Derivatives contracts settled at negative international benchmark prices are final, irrevocable, and contractually valid.

The Petitioners, partnership firms and companies trading in commodities, held "Long" positions in Crude Oil April 2020 Futures Contracts on the Multi Commodity Exchange (MCX)

On April 20, 2020, the expiration date, global crude prices on the New York Mercantile Exchange (NYMEX) turned negative for the first time in history due to CoVID-19 demand shocks

Although MCX trading typically ended at 11:30 PM, timings had been curtailed to 5:00 PM due to the pandemic lockdown

Consequently, when NYMEX prices hit negative USD 37.63 at approximately 11:45 PM IST, Indian traders could no longer square off positions

MCX subsequently issued a Circular on April 21, 2020, fixing the Final Settlement Price (Due Date Rate - DDR) at negative ₹2,884 per barrel

Petitioners challenged this Circular, arguing that "price" cannot be negative under Indian law and that regulators failed to use emergency powers to annul the trades or cap the loss

1. Whether the definition of "price" under the Sale of Goods Act and Indian Contract Act prohibits a negative settlement rate for cash-settled derivative contracts

2. Whether the curtailment of trading hours and the subsequent fixing of a negative DDR was arbitrary, ultra vires, or a retrospective alteration of vested contractual rights

3. Whether the Court can issue a writ of mandamus compelling SEBI or MCX to exercise discretionary powers to annul trades or modify settlement prices

The Court primarily applied Section 18A of the Securities Contracts (Regulation) Act (SCRA), 1956, which grants legal validity to derivatives traded on recognized exchanges and overrides the Indian Contract Act and Sale of Goods Act

It relied on SEBI v. Opee Stock-Link Ltd. regarding the primacy of the SCRA as a special law

The Court applied the principle of noscitur a sociis to interpret "sufficient cause" for annulment under MCX Bye-law 5.25.1

It further upheld the finality and irrevocability of settlements under Regulation 43(2) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018

The Court reasoned that "Commodity Derivatives" under Section 2(bc) of the SCRA are contracts for differences settled in cash, distinguished from the sale of physical goods; thus, the Sale of Goods Act's definition of "price" is inapplicable

The Court observed that the DDR is a reference rate derived from the contractually agreed-upon NYMEX benchmark, not a "price" in the traditional sense

Regarding the regulatory failure, the Court held that while the negative price was "unprecedented," volatility is the core feature of derivatives, and Petitioners—as sophisticated traders—had signed Risk Disclosure Documents acknowledging unlimited risk

The Court declined to interfere with the regulators' discretion, noting that no application for annulment was made within the prescribed timeframes and that altering the DDR would unfairly prejudice counterparties who had correctly anticipated the price drop

Finally, it was noted that even if trading hours hadn't been curtailed to 5:00 PM, prices only turned negative after 11:30 PM, meaning the timing change did not cause the loss

In cash-settled derivatives, a negative settlement rate is permissible and does not violate the SCRA or Contract Act

Trading hour changes were justified by the pandemic and did not violate vested rights

A writ of mandamus cannot compel a regulator to exercise subjective discretionary powers for the private benefit of a specific group of traders at the expense of market integrity

All interim applications were disposed of