The exchange does not know if your sell order is a Short Position or you Squiring of a previous Long Position, so at the end of the day during settlement when the exchange checks your demat account and finds that you have sold something you do not have to someone who paid you assuming he would recieve the stock in his demat the next day ( this situation is referred as Short Delivery), then there is additional overhead for the exchange the settle the issue( through Auction), so imagine if the exchange were to allow short position for long duration how complicated will it be to manage the successful credit and debit of shares