What penalties does a seller face for short delivery of shares?
Short delivery occurs when a seller fails to deliver the shares they sold. In such cases, the exchange intervenes to fulfill the obligation to the buyer, and the seller incurs penalties based on settlement rules.
What happens during short delivery?
- If the shares are not delivered by the seller on the settlement date (T+1), the exchange initiates an auction process on T+1 or T+2
- The shares are purchased from the market and delivered to the buyer
- The seller is penalized for failing to meet the delivery obligation
Penalties imposed
- Auction difference
Seller is charged the difference between the auction settlement price and their original sale price - Auction penalty
A penalty of 0.05% per day is levied on the seller for each day the shares remain undelivered - Close-out penalty
If the exchange is unable to procure shares in the auction, it may opt for a close-out settlement
In this case, the seller pays the difference between the close-out price and the original trade price
To avoid short delivery penalties, always ensure you have sufficient holdings before selling shares.
What if...
| Scenario | Outcome |
|---|
| I sold shares without having them in my Demat account | Short delivery is triggered and penalties apply. |
| The auction price is higher than my selling price | You will be debited the price difference plus the penalty. |
| Exchange fails to buy shares during auction | A close-out is done, and you're charged the close-out difference. |
Last updated: 24 Jun 2025
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