The court must assess whether the defence to the claim lies within the parameters enunciated by a long line of cases, irrespective of whether or not there is a pending adjudication as to the debt itself before another tribunal.

G.S. Patel, J.

I. Overview

1. Deutsche Bank AG, the petitioner (“Deutsche Bank”), claims that an amount of US$ 21,001,543.71 (plus interest) is due to it as of 1st May 2010 from the respondent, Finolex Industries Ltd (“Finolex”) under a derivative transaction. This transaction is said to accord with a 2002 ISDA Master Agreement, one that is incorporated by reference.

2. Finolexinter alia manufactures PVC resin. For this, it needs various chemicals that it must import as these are not locally available. The value of its annual imports range between US$ 100–200 million. Finolex pays for its imports in US dollars. Resultantly, its rupee import cost depends on the dollar-rupee (USD/INR) exchange rate at any given time. Finolex’s purchases are also on credit, often for up to as much as year from the supply date. The raw material price is pegged (in US dollars) at the time the order is placed. Since Finolex makes actual payment at a later date, the rupee amount it uses in payment depends on the USD/INR exchange rates. At the same time, Finolex’s domestic sale prices do not fluctuate in tandem with currency exchange rate differentials. This requires Finolex to hedge or otherwise protect itself against foreign currency fluctuation risks.

3. That Finolex’s transactional volumes are very high is undisputed. Finolex is a public limited listed company. Its shares trade on both the Bombay Stock Exchange and the National Stock Exchange. It has a market capitalization of just under Rs.1000 crores. It is the largest manufacturer of PVC pipes in India, and the second largest manufacturer of PVC resin. In 2011, it had over 170,000 share holders, a turnover of Rs.1,650 crores, a net profit of Rs.132 crores and a gross block of Rs.1600 crores. With over 1000 employees, it had (in 2011) reserves of over Rs.450 crores, fixed assets worth over Rs.1500 crores, a net worth of nearly Rs.600 crores and book value fixed assets of over Rs.2,000 crores. It pays substantial amounts in tax, both direct and indirect. It has credit facilities of over Rs.1400 crores from different banks.

4. In 2006, the Reserve Bank of India (“RBI”) introduced important measures to validate and regulate derivative Finolex’s defences is that the transaction in question violates the RBI Master Circular in this regard, I do not think it is necessary, in the view that I have taken, to examine this; Finolex has other defences that are, I believe, more than sufficient.

5. Briefly stated, Deutsche Bank’s case, as formulated by Mr. Tulzapurkar, learned senior counsel, is this: there can be no disputing the legality or validity of the derivative transaction in question. This was not the first derivative transaction between Deutsche Bank and Finolex; it was not even the first derivative transaction of its kind. There were several previous derivative transactions, all undisputed and uncontroversial, and the present transaction of 9th August 2007 had a proximate precursor of only a few days earlier, 6th August 2007, one that worked in Finolex’s favour in a substantial amount. The present transaction did not. It was twice restructured, at Finolex’s request. There is no breach of any statutory or regulatory requirement and there is, therefore, no defence to the claim. That the present derivative transaction was in US Dollars and Japanese Yen makes no difference whatever; Finolex was neither stranger nor neophyte to such transactions. What Finolex attempts is, therefore, to deny the undeniable. Specifically, the transaction in question was a ‘target profit forward’ product. Among other things, it provided for a knock-out level or barrier event, a specified spot rate of the Japanese Yen to the US Dollar. That level was never reached after the parties entered into the transaction. This is in sharp contrast to the immediately previous transaction that did get ‘knocked out’ when the Japanese Yen crossed the barrier event mark specified in that transaction vis-à-vis the US Dollar. In the p