Much has been written about the credit crisis in America, and the concern of parties to derivative contracts that their counter-parties may fail to fulfill contractual obligations.
Less attention has been devoted to the farcical situation in India.
According to an April report in The Economist magazine, some Indian companies are trying to escape their contractual obligations relating to derivatives. (Click here to view the article)
The report says that Indian companies are barred from speculating in derivatives, but many have done so anyway. Some that lost money are now trying to escape their obligations. Since they were not officially allowed to enter into the contract, these companies claim, they should not be required to meet their obligations under the contract – the contract should effectively be void.
What an absurd argument! That’s just like saying “We broke the rules, so we shouldn’t have to suffer the consequences.”
A contract is a binding promise. Companies who break the rules when entering into derivative contracts must suffer the consequences if they lose out.
They must be held to their binding contractual obligations.
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