BEFORE THE HONOURABLE COURs AT ERNAKULAM

BETWEEN:

M/S AKAY FLAVOURS AND AROMATICS LIMITED

A company incorporated under the Companies Act
Having its office at Ambunad
Malaidamthuruth P.O
Aluva
Ernakulam-683561

AND

M/S ICICI BANK LIMITED

Agri business group
2nd floor,adoni towers
SA road
Kadavanthara
Cochin-6820106
The plaintiff M/S AKAY Flavours and Aromatics PVT Ltd is a company
incorporated under the companies act, having its office at Ambunad ,
Malaidamthuruth P.O, Aluva, Ernakulam-683561.and is represented by
its aged son of residing at

The address for service of all process is that of its a counsel M/S Joseph
& Kurien Advocates, Providence road cochin

M/S ICICI Bank Limited is the defendant. The address for service of all
processes on the defendants is as given above or their counsels as and
when appointed.

The plaintiff respectfully submits as follows :

The plaintiff is a registered company registered under the provisions of

the companies act 1956 with its registered office as given in the cause
title. The plaintiff has been functioning since and has been trading in
flavors and aromatics since then. The company having its major markets
abroad has a lot of exports and imports.

Since the exposure to foreign markets leads to greater exposure to foreign

exchange, the company has been regularly engaging in various means of
hedging its foreign currency exposure including derivative transactions in
forward options with its banker The State Bank of India, through its
branch at . The derivatives provided by The State Bank of
India have been sufficiently hedging the plaintiff’s foreign exchange
exposure with consideration to its paid up capital , working capital
requirements and working requirements.

The defendant a private bank governed solely by profit motives

approached the plaintiff in its office on ,and told the plaintiff about
the various derivative products the defendants intended to sell to the
plaintiff. The plaintiff extended due courtesy to the defendants and
informed them that the matter shall be communicated to the higher ups
and the developments if any shall be informed to the defendants

Thereafter an offer for forward/option/other derivative transactions to al

limit of Rs 10.0 million was extended to the plaintiff by the defendants
vide their letter dated 13-11-07 which is submitted as exhibit-1 before this
court. However the matter was communicated to the higher ups.

The matter was further discussed between the representatives of the

plaintiff and the defendants , during which the defendants driven by their
profit motive misled the plaintiff into believing that the offer made by he
defendants were suitable to hedge its foreign exchange exposure.
Derivatives , especially foreign exchange derivatives being very complex
topics requiring vast expertise to understand, the plaintiff was made to
believe the words of the defendant in a series of discussions that both the
parties had thereof. The defendants being a bank with far more
understanding and expertise in the area arguably had an upper hand in the
discussions and the plaintiff was left with no options but to believe the
defendants.

The matter was tabled before the board in its meeting on 28-12-07,
wherein solely on the basis of the false and deceiving information put
forth by the defendants the plaintiff passed a resolution to enter into
derivative transactions with the defendants among other things. The
resolution passed on the occasion has been produced before the court as
exhibit 2 .

In furtherance thereof the ISDA master agreement was entered into

between the plaintiff and the defendants on 21-12-07 , and the contract
was signed . the defendants even then had not explained to the petitioners
the ill effects of the contract or the various clauses therein, the defendants
literally exploited the plaintiff’s trust and limitations to its own gain, and
misled the plaintiff into signing the contract.

Pursuant to which, after a while the defendants kept demanding money

on various occasions citing the contract and various provisions
incorporated in it. Although the plaintiff honored some of these requests
the plaintiff was being gradually pushed into heavy losses. The defendant
continued to demand huge sums of money which the plaintiff was
evidently incapable of handling.

In fact these demands came as a surprise to the plaintiff since it was not
briefed on the probability of such demands. The defendants clearly have
engaged in miss selling of derivative products to the plaintiff.

At the outset it self the plaintiff craves to put forth before this court that
the plaintiff was not given the full information regarding the products that
were sold to it, and derivatives being very complex concepts is hard to
get a second opinion. In the circumstances its evident that the defendants
have engaged in miss-selling of derivatives to the plaintiff. And the
plaintiff was exploited or rather victimized of its limitations.
Moreover the impugned contract is in clear violation of the guidelines
issued by the RBI. The plaintiff is a unit under the medium enterprise
sector, circular no-15 issued by the RBI dated 29-10-07, enumerates in
clear terms the requisites with regards to derivative contract with medium
sector enterprise. The said circular vide its para-142 lays down as follows

“such contracts may be booked through AD category-1 banks with whom

the SMEs have credit facilities and the total forward contracts booked
should be in alignment with the credit facilities availed by them for their
foreign exchange requirements or their working capital requirements or
capital expenditure.

A mere perusal of the above lines would explain that derivative contracts
with regard to MSEs should be done only with banks with whom the
SMEs share credit relationship. In the instant case the plaintiff does not
have any credit relationship with the defendant. Thus the agreement and
the contract thereto are flagrant violation of the RBI guidelines and thus
void in law. The defendant however had not explained any of these to the
plaintiff before the contract.

Moreover the banker to the plaintiff is SBI with whom the plaintiff has
been doing derivative transactions for a long time, with whish the
plaintiff is content. The hedging provided by SBI is in consensus with the
plaintiffs requirements. Which would classify the impugned agreement
between the plaintiff and the defendant under speculative hedging which
the RBI has expressly prohibited unless sold through a recognized stock
exchange. The plaintiff was miss guided by the defendant and made to
believe that the transaction was valid in law.
The defendant kept various critical information like the possible risk that
the plaintiff may have to incur and various other demerits of the contract
at a safe distance from the plaintiff. The defendant have clearly defaulted
in the “user appropriateness and “ suitability” policy given by the RBI in
its circular titled “comprehensive guidelines on derivatives” dated 20-4-
07 . The circular in clause 8.3(g) mandates that the contract should
disclose the inherent risks in the proposed transaction in the form of a
“Risk Disclosure Statement” but the impugned contract under the heading
“Risk Disclosure Statement” gives nothing but the definitions of the
various categories of risk involved in the transaction. Not giving the
details of the risk involved in the transaction under the risk disclosure
statement is testimony to the intention of the defendant to deceive the
plaintiff.

Moreover the annexure attached to the contract signed by the authorized

signatories of both the parties clearly puts forth they forward option
contract limit as Rs 10.00 million and the minimum tenure of contracts as
60 months. This again is an outright disregard to the circulars of RBI
because the RBI vide its circular dated 20-4-07 in para 143 enumerates
thus-

“ In order to enable resident individuals to to hedge their foreign

currencies exposure arising out of actual or anticipated remittances……
……. Permitted to book forward contracts upto a limit of of
USD100,000………………….the contract may be permitted to be booked
upto tenors of one year only”
Thus for the above reason and all of the reasons stated above it is finally
submitted that the contract between the plaintiff and the defendants
is void in law and non-enforceable.

Wherefore it is respectfully prayed that this Hon’ble court may be pleased

to pass a judgment and decree in favor of the plaintiff
Declaring the derivative contract between the plaintiff and the defendant
as void and non-enforceable.