The Supreme Court has put an end to a long-standing legal fight over who bears responsibility when a stockbroker runs into losses, after running an unauthorized fixed-return scheme.

In a major ruling, the top court held that Professional Clearing Member (PCM) Nuvama Clearing Services Limited, formerly known as Edelweiss Custodial Services Limited, cannot be forced to pay back or restore client securities worth over ₹900 crore. Overturning lower tribunal orders, the Supreme Court ruled that PCMs operated without direct client-level visibility under earlier regulatory rules and therefore cannot be held financially liable for defaults committed by independent stockbrokers.

The ruling came in Edelweiss Custodial Services Limited v. NSE Clearing Ltd. decided on 2 September 2026.

A PCM is a specialized clearing entity that clears and settles trades for stockbrokers on the stock exchange.

The dispute

The dispute began when stockbroker Anugrah Stock & Broking lured retail investors into a fixed-return scheme, taking their shares as collateral and pledging them in bulk to its PCM, Edelweiss Custodial Services.

This was done to fund its F&O activities. When Anugrah suffered losses in early 2020 and defaulted on its financial obligations, Edelweiss sold the pledged shares in the open market to settle the broker’s dues with the stock exchange.

The retail investors then complained to authorities including Sebi, NSE Clearing Ltd. (NCL), the Economic Offences Wing and the Securities Appellate Tribunal. In 2021, an NCL committee asked Edelweiss to refund over ₹900 crore worth of shares.

Later, in 2023, even the SAT ordered Edelweiss to pay, holding that Edelweiss had failed to exercise due diligence. The tribunal ruled on grounds of "equity and fairness" that a clearing member should not have used retail clients’ securities to cover a broker’s trading debts.

Why was the PCM not at fault?

The judgment mentioned that the clearing member had liquidated the shares before 30 June 2020.

A Sebi circular dated 25 February 2020, said that that all stockbrokers accept securities as collateral only via a direct "margin pledge" created within the depository system starting 1 June 2020. It also explicitly instructed trading members and clearing members to close all existing demat accounts tagged as 'client margin or collateral' by 30 June 2020.

The 30 June 2020 deadline is crucial because, before that date, clearing members had no way of knowing who actually owned the underlying shares. Stockbrokers used to collect shares from all their clients and pool them into one account labelled "client margin".

To a clearing member, this appeared as a single lump sum rather than individual client holdings, making it impossible to identify the underlying retail owners.

What did the judgment say?

The judgment said that the clearing member did not violate any statutory duties, as it had no direct contract with the retail clients and no mechanism to check the credit or debit balances of individual clients.

It also mentioned that the retail clients willingly signed agreements and affidavits to join an unauthorized Ponzi scheme.

The court said that while the respondents repeatedly emphasised that "innocent investors" had lost their life savings, it found little merit in the claim. The court observed that investors cannot claim innocence while willingly participating in F&O markets.

The court mentioned that the broker’s illegal advisory schemes and the willingness of investors to seek high-risk returns ultimately led to the loss of their securities.

“The affidavits of undertaking, handing over the shares to the trading member for an assured return far higher than that 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 segment of F&O,” the judgment said.

The Supreme Court has put an end to a long-standing legal fight over who bears responsibility when a stockbroker runs into losses, after running an unauthorized fixed-return scheme.

In a major ruling, the top court held that Professional Clearing Member (PCM) Nuvama Clearing Services Limited, formerly known as Edelweiss Custodial Services Limited, cannot be forced to pay back or restore client securities worth over ₹900 crore. Overturning lower tribunal orders, the Supreme Court ruled that PCMs operated without direct client-level visibility under earlier regulatory rules and therefore cannot be held financially liable for defaults committed by independent stockbrokers.

The ruling came in Edelweiss Custodial Services Limited v. NSE Clearing Ltd. decided on 2 September 2026.

A PCM is a specialized clearing entity that clears and settles trades for stockbrokers on the stock exchange.

The dispute

The dispute began when stockbroker Anugrah Stock & Broking lured retail investors into a fixed-return scheme, taking their shares as collateral and pledging them in bulk to its PCM, Edelweiss Custodial Services.

This was done to fund its F&O activities. When Anugrah suffered losses in early 2020 and defaulted on its financial obligations, Edelweiss sold the pledged shares in the open market to settle the broker’s dues with the stock exchange.

The retail investors then complained to authorities including Sebi, NSE Clearing Ltd. (NCL), the Economic Offences Wing and the Securities Appellate Tribunal. In 2021, an NCL committee asked Edelweiss to refund over ₹900 crore worth of shares.

Later, in 2023, even the SAT ordered Edelweiss to pay, holding that Edelweiss had failed to exercise due diligence. The tribunal ruled on grounds of "equity and fairness" that a clearing member should not have used retail clients’ securities to cover a broker’s trading debts.

Why was the PCM not at fault?

The judgment mentioned that the clearing member had liquidated the shares before 30 June 2020.

A Sebi circular dated 25 February 2020, said that that all stockbrokers accept securities as collateral only via a direct "margin pledge" created within the depository system starting 1 June 2020. It also explicitly instructed trading members and clearing members to close all existing demat accounts tagged as 'client margin or collateral' by 30 June 2020.

The 30 June 2020 deadline is crucial because, before that date, clearing members had no way of knowing who actually owned the underlying shares. Stockbrokers used to collect shares from all their clients and pool them into one account labelled "client margin".

To a clearing member, this appeared as a single lump sum rather than individual client holdings, making it impossible to identify the underlying retail owners.

What did the judgment say?

The judgment said that the clearing member did not violate any statutory duties, as it had no direct contract with the retail clients and no mechanism to check the credit or debit balances of individual clients.

It also mentioned that the retail clients willingly signed agreements and affidavits to join an unauthorized Ponzi scheme.

The court said that while the respondents repeatedly emphasised that "innocent investors" had lost their life savings, it found little merit in the claim. The court observed that investors cannot claim innocence while willingly participating in F&O markets.

The court mentioned that the broker’s illegal advisory schemes and the willingness of investors to seek high-risk returns ultimately led to the loss of their securities.

“The affidavits of undertaking, handing over the shares to the trading member for an assured return far higher than that 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 segment of F&O,” the judgment said.