Negative Crude Settlement: Bombay High Court Grants Relief To Motilal Oswal In Dhanera Diamonds Case
An excavator vehicle drills into frozen earth at a crude oil field in East Siberia, Russia. (Photographer: Andrey Rudakov/Bloomberg)

Negative Crude Settlement: Bombay High Court Grants Relief To Motilal Oswal In Dhanera Diamonds Case

The Bombay High Court restrained Dhanera Diamonds from alienating or disposing its assets for six weeks in a petition filed by Motilal Oswal Financial Services to recover its dues from the commodity trader.

The court also allowed the brokerage to pursue its case before an arbitral tribunal constituted by Multi Commodity Exchange.

Motilal Oswal had moved court to secure Rs 80.74 crore from Dhanera Diamonds against the settlement obligations for trades in crude oil contracts, mapped to Nymex futures, that ended in negative on April 20 because of a glut—meaning sellers had to pay buyers to take the commodity off their hands.

On April 21, MCX and its clearing corporation issued a settlement circular assigning a negative due date rate of Rs 2,884 for the contracts. Dhanera, the seller of the commodity, was required to pay. And when it didn't honour the margin, MCX deducted the required payouts for settlement from its broker Motilal Oswal's account.

The brokerage initiated arbitration proceedings and sought interim relief from the court to prevent Dhanera from disposing off assets. The court last month asked the commodity trader to disclose its assets through an affidavit.

On Wednesday, a single-judge bench comprising Justice SC Gupte observed that there is a prima facie case for referring the case for arbitration. As such, the court must grant protection to the brokerage till an arbitral tribunal is constituted by the MCX.

The court directed the brokerage to approach the arbitration tribunal constituted by MCX within six weeks.

The counsel for Dhanera Diamonds argued that negative price of crude oil futures was "never even heard of". No claim would arise as the closing price was determined on the basis of Nymex future prices after the closing hours of commodity trading in India. Therefore, the brokerage must make a claim against the commodity exchange, Dhanera Diamonds argued.

These arguments must be made before the arbitral tribunal that will go into the merits of the case, the high court said in its order.

A separate writ petition filed by Motilal Oswal and a commercial suit filed by Dhanera Diamonds is also pending before the Bombay High Court. Senior Counsel Birendra Saraf appeared on behalf of the brokerage and V Sridharan represented Dhanera Diamonds.

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