BSE Sensex, Nifty trying to fight off downtrend: Tuesday Closing Report

The market is trying to rise but the trend is still down

The market brushed the status quo maintained by the Reserve Bank of India on the interest rates and closed slightly off the day’s highs on across-the-board buying support. The market is trying to rise but the trend is still down. The benchmarks are doing their best to fight off the downtrend. The National Stock Exchange (NSE) recorded a volume of 85.40 crore shares and advance-decline ratio of 1003:730.


The market opened in the green tracking global cues and on hopes that the Reserve Bank of India (RBI), in its mid-quarter monetary policy review later in the morning, will ease rates in an attempt to spur growth. In the global arena, markets in Asia were trading firm on expectations that US policy makers would conclude a budget plan before fresh taxes come into effect early next year. Overnight US stocks settled near the day’s highs on hopes of an answer to the “fiscal cliff”.


The Nifty opened trade at 5,874, up 16 points and the Sensex started off 49 points higher at 19,293. Buying interest in auto, capital goods and consumer durables stocks helped the market remain in the positive, but were range-bound till the RBI policy announcement.


The central bank’s decision to keep key rates unchanged saw the market sliding into the red. The reversal led the benchmarks to their lows with the Nifty touching 5,823 and the Sensex retracting to 19,149.


However, the market bounced back from the lows on buying interest in metal, capital goods consumer durables and power sectors. An uptick in the key European markets in early trade also supported the sentiment in the domestic market.


The market continued to trade firm with the benchmarks hitting their high at around 2020pm. At the high the Nifty scaled 5,906 and the Sensex climbed to 19,396.


The indices closed off their highs with 12 of the 13 sectoral gauges in the green. The Nifty gained 39 points (0.66%) to 5,897 and the Sensex surged 120 points (0.63%) to finish trade at 19,365.


Among the broader indices, the BSE Mid-cap index gained 0.52% and the BSE Small-cap index advanced 0.59%.


The top sectoral gainers were BSE Realty (up 2.38%); BSE Metal (up 1.78%); BSE Capital Goods (up 1.50%); BSE TECk (up 1.14%) and BSE Power (up 1.08%). BSE Oil & Gas (down 0.21%) was the lone loser.


Twenty three of the 30 stocks on the Sensex closed in the positive. The chief gainers were Bharti Airtel (up 4.23%); BHEL (up 4.14%); Tata Steel (up 3.76%); Hindalco Industries (up 2.66%) and Sun Pharmaceutical Industries (up 2.33%). The chief losers were Maruti Suzuki (down 1.64%); ONGC (down 0.87%); Dr Reddy’s Laboratories (down 0.68%); Bajaj Auto (down 0.45%) and Reliance Industries (down 0.35%).  


The top two A Group gainers on the BSE were—Unitech (up 5.75%) and Zee Entertainment Enterprises (up 5.47%).

The top two A Group losers on the BSE were—Jaiprakash Power Ventures (down 6.86%) and Hindustan Zinc (down 2.67%).


The top two B Group gainers on the BSE were—Polar Industries (up 19.95%) and Vertex Spinning (up 18.84%).

The top two B Group losers on the BSE were—Mahanivesh India (down 19.99%) and Comfort Intech (down 13.19%).


Out of the 50 stocks listed on the Nifty, 37 stocks settled in the positive. The major gainers were BHEL (up 4.39%); Bharti Airtel (up 4.36%); Tata Steel (up 4.12%); Hindalco Ind (down 2.62%) and Jaiprakash Associates (up 2.55%). The key losers were Maruti Suzuki (down 1.57%); Dr Reddy’s (down 0.97%); Ranbaxy Laboratories (down 0.81%); Bajaj Auto (down 0.60%) and RIL (down 0.59%).


The Asian pack settled mostly higher following a report that US president Barack Obama made compromises in negotiations for a budget deal. Investors are awaiting the outcome of the Bank of Japan’s policy meeting on Wednesday for fresh stimulus announcements.


The Shanghai Composite added 0.10%; the KLSE Composite gained 0.66%; the Nikkei 225 climbed 0.96%; the Seoul Composite advanced 0.51% and the Taiwan Weighted rose 0.16%. On the other hand, the Hang Seng fell 0.08%; the Jakarta Composite declined 0.33% and the Straits Times lost 0.06%.


At the time of writing, the key European indices were trading with gains between 0.07% and 0.54% and the US stock futures were in the positive.  


Back home, foreign institutional investors were net buyers of shares totalling  Rs886.68 crore on Monday while domestic institutional investors were net sellers of equities amounting to Rs690.32 crore.


Healthcare major Apollo Hospitals Enterprise today said it will invest Rs400 crore to set up 10 specialised hospitals in India by 2015 for treatment of heart diseases and cancer. Out of the total, five will be focused on treatment of heart diseases and the other five on cancer treatment. These will be in addition to the group's plans of adding 2,000 beds. The stock added 0.15% to settle at Rs812.80 on the NSE.


Industrial solutions provider Honeywell Automation India today said its promoter Honeywell Asia Pacific Inc has sold 6.24% stake in the company for an estimated Rs 130 crore. The stake sale was done to bring down promoters’ holding to 75%, in compliance with SEBI guidelines. Honeywell Automation tanked 6.75% to close at Rs2,590 on the NSE.


Pharma major Aurobindo Pharma today said it has received US health regulator’s final approval to market Abacavir Tablets, used in the treatment of Human Immunodeficiency Virus (HIV), in the American market. The annual sale of the product is approximately $88 million. The product has been approved out of Unit III formulations facility in Hyderabad, India, the company said. The stock gained 2.03% to close at Rs190.80 on the NSE.


RTI Judgement Series: Expert committee report not part of a fiduciary relationship

An expert committee report was denied by the PIO on the grounds that it was held in a fiduciary capacity and hence exempted under Section 8 (1)(e) of the RTI Act. This contention was rejected by the CIC. This is the 13th in a series of important judgements given by Shailesh Gandhi, former CIC that can be used or quoted in an RTI application

The Public Information Officer (PIO) cannot deny information by merely citing Section 8 of the Right to Information (RTI) Act and without giving adequate reasoning. While giving this important judgement, Shailesh Gandhi, former Central Information Commissioner directed the PIO "to send a copy of the report submitted by the Expert Committee of the Council in respect of the proposed University School of Architecture Planning of Guru Gobind Singh Indraprastha University (GGSIU), and the attested copy of the minutes/record note of discussions of the meeting deliberations of the said Executive Committee to the appellant."
"Since Right to Information is a fundamental right of citizens, where denial has to be only on the basis of the exemptions under Section 8 (1), it is necessary to carefully explain the reasons of how any of the exemptions apply, when a PIO wishes to deny information on the basis of the exemptions. Merely quoting the sub-section of Section 8 is not adequate. Giving information is the rule and denial the exception," the Central Information Commission (CIC) said in its order dated 9 February 2009.
Mumbai resident R Sridhran, on 10 July 2008, sought attested copies of an Expert Committee report. He requested the following information from the PIO, Council of Architecture at the ministry of human resource development (HRD) of the Government of India...
1. Council of Architecture may kindly refer to enclosed copy of their letter no. CA-5/Academic dated 18/01/2008 addressed to members of the Expert Committee for their visit in the context of evaluation of the proposal of Guru Gobind Singh Indraprastha University (GGSIU) to start the five-year full time course in B Arch. In the GGSIPU's University school of Architecture & Planning and provide me with an attested complete copy of the said Expert Committee's report/recommendations.
2. It may kindly be indicated as to whether the recommendations/report of the aforesaid Expert Committee have been reviewed by the Executive Committee of the Council of Architecture. If so, an attested copy of the minutes/record note of discussions of the meeting / deliberations of the said Executive Committee may kindly be provided to me indicating the names of the members of the Committee who attended the meeting.
3. An attested copy of the latest response sent (position as on dated) by the Council of Architecture to the Guru Gobind Singh Indraprastha University on their proposal referred to in (a) above.
The PIO refused to give the copy of the report submitted by the Expert Committee of the Council in respect of the proposed University School of Architecture Planning of GGSIPU. He had also denied the minutes and deliberations of the Executive Committee constitute the decision making process of the Council. This information has been claimed to be exempt under Section 8 (1)(e) by the PIO. 
The First Appellate Authority (FAA) has further claimed exemption under Section 8 (1)(g) stating that giving the information may divulge the source of information or assistance given for law enforcement purpose.
Mr Sridhran, then approached the CIC. In his written submission before the Commission, the PIO claimed that "...experts appointed by the Council… for inspecting architectural institutions is exempted under Section 8 (1)(e) of the Right to Information Act as the same are in the nature of fiduciary information. Such a relationship warrants the maintenance of highest confidentiality of the manner and method of evaluation, both by the Council and the experts and thus is in fiduciary relationship to each other."
He also contended that Regulation 30 (4) & (5) of the Council of Architecture Regulations, 1982, enjoins that the reports of inspectors are of confidential nature. The PIO also claimed that the inspection reports are also exempt under Section 8 (1)(g) of the RTI act as disclosure could endanger the life or physical safety or identify the source of information given in confidence for law enforcement.
Mr Gandhi, in his order noted that in the present case no reasoning has been given initially or in the written submissions by the PIO as to how releasing the report would lead to endangering the life or physical safety or identify the source of information given in confidence for law enforcement. "In the absence of any reasoning, the exemption under Section 8 (1)(g) is held to have been applied without any basis," he said.
The PIO's second basis for denial was Section 8 (1)(e) on the ground that the information-"the report of the Expert Committee"-is held by the Public authority in a fiduciary relationship. 
"When a committee is formed to give a report, the information provided by it in the report cannot be said to be given in a fiduciary relationship. All relationships usually have an element of trust, but all of them cannot be classified as fiduciary. The information in the report was certainly not given for the benefit of the Expert Committee. Hence, the contention that the Expert Committee gave the report in a fiduciary relationship is not correct," Mr Gandhi, the CIC, said.
The Commission directed the PIO to provide copy of the report by the Executive Committee and also attested copy of the minutes of the meeting of the Committee before 25 February 2009.
Decision No. CIC /SG/A/2008/00213/1566 
Appeal No. CIC/SG/A/2008/00213

Appellant                                            : R Sridharan,



Respondent 1                                     : Vinod Kumar,

                                                            Registrar & PIO,

                                                            Ministry of HRD, Govt. of India

                                                            Council of Architecture,

                                                            India Habitat Centre, Core-6A, 1st Floor,

                                                            Lodhi Road, New Delhi - 110003



Derivatives mess in India: Supreme Court’s ‘defaulter’ blow to corporates does not clarify core issues

The Supreme Court has ruled that dues by borrowers with regard to derivatives contract shall be covered under RBI’s Master Circular providing rules on wilful defaulters. The ruling does not resolve the controversy as it only addresses a minor issue. The heart of the matter—whether banks oversold, mis-sold or illegally sold derivatives to borrowers which were shown to be hedges but actually were not hedges—is yet to be resolved

Derivatives contracts have been a bone of contention with corporates and banks since 2007-08 and have been contested and argued before various judicial authorities. In several such derivatives litigations in India, banks have been classifying companies as wilful defaulters[1] under the Reserve Bank of India’s (RBI) ‘Master Circular on Wilful Defaulters’ and the companies have been long contesting the issue arguing that the RBI Master Circular only covers “lender-borrower transactions” and that derivatives transactions does not involve a lender borrower relationship between the bank and the company.


The Supreme Court in its landmark judgement dated 11 December 2012 has held that dues by borrowers with regard to derivatives contract shall be covered under RBI’s Master Circular providing rules on wilful defaulters.


The order related to three different petitions—Kotak Mahindra Bank Vs Hindustan National Glass & Ind & Ors; Emcure Pharmaceuticals & Anr Vs ICICI Bank and Finolex Industries & Anr Vs Reserve Bank of India & Ors. An appeal arising out of a Special Leave Petition was made before the Supreme Court against the Calcutta High Court’s order (Writ Petition No. 7729(W) of 2009) dated 1 September 2009 whereby the Calcutta High Court held that the Master Circular applied only to lending transactions of banks and financial institutions and in case of foreign exchange derivatives transactions there was no relation between the banks and the companies and therefore no action could be taken under the Master Circular against these companies on account of derivatives transactions. On the other hand the appeal before the apex court also entailed judgement of the Bombay High Court which held the view decision contrary to that of Calcutta High Court.


RBI’s stand in the appeal:

RBI, being party to the appeal, argued that the purpose of the Master Circular is to be taken into consideration. It may not specifically cover the definition of wilful defaulters but the Master Circular should be interpreted in an expansive way to cover new products as may evolve from time to time in the markets which includes derivatives transaction. Further, Clause 2.6 of the Master Circular states that when bank guarantees were invoked and are not honoured by the defaulting units on whose behalf the bank guarantee has been furnished, the defaulters are to be treated as wilful defaulters under the Master Circular. Similar was the case with derivatives dues as well.

Who is a wilful defaulter?

In the appeal before the Supreme Court, the interpretation of the term wilful defaulters under the Master Circular was made whereby the definition of wilful defaulters is reproduced below:


A "wilful default" would be deemed to have occurred if any of the following events is noted:-

  1. The unit has defaulted in meeting its payment/repayment obligations (emphasis ours) to the lender even when it has the capacity to honour the said obligations.
  2. The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.
  3. The unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.
  4. The unit has defaulted in meeting its payment/ repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/lender.

The apex court stated the following on the issue:

  1. The settled principle of interpretation is that the word is a statute or a document are to be interpreted in the context or subject matter in which the words are used and not in according to its literal meaning. Hence the interpretation of the word ‘lender’ in the definition of wilful default as considered by Calcutta High Court to construe a lender-borrower relation does not hold good.
  2. On the other hand, the stand taken by Bombay High Court on wilful default to include derivative dues relying on the other circulars on prudential norms, classification of assets as non-performing, etc is not correct as these circulars do not clarify the definition of wilful default and do not constitute the context or the subject matter in which the definition of wilful default in the Master Circular has been construed.
  3. On reading the ‘Introduction’ paragraph of the Master Circular, it indicates that the Master Circular originated pursuant to instructions of Central Vigilance Commission (CVC) for improving vigilance administration in banks. The instructions of the CVC pursuant to which the scheme relating to collection and dissemination of credit information on wilful defaulters was formulated by the RBI were to cover “all cases of wilful defaults of Rs25 lakh and above.” The purpose was to improve the intra-bank communications on cases of wilful defaults, frauds, cheating, etc. The intent was to ensure that all cases of wilful default of Rs25 lakh and above were to be reported by banks to RBI and such cases were not confined to wilful default by a borrower of his dues to a bank in a lender-borrower relationship.
  4. The purpose of the Master Circular is “to put in place a system to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them.”
  5. The purpose of the Master Circular being to caution banks and financial institutions from giving any further bank finance to a wilful defaulter, credit information cannot be confined to only the wilful defaults made by existing borrowers of the bank, but will also cover constituents of the bank, who have defaulted in their dues under banking transactions with the banks and who intend to avail further finance from the banks.

The judgement of Calcutta High Court was set aside and that of Bombay High Court was sustained.

Consequences of being declared as a wilful defaulter:

Under the Master Circular, the following measures may be taken by bank/ financial institution against a wilful defaulter:

  1. No additional financing facility from banks/ financial institutions. Entrepreneurs/ promoters of companies to be debarred from institutional finance for a period of five years from the date the name of the wilful defaulter is published in the list of wilful defaulters by the RBI.
  2. Legal action against borrowers/ guarantors and foreclosure of recovery of dues this includes initiating criminal proceedings against wilful defaulters.
  3. Banks/ financial institution may ask for change in management of the wilfully defaulting unit.
  4. The borrowing company not to induct a person who is a promoter/ director another company which has been identified as a wilful defaulter or take steps to remove such a person from the board of directors.
  5. In case of guarantees/ letter of comfort, where the group companies have provided for guarantee or letter of comfort and the same has been invoked by the bank but not honoured then such group companies will be reckoned as wilful defaulters.

The big picture:

Forex derivatives in India shot up in 2007. The rupee was getting stronger and the dollar was weakening in the aftermath of the US sub-prime crisis. As the demand for derivatives contract shot up during that period, bankers too became aggressive in selling derivatives products. For some months the derivatives transactions remained tempting.

It was only after the dollar started to strengthen the transactions started to bleed. The derivative losses that the Indian corporates suffered went into few thousand crores per year over 2007 to 2010.

The legality of the derivatives were challenged in several cases, first amongst those being case of Rajshree Sugars[2] and many of these cases are on various stages of arbitral and judicial proceedings. Several aspects of derivatives deals have been put to challenge and includes legality of derivatives, fraud and mis-selling, violation of exchange control, whether SARFAESI Act is applicable to derivatives dues of banks, whether a user contesting the bank’s claim is a “wilful defaulter”, and so on.


The present ruling does not resolve the controversy as the present ruling only addresses a minor issue—whether a counterparty to a derivative contract—the company entering into a derivative with a bank is a ‘defaulter’ to a ‘facility’, or is it merely a trading transaction between the two where one of the counterparties may dispute the obligation.


The real heart of the matter—whether banks oversold, missold or illegally sold derivatives to borrowers which were shown to be hedges but actually were not hedges, is yet to be resolved.

[1] Reserve Bank of India on 1st July, 2008 issued a Master Circular on Wilful Defaulters whereby banks and financial institutions were required to report of wilful defaulters to other banks and financial institutions and also provided for the measures to be imposed on such wilful defaulters.




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