SC to hear Forex Derivatives case on September 1

NEW DELHI: The Supreme Court will hear on September 10 the impleadment petition filed by the Forex Derivatives Consumers Forum along with the Special Leave Petition filed by Fixed Income Money Market and Derivatives Association of India (FIMMDA). Forex Derivatives Consumers Forum is a registered association of exporters from across the country, a majority of them from Tamil Nadu’s Tirpur district.

They were sold the ‘exotic’ derivative products by commercial banks and suffered whopping losses.

The Forum alleged that its members had been misled into entering the forex derivative contracts by banks with their aggressive marketing strategies.

The banks violated all the norms of the RBI guidelines and provisions of Foreign Exchange Management Act (FEMA) and gained enormous profits by such transactions with exporters. These resulted in losses to the tune of `30,000 crore to its members and others, the Forum submitted. A derivative is something that derives its value from an underlying asset. Forex derivatives derive their value from the movements in the underlying currency.

‘Forex derivatives’ is a general term used to cover all types of contracts, including forward contracts, plain vanila options, waps, etc. It was in February 2010 that the FIMMDA had approached the Supreme Court seeking a stay on the CBI probe ordered by the Orissa HC against 22 banks.

The Apex court stayed the Orissa HC order till the next hearing. S Dhananjayan, Chartered Accountant and Adviser to the Forex Derivatives Consumers’ Forum, in a press release stated that the Orissa HC had directed a probe by the CBI in its judgment on December 24, 2009 on a PIL by an economist, Pravanjan Patra against 22 banks who were involved in selling exotic forex derivative products to exporters in 2007-2008.