Highlighting the speculative nature of the Futures and Choices (F&O) phase and the substantial losses suffered by buyers regardless of the inherent dangers concerned, the Supreme Court docket on Wednesday (September 2) held that F&O buyers can’t search reimbursement of their monetary losses from Skilled Clearing Members (PCMs), whose position is simply to facilitate the clearing and settlement of trades.
A bench of Justice J.B. Pardiwala and Justice Ok. Vinod Chandran noticed that within the F&O phase, the investor has a direct relationship with the Buying and selling Member (TM), which offers with the investor and executes trades, whereas furnishing collateral or securities to the Skilled Clearing Member (PCM) to safe its personal obligations. Subsequently, within the absence of any privity of contract between the PCM and the person buyers, the PCM can’t be held liable in direction of the buyers for his or her losses.
“…there might be no declare laid in opposition to the PCM for the default dedicated by the TM, particularly within the context of the TM having indulged in unlawful schemes and the buyers having participated with open eyes in such schemes on the peace of mind of an assured return, which, within the F&O Phase, is downright unattainable.”, the Court docket noticed.
The dispute arose after sure Buying and selling Members, defaulted on their obligations after allegedly working unlawful schemes, together with unauthorised Portfolio Administration Providers promising assured returns to the F&O buyers.
The TMs had furnished securities belonging to their shoppers as collateral to the PCMs. When the TMs failed to fulfill their clearing obligations, the PCMs liquidated the securities and utilised the proceeds in direction of the TMs’ excellent obligations.
The buyers subsequently alleged that the PCMs had wrongly liquidated their securities with out verifying whether or not the person shoppers had debit or credit score balances with the respective TMs.
The Member and Core Settlement Assure Fund Committee (MCSGFC) of the Nationwide Inventory Change directed restitution of securities value roughly ₹460 Crore. The Securities Appellate Tribunal upheld the choice of restitution, following which the PCMs approached the Supreme Court docket.
The PCMs enchantment was opposed by the buyers contenting that the PCMs have been required to confirm the person positions of the TMs’ shoppers earlier than liquidating the collateral securities.
Setting apart the impugned determination, the judgment authored by Justice Chandran rejected the buyers rivalry stating that below the relevant regulatory framework, the TM was the consumer of the PCM, whereas the person investor was the consumer of the TM. Subsequently, there was no statutory requirement requiring the PCM to establish the person debit or credit score place of each consumer of a defaulting TM.
Furthermore, the Court docket stated that because the buyers have entered into the scheme with full information of the chance concerned within the phase, extending the legal responsibility upon the PCMs to make good the loss prompted to the buyers because of the fault of the TMs could be illogical.
“…the TM was carrying on buying and selling by itself account utilizing the securities of its particular person shoppers/constituents and on losses being incurred, the default occurred and the PCM in flip was constrained to liquidate the securities so supplied. Neither can the TM absolve itself from its liabilities nor can the buyers cry foul, since they entered into the scheme with full information of their securities being supplied as collaterals for a set return. The accountability of the assured return is barely on the TM and never even indemnified by the NSE; being an outright criminality…we are of the particular opinion that there was no statutory violation dedicated by the PCM and their plea of getting no privity of contract with the constituents of the TM as additionally no statutory obligation to confirm the debit/credit score positions of the person shoppers of the TM is completely so as. Extra onerous is the truth that the TM was indulging in a Ponzi scheme whereby the buyers willingly enrolled themselves, executing affidavits of undertakings and furnishing securities to the TM in his standing as a DP & DAS, which was out proper unlawful, the illegality being identified, each to the TM and its constituents.”, the Court docket stated.
Because of this, the enchantment was allowed, thereby setting apart the restitution of securities order handed by the committee and SAT.
Trigger Title: Edelweiss Custodial Providers Restricted v. NSE Clearing Ltd. & Anr. (with related appeals)
Quotation : 2026 LiveLaw (SC) 891
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For Appellant(s) : Mr. Shyam Divan, Sr. Adv. Mr. Niranjan Reddy, Sr. Adv. Sanjivani Pattjoshi, Adv. Mr. Anshuman Srivastava, Adv. Mr. Naresh Jain, Adv. Ms. Arti Agrawal, Adv. Mr. Mahaveer Jain, Adv. Mr. Rishabh Jain, Adv. Ms. Neha Anchlia, Adv. Mr. Alok Kumar, Adv. Mr. Rameshwar Prasad Goyal, AOR Mr. Mahesh Agarwal, Adv. Mr. Anshuman Srivastava, Adv. Mr. Rishi Agrawala, Adv. Ms. Sanjivani Pattjoshi, Adv. Mr. Abhinabh Garg, Adv. Ms. Sanjivani Pattjosh, Adv. Mr. Yashvardhan Singh, Adv. Mr. E. C. Agrawala, AOR Mr. Divyam Agarwal, AOR Mr. Pulkit Sukhramani, Adv. Ms. Pallavi Kumar, Adv. Mr. Aniket Aggarwal, Adv. Ms. Priya Chauhan, Adv. Mr. Sahil Dhawan, Adv. Mr. Yashvardhan Singh, Adv.
C.A.No.2187/24 Ms. Pallavi Kumar, Adv. Mr. Juan D Souza, Adv. Ms Priya Chauhan, Adv.
C.A.No.2187/24 Mr. Niranjan Reddy, Sr.Adv. Ms. Charu Bansal, Adv. Mr. Juan D. Souza, Adv. Mr. Pulkit Sukhramani, Adv. Mr. Amar Nath Saini, Sr. Adv. Ms. Preeti Saini, Adv. Mr. Manish Gupta, Adv. Mr. Shreyas Jain, Adv. Mr. Manish Kumar, AOR
For Respondent(s) : Mr. Arvind P. Dattar, Sr. Adv. Mr. Neeraj Malhotra, Sr. Adv. Dr. Yusuf Iqbal Yusuf, Adv. Mr. Bhavya Sethi, Adv. Mr. Sameer Singh, Adv. Mr. Zubin Sheth, Adv. Mr. Kailash Uday Kapoor, Adv. Ms. Neelam Singh, AOR Ms. Apurva Ambasth, Adv. Mr. Shiven Khurana, Adv. Mr. P. V. Yogeswaran, AOR Ms. Amrita Panda , AOR Mr. Mudit Gupta , AOR Mr. Ashish Prasad, Adv. Mr. Mahfooz Ahsan Nazki, AOR Mr. Ashish Prasad, Adv. Mr. Pruthui Dhinoja, Adv. Ms. Siddhi Jain, Adv. Mr. Vivek Rajan D.B., Adv. Ms. Mukta Dutta, Adv. Mr. Pruthvi Dhinoja, Adv. Mr. Vivek Rajan D.b, Adv. Ms. Siddhi Jain, Adv. Mr. Vivek Rajan D.B, Adv. Ms. Siddhi Jain, Adv. Mr. Abhishek, Adv. Mr. Pranjal Kishore, AOR Mr. Ishan Agrawal, Adv. Mr. Anshit Aggarwal, Adv. Mr. Ashutosh Mishra, Adv. Mr. Nagarjun Sahu, Adv. Mr. Shreya Kak, Adv. Ms. Sonali Jaitley Bakhshi, Adv. Mr. Jaiyesh Bakhshi, Adv. Mr. Ravi Tyagi, AOR Mr. Mayank Mishra, Adv. Mr. Gaurav Mishra, Adv. Ms. Manmilan Sidhu, Adv. Mr. Daman Popli, Adv. Ms. Sudiksha Saini, Adv. Mr. Abhijay Basu, Adv. Mr. Abhishek Rathi, Adv. Mr. Anuj Kumar, Adv. Mr. Nimish Kumar, Adv. Mr. Sudhanshu Prakash, AOR Mr. Kausik Chatterjee, Adv. Mr. Soumya Dutta, AOR Ms. Samriddhi, Adv. Mr. Siddhant Upmanyu, Adv.
For Intervenors Ms. Meenakshi Arora, Sr. Adv. Dr. Dinesh Rattan Bhardwaj, AOR Mr. Mahesh Singh, Adv. Mr. Ravichandra Hegde, Adv. Ms. Mitravinda Chunduru, Adv. Mr. Kandarp Trivedi, Adv. Ms. Parinaz Bharucha, Adv. Mr. Rudra Pratap Dhananjay, Adv. Mr. Pankaj Kumar Sharma, Adv. Mr. Sameer Rawal, Adv. Mr. Sujeet Swami, Adv.
For Intervenor(s) Mr. R. Vardrajan, Sr. Adv. Mr. Anupam Kumar, Adv. Mr. Hitesh Kumar Sharma, Adv. Mr. Akhileshwar Jha, Adv. Mr. Satvik Sharma, Adv.
