Short delivery = When the seller fails to deliver shares to the exchange for the buyer’s demat account. 

T       -->  Trading Day 

T+1   -->  Auction Day 

T+2   -->  Auction Settlement Day

✅ Why Does It Happen?

• Seller took intraday short position but couldn’t square off due to no liquidity.

• Stock hit upper circuit → no sellers available.

• Seller sold shares on next day before receiving delivery in demat.

✅ For the Buyer (Impact)

• Notification: You’ll get an email from Navia on T+1 day if short delivery happens.

• Settlement process:

  • Exchange holds auction on T+1.

  • If shares are found → you get them in demat on T+2.

  • If not found → you get cash instead of shares (credited on T+2).

✅ Cash Credit (Close-Out Price)

Exchange pays you based on whichever is higher:

1. Highest traded price from Trade Day (T) to Auction Day (T+1), OR

2. 20% above closing price on Auction Day (T+1).

Example for Buyer:

• You bought 100 shares @ ₹200.

• Seller fails to deliver.

• Highest price from T to T+1 = ₹250.

• Closing price on auction day = ₹210 → +20% = ₹252.

• Exchange uses higher = ₹252.

You get ₹252 × 100 = ₹25,200 credited instead of shares.
You made an extra gain because of seller’s failure.

✅ For the Seller (Impact)

• Notification: You’ll also get an email from Navia on T day if you defaulted.

• Reversal of Sale Credit: When a short sale occurs, 150% of the sale value is blocked in your trading limits until the auction settles. For example, if you short-sell ₹10,000, your ledger will show a ₹15,000 debit—the extra 50% covers any potential auction loss. 

• Auction process:

  • Exchange tries to buy the shares in auction within a price band of ±20% of previous day’s close.

  • Example: If previous day’s close was ₹100 → auction band = ₹80 to ₹120.

Debit to seller:

• If exchange buys shares in auction → seller is debited at auction price.

• If exchange cannot buy → seller is debited at whichever is higher:

  1. Highest traded price from T to T+1, OR

  2. 20% above the closing price on Auction Day (T+1).

• Extra Penalty: Seller also pays 1% penalty on the auction settlement rate (plus GST).

Example for Seller:

• You sold 100 shares @ ₹200 but failed to deliver.

• Auction held: Exchange couldn’t find sellers.

• Highest price from T to T+1 = ₹250.

• Closing price on auction day = ₹210 → +20% = ₹252.

• Debit to you = ₹252 × 100 = ₹25,200.

• Plus 1% penalty = ₹254.52

• Total debit = ₹25,452.

You lose more than what you would have lost in the market.

⚖️ Quick Summary

✅ In short:

• Buyers are protected in short delivery cases.

• Sellers who default face heavy debits + penalties.