Court rules that negative prices reflect market realities and contract specifications; trading hour curtailment during COVID-19 and non-intervention by regulator held lawful; writ petitions dismissed with no costs.
In a landmark judgment dated 24th June 2026, the Bombay High Court (Division Bench of Justices R.I. Chagla and Advait M. Sethna) delivered a comprehensive verdict on a batch of writ petitions, including the lead petition filed by Dhanera Diamonds and others, challenging the Securities and Exchange Board of India (SEBI) and Multi Commodity Exchange of India Limited (MCX) over the settlement of crude oil futures contracts at negative prices.
The controversy arose from the unprecedented market scenario on 20th April 2020 when crude oil prices on the New York Mercantile Exchange (NYMEX) plummeted to negative values. MCX, which trades crude oil futures contracts settled in Indian Rupees by reference to the NYMEX settlement price (called Due Date Rate - DDR), issued Circular No.MCX/MCX-CCL/282/2020 on 21st April 2020 fixing the DDR at a negative rate of Rs. (-)2,884 per barrel, reflecting the NYMEX price of USD (-)37.63 per barrel.
Petitioners contended that the contract specifications treated DDR as a "price" payable by buyers to sellers, implying that a negative DDR (where sellers would pay buyers) was ultra vires the Indian Contract Act, 1872, and Sale of Goods Act, 1930. They further argued that the curtailment of trading hours during the COVID-19 lockdown, which prevented them from trading until 11:30 pm, led to their inability to hedge or exit positions, worsening losses. They sought annulment of the impugned Circular and intervention by the Court to protect investor interests.
The Court, after analyzing the contract specifications, the regulatory framework, and the submissions, held that:
1. The crude oil futures contracts traded on MCX are commodity derivatives settled in cash by reference to the NYMEX settlement price. The DDR is a settlement reference rate applicable only after contract expiry and is distinct from trading prices during market hours.
2. Negative DDRs arising from unprecedented market conditions are permissible and do not amount to a "price" in the conventional sense of sale of goods. The Sale of Goods Act and Indian Contract Act provisions do not apply to such derivatives contracts, which are pure contracts for differences without physical delivery.
3. The MCX and SEBI acted within their powers in fixing the contract specifications and in curtailing trading hours during the COVID-19 lockdown after due consultation and for valid reasons related to public health. Restoration of trading hours was done after representations.
4. The petitioners, being sophisticated investors who signed risk disclosure documents and traded with full knowledge of market volatility and risks, cannot seek protection as if they were retail investors. SEBI’s role is regulatory and not to act as a "nursemaid" to individual traders.
5. The powers of MCX and MCX Clearing Corporation to annul trades require applications and specific grounds such as fraud or material mistake, which were not pleaded or established. The Court will not mandate the exercise of regulatory discretion in a particular manner.
6. The irrevocability of settlement under Regulation 43(2) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, and MCX bye-laws binds parties to the settlement, and the Court cannot undo settlements affecting numerous counterparties not before it.
7. The petitioners’ claims of unfairness, retrospective alteration of rights, and violation of statutory provisions were rejected as the contracts were performed as agreed and losses resulted from market risks inherent in derivatives trading.
The Court dismissed the writ petitions with no order as to costs. The concurring judgment emphasized that the petitioners had consciously held net long positions at expiry and were fully aware of risks, including the possibility of price volatility and negative prices in crude oil futures.
This verdict clarifies the applicability of contract specifications and regulatory powers in commodity derivatives trading and affirms the recognition of negative settlement prices in line with international market realities.
Bottom line:-
Crude Oil Futures Contracts - Settlement of crude oil futures contracts at negative prices as per NYMEX settlement price is valid; contract specifications and regulatory framework govern trading and settlement; no interference warranted under Article 226.
Statutory provision(s): Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, Indian Contract Act, 1872, Sale of Goods Act, 1930, SEBI Master Circular on Commodity Derivatives Trading, 2018
