Special Correspondent

Exporter sought to restrain bank from enforcing a deal

CHENNAI: The Madras High Court on Tuesday said that there was no merit, prima facie, in any of the grounds on which a listed company engaged in the manufacture and export of sugar, assailed a deal with a bank in pursuance of ISDA (International Swaps and Derivatives Association) Master Agreement.

The fact that the deal had exposed the company to the possibility of a huge financial loss was no ground to declare the contract null and void, illegal or opposed to public policy, Justice V. Ramasubramanian said. In fact, the deal itself did not bring any misfortune to the company. It was the fate of the US Dollar, which had brought the company to the precipice.

Since the rate of exchange of foreign currencies kept fluctuating, Rajshree Sugars and Chemicals Ltd, Coimbatore, the exporter, decided to hedge the risk against such fluctuations. In May 2004, it entered into an ISDA Master Agreement with UTI Bank, which later became AXIS Bank.

Following this, at least 10 deals were struck between the plaintiff and the bank. Nine of them matured without dispute.

The company came to court with regard to the 10th deal, which was a U.S. Dollars-Swiss Franc Option Structure entered into on June 22 last year. The bank paid $1 lakh to the company five days later.

After six months, the company sent a letter claiming that the entire structure as per the contract got knocked out with no liability to either party.

The bank, challenging the claim, contended that the contract was still alive and that it was prepared to work out suitable risk mitigation structures. The company filed the present suit, seeking, among other things, to declare that the deal was illegal and opposed to public policy.

Passing orders on applications filed by the company and the bank, Justice Ramasubramanian said the company, which had the benefit of a push up the ladder in nine out of 10 deals could not duck when it came to a pull down the ladder in the remaining deal.

The Judge said that the company was not entitled to any injunction restraining the bank from enforcing the deal.

Hence, he dismissed the applications for injunction. The injunction earlier granted was vacated.