A recent post here discussed the decision of the ITAT Special Bench at Kolkata in Shree Capital Services v. ACIT, commenting on its relevance for derivative transactions in India. Another detailed examination of the decision, and of the legal issues surrounding the taxation of derivatives, is now available here. In sum, the author argues- “[a] Firstly, prior to the insertion of clause [d] by...
Derivatives and Underlying Assets
In a very interesting article published in the Journal of Business Law in 2007, Professors Green and Saidov had this to say of software: “…its unique characteristics mean that it is not truly analogous to any conventional chattel with which the law is familiar… despite the fact that it is one of the most ubiquitous commodities of our commercial age, it has no readily discernible legal identity.”...
The Revival of Housing Derivatives
An article in the latest issue of the Economist discusses the revival of housing derivatives, and its close connection with the recent financial meltdown. The idea first surfaced in 2006, when housing derivatives were available as futures contracts on the Chicago Mercantile Exchange. However, the housing bubble, and the fact that these were available only for sophisticated investors, reduced...
The Resurgence of Securitization and CDS
The concepts of securitization and credit default swaps (CDS) have acquired a negative connotation over the last couple of years since they were said to have triggered the global financial crisis during the second half of 2007. More, importantly, the assets involved were sub-prime loans that underwent a process of disintermediation due to which risk perceptions on the underlying assets were...
Misrepresentation by a Bank – Consequences – Rajshree Sugars v. Axis Bank
(In the following post, our guest contributor Karthik Seshadri examines the issue of misrepresentation arising out of the judgment of the Madras High Court in Rajshree Sugars v. Axis Bank. For a background of the case and issues involved, please see Niranjan’s earlier post) In what can be termed as a locus classicus on the subject pertaining to Derivative transactions and their validity, Mr...
Legality of ‘Exotic’ Derivatives – Part I
A previous post had noted that the Madras High Court has recently upheld the legality of the so-called exotic derivatives, holding that they qualify for recovery through the Debt Recovery Tribunal. The following is an analysis of that judgment – Rajshree Sugars & Chemicals v. Axis Bank Ltd. (MANU/TN/0893/2008, C.S. No. 240 of 2008, decided on 14 October 2008). The well-reasoned and...
Legality of Derivatives: Emerging Signs
Readers will recall that over the last few months several companies had entered into derivative transactions with banks wherein they were required to pay significant amounts of money to banks. When faced with claims from the banks, these companies challenged the validity of these derivative transactions in various courts in India, including on the ground that derivatives constituted wagering...
Miscellaneous: Commodities futures, FDI, Exchange-traded funds
The following are some key developments in the corporate sector over the last couple of days that are worth noting: 1. Commodities FuturesWe had earlier discussed on this blog the preliminary findings of the Expert Committee under the chairmanship of Dr. Abhijit Sen, which failed to find a clear causation between commodity futures and the price rise in agricultural commodities. However, the...
Disclosures in Complex Transactions
With increasing complexity in transactions entered into by companies, especially in the financial sector, there is the lingering question of how these transactions are to be meaningfully disclosed to shareholders of the companies so as to enable them to take an investment decision (such as to buy, sell, hold, etc.). The trouble here is that institutional investors themselves are unable to...
Draft Report on Commodity Futures
One of the reasons ascribed to the recent price rise in India is the introduction and expansion of the commodities futures markets. This has, however, been partly put to rest if one were to go by the observations contained in the draft report of the Expert Committee on Commodity Futures Trading headed by Prof. Abhijit Sen. The Committee, which issued its draft report recently, failed to find a...
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