Unauthorized Illegal Schemes Run by the TM (Paras 29–32): The defaulting TM (Anugrah) operated outside regulatory bounds by wearing multiple hats—acting as a Trading Member, a Depository Participant (DP), and illegally offering Portfolio Management-like Derivatives Advisory Services (DAS) promising fixed 12% annual returns to induce retail clients to hand over securities. 5. Statutory Bar on Monetary Restitution/Disgorgement by Exchanges (Paras 7, 42–44): Under Section 9(3)(b)(iv) of the Securities Contracts (Regulation) Act, 1956, stock exchange/clearing corporation byelaws are strictly prohibited from imposing penalties involving the payment of money. While SEBI possesses explicit statutory disgorgement powers under Section 11B, clearing committees cannot invent monetary restitution powers.

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Edelweiss Custodial Services Limited v. NSE Clearing Ltd. & Anr. (with connected Civil Appeals)

Citation: 2026 INSC 941

Court: Supreme Court of India (Civil Appellate Jurisdiction)

Bench: J.B. Pardiwala and K. Vinod Chandran, JJ.

Date of Judgment: September 2, 2026

Headnotes (Important Facts and Points of Law with Paragraph Numbers)

• 1. Hierarchy and Operational Mechanism of the F&O Segment (Paras 1–5): The structure of the National Stock Exchange (NSE) involves the NSE Clearing Corporation (NCL) at the apex, followed by Clearing Members (CM), Professional Clearing Members (PCMs), Trading Members (TMs), and individual retail clients/investors. PCMs clear trades exclusively for constituent TMs and do not have direct retail clients or proprietary trades.
  
  
• 2. Default by Trading Members and Liquidation of Collaterals (Paras 5–6): Upon severe financial defaults by TMs (such as Anugrah Stock & Broking Pvt. Ltd.) in the Futures & Options (F&O) segment, PCMs liquidated the non-cash collaterals/securities deposited by the TMs to meet market settlement shortfalls, which included securities belonging to individual investors who did not have debit balances.
  
  
• 3. Lack of Statutory Visibility and Privity of Contract (Paras 8, 26, 51): During the relevant period (2019–2021), PCMs maintained consolidated collateral accounts per TM under a gross/weekly reporting framework. They had no legal privity of contract with the TM's individual clients, nor did the regulatory framework provide real-time visibility into individual client debit/credit positions.
  
  
• 4. Unauthorized Illegal Schemes Run by the TM (Paras 29–32): The defaulting TM (Anugrah) operated outside regulatory bounds by wearing multiple hats—acting as a Trading Member, a Depository Participant (DP), and illegally offering Portfolio Management-like Derivatives Advisory Services (DAS) promising fixed 12% annual returns to induce retail clients to hand over securities.
  
  
• 5. Statutory Bar on Monetary Restitution/Disgorgement by Exchanges (Paras 7, 42–44): Under Section 9(3)(b)(iv) of the Securities Contracts (Regulation) Act, 1956, stock exchange/clearing corporation byelaws are strictly prohibited from imposing penalties involving the payment of money. While SEBI possesses explicit statutory disgorgement powers under Section 11B, clearing committees cannot invent monetary restitution powers.
  
  
• 6. Introduction of Daily Reporting Regime (Paras 50–51): SEBI's subsequent circular dated July 20, 2021, established a daily disaggregated client-level reporting and margin-pledge mechanism, proving by contrast that such transparent individual tracking did not exist during the subject period of liquidation.
  
  

Analysis of Facts of the Case

The litigation arose from major financial defaults in the NSE F&O segment, primarily centered around the defaulting Trading Member, Anugrah. Between late 2019 and 2020, Anugrah suffered massive trading losses and failed to meet its settlement obligations to the Professional Clearing Members (PCMs like Edelweiss). To prevent a broader market collapse and satisfy market dues, the PCMs exercised their contractual right to liquidate the non-cash collaterals that had been deposited with them by the TM.

A group of retail investors—many of whom had voluntarily handed over their securities to Anugrah under high-yield, unauthorized "fixed return" schemes (Gold and Platinum portfolios)—found their valuable shares sold off despite having no direct debit balances with the broker. When the TM went bankrupt, the investors approached the NCL’s Member and Core Settlement Guarantee Fund Committee (MCSGFC), which ordered the PCMs to restitute the liquidated securities (valued initially at hundreds of crores) or face collateral blocking. The Securities Appellate Tribunal (SAT) upheld this order, forcing the PCMs to appeal to the Supreme Court.

Application of Law by the Apex Court

• Interpretation of Regulations and Circulars: The Supreme Court meticulously examined NCL Regulations (specifically Regulations 1.7 and 4.5.4) alongside SEBI circulars from 2008, 2016, and 2019. The Court reasoned that the obligations of segregation under these rules applied to the TM regarding its clients, and to the CM regarding different TMs. Because PCMs had no direct relationship with retail clients and operated under a weekly/gross reporting structure, they could not be faulted for failing to filter out individual client positions during liquidations.
  
  
• Distinction in Statutory Powers: The Court applied strict statutory interpretation to Section 9(3)(b) of the Securities Act, contrasting it with Section 11B of the SEBI Act. It held that because the legislature consciously omitted disgorgement and monetary penalties from the permissible punishments under stock exchange byelaws, the NCL Committee acted completely without jurisdiction by ordering monetary restitution.
  
  
• Rejection of Common Law Equity Exceptions: The Court distinguished general restitution precedents cited by respondents (such as Indian Council for Enviro-Legal Action or South Eastern Coalfields). It ruled that equitable doctrines cannot override explicit statutory bars, especially when the PCMs committed no illegal enrichment or statutory violation, but merely acted pursuant to valid contractual and risk-mitigation rules in place at the time.
  
  
• Evaluation of Investor Conduct: The Court evaluated the factual reality of the F&O market and the investors' conduct, noting that the retail investors willingly participated in illegal, high-risk fixed-return schemes with the TM. Citing market data and research on retail trading in derivatives, the Court highlighted that chasing exponential, risk-free profits in a highly volatile speculative segment inherently leads to catastrophic losses ("bringing knives to a gun fight").
  
  

Conclusion (What the Supreme Court Finally Held)

1. PCMs had no legal duty or technical visibility: Professional Clearing Members had no statutory obligation, contractual privity, or technological visibility to verify individual client debit/credit positions prior to the implementation of SEBI's daily reporting framework in July 2021.
   
   
2. Lack of jurisdiction to order restitution: The NCL Committee and the SAT erred fundamentally in assuming powers of monetary restitution/disgorgement that are statutorily prohibited under Section 9(3)(b) of the Securities Contracts (Regulation) Act, 1956.
   
   
3. Final Order:
   
   
   • Civil Appeal Nos. 31 of 2024, 2187 of 2024, 3179 of 2024, and 7313 of 2024 were allowed, and the impugned orders of the MCSGF Committee and the SAT directing restitution against the PCMs were set aside.
     
     
   • Civil Appeal No. 4238 of 2026 was dismissed as not maintainable.
     
     
   • Retail investors were left to pursue their independent legal remedies solely against the defaulting Trading Member (Anugrah).