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Delhi HC refuses to stay MCX Circular fixing Due Date Rate of Crude Oil futures contract at negative value; Issues notice in challenge

Aditi Singh

The Delhi High Court has issued notice in a challenge to the April 21 MCX Circular which has fixed the Due Date Rate of Crude Oil futures contract, expiring on April 20, 2020, at a negative value of Rs 2,884. (Akshay Aluminium Alloy Ltd vs SEBI & Ors)

A Single Judge Bench of Justice C Hai Shankar has, however, refused to stay the operation of the Circular.

The petitioner before the Court is Akshay Aluminium Alloy Ltd, an investor in the commodities market.

Aggrieved at the inaction of SEBI, the Petitioner has sought the Court’s intervention under its writ jurisdiction to protect the interest of investors in the commodity derivatives market.

The Petitioner contended that the MCX fixing the Due Date Rate (DDR) of Crude Oil futures contract expiring on April 20, 2020 at a negative value viz. Rs. (-) 2,884/- per barrel was not only unprecedented but also contrary to all known economic rationale and the contours of law and rules of the Respondent exchange.

Malvika Kalra, Arvind Datar and Shyam Divan
Malvika Kalra, Arvind Datar and Shyam Divan

It is the Petitioner's case that MCX's decision fixing negative value to the DDR of Crude Oil was ex facie contrary to reasonableness and non-arbitrariness guaranteed by Article 14 of the Constitution of India.

Stating that Crude Oil futures contracts are settled in cash on the exchange, the Petitioner submitted that neither MCX nor any other commodity exchange in the country has any provision to trade commodities/stock by assigning it a negative value to it.

It was contended that the abnormal Settlement Price resulted in arbitrary, unreasonable and windfall profits being made available to one segment of market participants while being detriment of others, which is against the spirit of a regulated ecosystem.

The Petitioner added that the authorities failed to appreciate that the unprecedented fall in the prices of Crude Oil Contracts on New York Mercantile Exchange, which formed the underlying basis for determination of the prices of Crude Oil Contracts on the Indian Commodity Market, was on account of their settlement mechanism being delivery based.

However, the Indian context was different as MCX still deployed cash-based settlement mechanism, it was explained.

SEBI, on the other hand, contended that the petition was bad for want of territorial jurisdiction as no part of cause of action arose within the jurisdiction of the Delhi High Court.

It was added that the dispute was entirely within the realm of contract, and did not constitute one of those species of contractual disputes in which a writ court could legitimately exercise jurisdiction.

Further, SEBI asserted that the MCX Circular did not bear any statutory character and thus, could not be tested by a writ court.

The efficacious alternative remedy available to the Petitioner was by way of arbitration, SEBI said.

It was also pointed out that the writ petition did not draw attention to any rule, regulation or administrative instruction which was being violated due to the MCX Circular.

MCX contended that the writ petition ought to be dismissed as the appropriate remedy for the Petitioner was by way of an appeal under Section 23(L) of the Securities Contract (Regulation) Act, 1956.

In view of the submissions made by the parties, the Court opined,

These submissions, in my view, are substantial and, while I am not inclined to dismiss the present writ petition, in limine, would require to be answered, comprehensively, by the petitioner.
Delhi High Court

The matter would be heard next on June 24.

The Petitioner was represented by Advocates Ravichandra Hegde, Malvika Kalra, Pranav Sarthi of Parinam Law Associates.

SEBI was represented by SeniorAdvocate Arvind P. Datar with Advocates Pratap Venugopal, Surekha Raman.

MCX of India Ltd was represented by Senior Advocate Sandeep Sethi with Advocates Amar Gupta, Divyam Agarwal, Pallavi Kumar, Anuj Aggarwal.

MCX Clearing Corporation was represented by Senior Advocate Shyam Divan.

Read the Order:

Akshay Aluminium vs SEBI.pdf
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