Derivative losses: Cos not in a hurry to make legal moves against banks
Many companies are unwilling to join the bandwagon of firms seeking legal recourse against their banks on forex contracts.
By Kausik Datta, TNN |
MUMBAI: Many companies are unwilling to join the bandwagon of firms seeking legal recourse against their banks on forex contracts. Banks are giving more time to companies for making payments and are not insisting on margin requirements. Besides, some companies are taking a call that notional losses, reflected in the mark-to-market positions, will come down once the market recovers next quarter.
So far, nearly a dozen companies have moved court against banks alleging that the forex contracts they signed are illegal and therefore cannot be enforced. The list includes firms like Rajshree Sugars & Chemicals, Sundaram Multi Pap, Sabare International, Garg Acrylic, NC Sugars, Precot Meridian and Sundaram Brakes. The list of banks facing litigation on forex derivatives are ICICI Bank, Axis Bank, Kotak Mahindra Bank, Yes Bank and HDFC Bank.
Legal sources said a few companies have backtracked from their decision to sue their banks even after consulting legal counsels. ���The companies, especially where settlement date has not yet come, are delaying litigation. They are waiting for the market to improve,��� said a source who has been advising some of the companies on such legal disputes.
However, the on-going litigations between the companies and banks indicate that these could turn out to be long drawn legal battles a situation not many companies are eager to enter into. ���It���s easy to get a status-quo order from any court if a company files a suit against its bank. But resolving the issue may take years,��� said a banker.
According to another banker, the companies are also reluctant to start a legal battle since there may not be a mandatory requirement to disclose notional losses where forex contracts were entered solely for the purpose of hedging. ���If this is correct, companies will interpret hedging to their convenience,��� he said.
He cited the example of a southern firm which sought legal recourse long before the settlement date of the contract. The company was perhaps under the impression that once the matter goes to court it would be spared from disclosing the notional loss in its quarterly results.
Several affected companies are keeping a close watch on the Rajshree Sugars v/s Axis Bank case. Rajshree Sugars & Chemicals moved the Madras High Court seeking that Axis Bank should not take any action enforcing the disputed foreign exchange contract with it. The company also received an interim favourable order on Friday. The case will come up for hearing on April 24. The court will hear the bank���s plea on whether it has the jurisdiction to hear the dispute at the next hearing.
So far, nearly a dozen companies have moved court against banks alleging that the forex contracts they signed are illegal and therefore cannot be enforced. The list includes firms like Rajshree Sugars & Chemicals, Sundaram Multi Pap, Sabare International, Garg Acrylic, NC Sugars, Precot Meridian and Sundaram Brakes. The list of banks facing litigation on forex derivatives are ICICI Bank, Axis Bank, Kotak Mahindra Bank, Yes Bank and HDFC Bank.
Legal sources said a few companies have backtracked from their decision to sue their banks even after consulting legal counsels. ���The companies, especially where settlement date has not yet come, are delaying litigation. They are waiting for the market to improve,��� said a source who has been advising some of the companies on such legal disputes.
However, the on-going litigations between the companies and banks indicate that these could turn out to be long drawn legal battles a situation not many companies are eager to enter into. ���It���s easy to get a status-quo order from any court if a company files a suit against its bank. But resolving the issue may take years,��� said a banker.
According to another banker, the companies are also reluctant to start a legal battle since there may not be a mandatory requirement to disclose notional losses where forex contracts were entered solely for the purpose of hedging. ���If this is correct, companies will interpret hedging to their convenience,��� he said.
He cited the example of a southern firm which sought legal recourse long before the settlement date of the contract. The company was perhaps under the impression that once the matter goes to court it would be spared from disclosing the notional loss in its quarterly results.
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Several affected companies are keeping a close watch on the Rajshree Sugars v/s Axis Bank case. Rajshree Sugars & Chemicals moved the Madras High Court seeking that Axis Bank should not take any action enforcing the disputed foreign exchange contract with it. The company also received an interim favourable order on Friday. The case will come up for hearing on April 24. The court will hear the bank���s plea on whether it has the jurisdiction to hear the dispute at the next hearing.
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