SC ruling to aid banks in forex derivatives’ defaults
Companies had argued that since a derivatives contract was not a loan, they could not be categorised as ‘wilful defaulters’ even if there were outstandings against such contracts.
However, a bench headed by Justice AK Patnaik upheld a similar ruling by the Bombay High Court in August 2011, setting aside the Calcutta HC’s order of September 2009 which said a Reserve Bank of India (RBI) circular, issued in 2010, was not applicable to forex derivatives.
“Bankers are relieved that they can now take steps to recover their dues,” said Dipak Gupta, joint MD, Kotak Mahindra Bank. “The ruling clarifies that a wilful default is not just on a loan but also on a derivatives product.”
Added Ashish Parthasarathy, head of treasury at HDFC Bank, “It is a payment obligation towards a bank whether it’s loan or a derivative, which is what the court has ruled.”
Senior counsel Bhaskar Gupta said: “The order implies that the companies will be forced to pay up.”
The SC order related to three different petitions challenging the contrary findings of high courts.
Kotak Mahindra Bank had challenged the Calcutta HC’s judgment while Emcure Pharmaceuticals and Finolex Industries, the two companies classified as willful
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