Tirupur exporters ask SC to be heard in derivatives case

The faceoff between banks and companies on forex derivatives’ losses took a new turn last week, with the Tirupur-based Forex Derivatives Consumer Forum, representing exporters who lost money on these, joining the ongoing legal tussle.

The Tirupur forum has filed a petition before the Supreme Court (SC) to be included as co-respondents in the case between Pravanjan Patra, an Orissa-based businessman who filed a public interest suit in the Orissa High Court on the issue, and the Fixed Income Money Market Derivatives Association of India (Fimmda). On February 19, the SC had granted an interim stay on the Orissa High Court order for a Central Bureau of Investigation (CBI) probe into the alleged forex derivatives scam, after appeals by the Indian Banks Association (IBA) and Fimmda. It will hear all parties again in the first week of July. On December 24, 2009, the HC had directed CBI to probe alleged mis-selling of forex derivatives to exporters, violation of foreign currency laws such as the Foreign Exchange Management Act (Fema) and ‘offences of cheating, criminal conspiracy and fraud.’ “If the allegations are found to be true, then CBI would be busting a large financial scam affecting the economy of the country,” the court had observed.

In a preliminary report to the court, CBI had gathered data from the Reserve Bank of India that 11 banks had unrealised dues from customers of Rs 755.45 crore between April 2007 and December 2008, while the gross mark-to-market (revaluing assets at their current values) losses of the customers of 22 banks were Rs 31,719 crore between 2006 and 2008.

Banks had sold exotic derivatives to exporters, who suffered huge losses when their calls on currencies went wrong.

The Tirupur forum wants to be included and heard in the case. “The petition also pleads to vacate the stay on the CBI probe ordered by the Orissa High Court, as only a thorough probe can go into the root cause of this massive scam and provide solution to this major crisis being faced by Indian exporters,” said S Dhananjayan, a chartered accountant advising the forum.

Tirupur exporters say the loss booked on exporters in many cases is more than their entire net worth and the ripple effect will have far-reaching consequences such as unemployment, labour unrest. The RBI has also carried out its investigation and identified several procedural and Fema violations.

“Only a thorough probe by CBI can reveal the true motive behind such a wholesale violation by the banks, which has put several exporters in the brink of bankruptcy,” Dhananjayan said. The banks, however, have opposed a CBI probe and say only the RBI or the Enforcement Directorate can probe Fema violations, if any, and not CBI.

Fimmda has contended there’s no evidence before the HC and that the suit doesn’t name any person or bank officer of banks. The order, it says, is based only on conjecture.