Counsel are being blamed for companies' failure to meet payment commitments on badly performing structured derivatives products in India.
Global volatility means India's derivatives market is suffering a downturn. Firms have reportedly been advising their clients, mostly small to medium-sized enterprises, not to meet their payment obligations to private banks, and instead claim misselling on the part of the lenders.
The conflict has sparked a host of private sector lenders, such as Axis Bank, ICICI Bank and HDFC Bank, to enter legal battles with their corporate clients.
Two cases have already gone to court, in Chenai and Coimbatore, with Sundaram Brakes and Precot Meridien opposing Kotak Mahindra Bank. The bank is being advised by Amarchand & Mangaldas & Suresh A Shroff on both, while Sundaram Brakes and Precot Meridien are represented by local firms.
"It's untrue that they [the derivatives contracts] were missold. The companies' treasury departments carry out a thorough risk analysis before committing. If they were risky, or too speculative, the company wouldn't have invested," said Cyril Shroff, managing partner at Amarchand.
More cases are expected to be filed across India as hundreds of companies that bought complex cross-currency options and structured products to protect themselves from foreign exchange risk face large losses.
But their accusations of misselling are being met with hostility.
"The excuses that they are giving, saying that these are speculative contracts, is nonsense," said Shroff. "If these contracts are mere wagers, then the whole derivatives market is too."
Although only small to medium-sized companies have failed to meet their payment commitments, larger corporates were also hit, but have suffered less.