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Informist, Wednesday, Sept. 2, 2026

 

--SC nixes NSE Clearing order asking Nuvama Clearing to restore clients shrs 

--CONTEXT: SC order on Nuvama selling INR 4.6-bln shares of broker's clients 

 

NEW DELHI – The Supreme Court Wednesday set aside an order of the Securities Appellate Tribunal upholding NSE Clearing Ltd.'s orders asking clearing members Nuvama Clearing Services Ltd., a wholly owned subsidiary of Nuvama Wealth Management Ltd., YES Bank, and SMC Global Securities Ltd. to restore allegedly wrongly-sold shares of clients of certain trading members who had availed clearing services from them.

 

According to Nuvama Clearing Services, the securities, which were worth about INR 4.60 billion at the time of sale, would now stand in excess of INR 9 billion. The previous value of securities with YES Bank and SMC Global Securities was, respectively, INR 19.50 million and INR 7.57 million.

 

The court said the plea of Nuvama Clearing Services, YES Bank, and SMC Global Securities of having no privity of contract with constituents of Anugrah Stock & Broking Pvt. Ltd. and no statutory obligation to verify the debit or credit positions of individual clients of the trading member was in order. More onerous is the fact that Anugrah Stock was indulging in a Ponzi scheme in which investors willingly enrolled themselves, executing affidavits of undertaking and furnishing securities to it on the basis of its status as a depository participant and derivatives advisory service. The scheme was illegal and the illegality was known to both the trading member as well as its constituents, the court said.

 

The respondents, including NSE Clearing, argued repeatedly about the life savings of innocent investors having been frittered away, the court said, but added, "We are unable to countenance the assertion, since innocence can neither be attributed on the investor nor on the activity they indulged in, which inherently is highly speculative and hence volatile and fragile".

 

It noted that a report on the futures and options segment was published in The Times of India newspaper, wherein the authors spoke of retail traders losing out because they bring "knives to a gunfight". The Securities and Exchange Board of India's research, according to the authors, revealed that 97% of institutional profits and 96% of proprietary trading profits in the Indian F&O market are generated by algorithmic trading, it said. Retail traders in the financial year 2023-24 (Apr-Mar) had incurred a total net loss of INR 748 billion, of which INR 224.50 billion were transaction costs, according to the report. Individual traders had suffered a gross trading loss of INR 524.00 billion while proprietary traders had booked INR 330.00 billion in gross profits and foreign portfolio investors took home INR 280 billion, the newspaper had reported.

 

The multiple roles of trading member, depository participant, and derivatives advisory services, the last without permission, facilitated the process which culminated in the loss of valuable securities to individual clients, some of whom at least were willing participants, the court said. The affidavits of undertaking, handing over the shares to trading member Anugrah Stock for an assured return far higher than would be obtained from normal investments, sounded the death knell for their securities in highly volatile and inherently fragile market conditions in the extremely speculative futures and options segment, the court said.

 

The case has its genesis from NSE Clearing providing clearing services to Anugrah Stock and the latter failing to pay its dues on multiple occasions between January and June 2020. To recover these dues, NSE Clearing sold clients' collateral furnished by Anugrah Stock worth INR 4.60 billion and applied the proceeds to meet the latter's clearing obligations. NSE Clearing is a wholly-owned subsidiary of the National Stock Exchange of India Ltd. and carries out clearing and settlement of all trades on the exchange. YES Bank, a clearing member of NSE Clearing, had allegedly wrongly sold off INR 19.50 million worth of securities of clients of its trading member Action Financial Services (India) to clear the outstanding dues of proprietary trades of the member. SMC Global Securities, another clearing member, was alleged to have wrongly sold off securities worth INR 7.57 million belonging to clients of trading member Yuvraj Securities towards the latter's dues.

 

In 2020, NSE Clearing directed Nuvama Clearing Services, which was called Edelweiss Custodial Services at the time, to reinstate securities of the clients of trading member Anugrah Stock. NSE Clearing issued an order in 2022 directing YES Bank to restore the allegedly wrongly-sold shares to clients of its trading member. A similar order was passed against SMC Global Securities.

 

When the appeals in these cases reached the Securities Appellate Tribunal, the tribunal said the clearing members knew the securities belonged to clients of their trading members and as per the norms they were forbidden to use them for any purpose other than to settle debit balances of the clients. Yet, the proceeds of the sales were used to settle the dues of the trading members, it said.

 

Wednesday, shares of Nuvama Wealth Management Ltd. ended at INR 1,841.00 on the NSE, up 3.1% from Tuesday. Shares of YES Bank ended at INR 22.15, up slightly.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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