The Bombay High Court has dismissed a batch of petitions challenging the settlement of crude oil futures contracts at a negative price during the unprecedented market crash of April 2020. A Division Bench of Justice R.I. Chagla and Justice Advait M. Sethna held that the petitioners had failed to establish any legal basis for interfering with the actions taken by the Securities and Exchange Board of India (SEBI), the Multi Commodity Exchange (MCX), and its clearing corporation during the extraordinary market conditions.
The Court observed that traders participating in derivative markets knowingly undertake commercial risks and cannot seek judicial intervention merely because market movements resulted in significant losses.
Background of the Case
The petitions arose from the historic collapse in international crude oil prices on 20 April 2020, when the benchmark NYMEX crude oil futures settled in negative territory for the first time.
Following that development, MCX issued a circular on 21 April 2020, fixing the Due Date Rate (DDR) for the expiring crude oil futures contract at negative ₹2,884 per barrel, reflecting the international settlement price.
Several traders, including Dhanera Diamonds, challenged the circular. They argued that commodity contracts could not legally be settled at a negative price and claimed MCX had retrospectively altered the contract terms. They also contended that trading hours had been reduced during the COVID-19 lockdown, preventing participants from managing their positions before the dramatic fall in prices.
Court's Observations
Rejecting these arguments, the Bench held that the contracts in question were cash-settled derivative instruments, not ordinary contracts involving physical delivery of crude oil.
The Court found that the settlement mechanism had always been linked to the NYMEX settlement price, and the impugned circular merely communicated that settlement value rather than creating a new contractual obligation.
The Bench also rejected the contention that negative pricing was impermissible under Indian law.
“The subsequent SEBI circular only recognised that negative pricing was a market reality and introduced a revised margin framework. It did not suggest that negative pricing had previously been unlawful,” the Court observed.
Addressing the grievance regarding reduced trading hours during the nationwide lockdown, the Court noted that the decision had been taken after discussions with SEBI because of the COVID-19 pandemic. It further held that MCX could not independently restore extended trading hours merely on the basis of representations made by market participants.
The Court also declined to accept the argument that MCX ought to have triggered circuit breakers or annulled trades after international prices collapsed.
According to the Bench, the drastic fall in crude oil prices occurred after MCX trading hours had ended, making it impossible for MCX's daily price limits to operate. It further held that the statutory conditions for annulment of trades had not been satisfied under the applicable SEBI framework.
Commercial Risk Cannot Be Shifted to the Court
The High Court emphasised that derivative trading inherently involves significant market risk and that participants voluntarily enter such transactions with the expectation of both profit and loss.
The Bench noted that brokers had already acted upon the settlement circular, completed settlements, and in several cases obtained arbitral awards based on those settlements. It observed that petitioners could not seek to reopen those completed transactions through writ proceedings after suffering losses.
The judges further observed that the petitions essentially arose from commercial decisions that turned out unfavourably.
Decision
Dismissing all the connected writ petitions, the Bombay High Court concluded that no ground existed for exercising its writ jurisdiction against the impugned circular or the settlement process adopted by MCX and SEBI.
The Bench stated that the petitioners had failed to satisfy the Court that the law or principles of judicial review required interference. It therefore rejected the petitions and passed no order as to costs.
Case Details
Case Title: Dhanera Diamonds & Ors. v. SEBI & Ors.
Case Number: Writ Petition No. 4930 of 2024 (with connected matters)
Judge: Justice R.I. Chagla and Justice Advait M. Sethna
Decision Date: 24 June 2026
