HC rules contract with Axis Bank legal

Chennai, Oct 15 (UNI) The Madras High Court has ruled that the multi-million rupee derivatives contract signed by the ''Rajshree Sugars and Chemicals Limited with the AXIS Bank is ''legal'' and not against any public policy.

Vacating all interim injunctions given in favour of the petitioner company yesterday, Justice Ramasubramanian permitted the bank to ''work out their remedies in a manner known to law.'' Dismissing the civil suits of Rajshree and rejecting the claims, the judge said the purchase of 20 million US dollars at the rate of 1.3300 Swiss Franc per dollar under the contract would certainly make Rajshree lose a huge amount, especially since the market rate on the crucial date would be lower than 1.3300 Swiss Franc. ''But then, it itself would not make the contract a wager. The contract confers a right to seek actual delivery. The performance of the contract can always be compelled.'' The Judge said, ''It must be remembered that the contract was entered into on June 22, 2007 and Rajshree received one lakh US dollars on June 27. At the time of deriving a benefit of income, Rajshree had no qualms about the deal.'' This was the second instance where the verdict had gone against the company.

In September, the Bombay High Court asked Sundaram Multi Pap to pay the losses arising out of derivatives (a financial instrument to be settled at a future date) contract to ICICI Bank. Companies had bought these complex financial products as a hedge against volatile currency movements. A few companies such as the Coimbatore-based Precot Merdian have agreed for an out-of-court settlement.

Rajshree Sugars and Chemicals Limited inked 10 deals with AXIS Bank, including the impugned foreign currency contract on June 22, 2007. While the earlier nine deals matured without any dispute, the present one was resisted by Rajshree, which claimed that the bank had ''misrepresented'' the facts and that the official who had represented the company had not been duly authorised by the Board.

On December 12, 2007, it sent a letter to the bank, stating that the entire structure as per the contract had got knocked out with no liability to either of the parties. The bank challenged the claim and said that the contract was still alive. After receipt of reply, Rajshree filed this civil suit to declare the entire contract void and unenforceable.

On March 4, 2008, the court admitted the suit and ordered maintenance of status quo. On April 11, modifying the order, the court restrained the bank from enforcing the contract.

However, yesterday Justice Ramasubramanian vacated all interim injunctions, and permitted the bank to ''work out their remedies in a manner known to law.

As for Rajshree's claim that the contract was illegal and opposed to public policy, the Judge said, transactions in derivatives are age old practices.

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