Rajshree gets high court stay in derivatives case

Prevents Axis Bank from approaching DRT to recover money.

Coimbatore-based Rajshree Sugars and Chemicals on Monday managed to get a stay from the Madras High Court in the derivatives case involving Axis Bank. The Madras High Court, in an earlier order, had allowed Axis Bank to approach the Debt Recovery Tribunal (DRT) to recover the dues from the sugar company, which suffered losses as a result of entering into a derivatives contract with the bank.

A Division Bench of the Madras High Court on Monday granted the stay, which is valid till November 6. Granting the stay, the Bench said: “The defendant bank (Axis Bank) herein shall be at liberty to work out their remedy in a manner known to law.”

The earlier court order asking the bank to approach DRT was seen as a victory for the bank. It was also considered as setting an important precedent for many such cases pending in various courts in the country.

Rajshree had filed the appeal against the earlier order on Monday and managed to secure the stay on the same day.

Since March this year, Rajshree Sugars and Axis Bank have been fighting a legal battle over the foreign exchange derivatives contract sold by the bank to the company, resulting in losses for the company. The company had refused to settle the dues with the bank, citing that the contract was a wagering deal and therefore not tenable.

The Madras High Court last week had ruled, saying the derivatives contract is valid, but asked bank to approach DRT to get an order asking Rajshree Sugars to pay it the dues. The amount in dispute is estimated to be around Rs 46-50 crore.

Rajshree Sugars’ case against Axis Bank is not an isolated one. Several companies across the country have dragged a handful of private banks to courts against the derivatives contracts. Many companies, which have suffered losses on account of these contracts, have claimed that they were lured by windfall gains promised by banks without understanding the speculative flavour of these contracts. Some companies have even said many of the contracts have not followed the Reserve Bank of India guidelines.