Short delivery occurs when the seller of a stock fails to deliver the shares to the exchange for transfer to the buyer's demat account. This typically happens in following scenarios:

1) When intraday short positions cannot be closed due to illiquidity

2) When intraday short positions hit the upper circuit.

3) When shares sold against previous day's purchase are not delivered

Consequences of Short Delivery

For the Buyer:

• The exchange conducts an auction on T+1 day to procure the short-delivered shares.
• If shares are successfully procured, they will be credited to the buyer’s demat account on T+2 day.
• If the exchange cannot procure shares in the auction, the buyer’s Navia account will be credited with cash based on the close-out price.

Example Scenario:

• Shares are purchased on Monday (T day) and appear as T1 holdings until Tuesday (T+1 day).
• If the shares are not delivered on Tuesday (T+1 day), a short delivery notification is sent on Wednesday (T+2 day).
• The exchange procures the shares in the auction market on Tuesday (T+1 day) and credits them to the buyer’s demat on Wednesday (T+2 day). The shares will be visible in the portfolio by Thursday (T+3 day).

For the Seller: 

• The exchange conducts an auction to procure the short quantities from other sellers.
• For shares sold on Monday (T day), the auction is held on Tuesday (T+1 day), using Monday’s closing price to determine the auction price.
• The auction price range is capped at 20% upper and lower limits of the closing price. An additional 50% of the sale value is blocked in the seller's Navia account until the auction settlement.

• If the auction price exceeds the original selling price, the seller is liable to pay the difference, along with an auction penalty.
• The exchange credits the shares to the buyer’s demat account at the auction price on Wednesday (T+2 day).

Example Scenario:

• 100 shares are sold on Monday (T day) at ₹700 per share. The stock hits the upper circuit, resulting in no sellers.
• The exchange conducts an auction on Tuesday (T+1 day) and uses the Monday closing price of ₹720 to determine the auction price range, which is ₹576 to ₹864 (20% lower and upper limits).
• If the auction price is ₹850, the seller must pay ₹15,000 [(₹850 - ₹700) × 100] as the auction settlement difference on Wednesday (T+2 day).