Stockbrokers have the duty to know their customers and to ensure that each recommended investment is suitable for that customer.
The broker by executing the transactions acts as an agent of the investor who is a principle. He is liable to account for all the transactions of the client on the exchange as a broker but when a broker executes a “Dabba Transactions” he acts as a principle with the investor. He becomes the counter party to the trade whereas he should be broker/agent who guarantees trade on the exchange on behalf of the investors. Thus, he can be held criminally liable within the meaning of Section 409 of India Penal Code.
As the broker with a malafide intent to cause loss to the investors and corresponding gain to himself commits:-
(i) Manipulation of Electronic Records
(ii) Alteration of client codes in computer resource to fabricate transactions
The broker can be prosecuted for the offence u/s 66 Information Technology Act, 2000.