellant was at liberty to decide the exposure limit, following due care and diligence. The Appellant’s subjective satisfaction theory in my view would survive only if it had exercised such care and diligence which a man of ordinary prudence and caution would exercise under similar circumstances. The material on record gives an impression that the Appellant had failed to exercise such care and diligence. The trading pattern shows unusual carry forward position indicating that Shri Bajaj was speculating heavily and it was not totally risk free. Excessive speculation can some times end up in disaster. Breeze can turn into a typhoon. It is in this context that due skill and care considered necessary to ensure safety. As stated earlier, speculation in stock market operations by a trader by itself is not an offence. But on watching the speculative trend – such a high magnitude – in Shri Bajaj’s trading, any person in the normal course would have kept his “antenna” high and traded for Shri Bajaj more cautiously, and certainly would have desisted from purchasing huge quantity, as it did in the starting of Settlement No.50. Despite the fact that the Appellant was having an outstanding open position of 92,653 shares in the name of Shri Bajaj, the Appellant unhesitatingly purchased 3 lakh shares at the start of Settlement No.50. The Appellant’s submission that the trades are executed as per the direction/instruction of the client is not disputed. The dispute is regarding the extent of due skill and care required to be exercised by the broker while trading for his client. It is noted that the amount involved in the transaction was huge. The Respondent quoting the Appellant has stated that “an exposure limit of 1,00,000 shares in ARBL for net carry forward at the end of the Vallan was given” but in Settlement No.50 and 51 this limit was exceeded by Shri Bajaj. It is noted that 2,20,556 shares were carried forward from Settl. 50 and 369930 shares from Settlement No.51. It is rather surprising that the Appellant has put the exposure limit in terms of number of shares, and the Respondent also seems to have accepted the said parameter little realising that the ‘margin deposit’ required to be obtained is relatable to the value of the transaction and not simply in terms of the number of shares as such. In any case, even on a rough estimate of the total value involved on the basis of the then prevailing market price of the ARBL scrip, the amount involved was huge. It is in this context the factual finding of the Respondent based on the following observation made by the Respondent gains credence:
