F&O Traders Can’t Claim Loss Reimbursement From Clearing Members: SC
Case Title: Edelweiss Custodial Services Limited v. NSE Clearing Ltd. & Anr. (with connected appeals)
Case No.: Civil Appeal No.31 of 2024
Coram: Justice J.B. Pardiwala and Justice K. Vinod Chandran
Court Observation
“…there can be no claim laid against the PCM for the default committed by the TM, especially in the context of the TM having indulged in illegal schemes and the investors having participated with open eyes in such schemes on the assurance of an assured return, which, in the F&O Segment, is downright impossible.”
“…the TM was carrying on trading on its own account using the securities of its individual clients/constituents and on losses being incurred, the default occurred and the PCM in turn was constrained to liquidate the securities so offered. Neither can the TM absolve itself from its liabilities nor can the investors cry foul, since they entered into the scheme with full knowledge of their securities being offered as collaterals for a fixed return. The responsibility of the assured return is only on the TM and not even indemnified by the NSE; being an outright illegal activity…we are of the definite opinion that there was no statutory violation committed by the PCM and their plea of having no privity of contract with the constituents of the TM as also no statutory obligation to verify the debit/credit positions of the individual clients of the TM is perfectly in order. More onerous is the fact that the TM was indulging in a Ponzi scheme wherein the investors willingly enrolled themselves, executing affidavits of undertakings and furnishing securities to the TM in his status as a DP & DAS, which was out right illegal, the illegality being known, both to the TM and its constituents.”
F&O Traders Can’t Claim Loss Reimbursement From Clearing Members: SC
