A bank cannot levy hedging charges when 110% cash margin is furnished and forward contracts declined.

The petitioner, a research institution, obtained three letters of credit (LoCs) to import machinery.

Under the bank’s sanction terms, the petitioner provided 100% cash margin and an additional 10% margin if it did not book a forward contract.

The petitioner provided 110% margin and instructed the bank not to book forward contracts.

When the petitioner later sought rollovers, the bank hedged the transactions and, upon closure of the LoCs in 2014, debited a total of ₹49,24,068 as hedging charges.

The petitioner sought reversal and, after the bank declined, filed this writ petition seeking reimbursement.

1. Whether the bank could recover hedging charges despite the petitioner having furnished 110% cash margin and instructed the bank not to book forward contracts.

2. Whether the contractual nature of the dispute or the RBI circulars relied on by the bank precluded relief under Article 226 or justified the charges.

Under Article 226, a contractual dispute is not excluded from judicial review merely because it arises from a contract; however, the Court should avoid resolving disputed questions of fact requiring an evidentiary trial.

The Court relied on Unitech Limited v. Telangana State Industrial Infrastructure Corporation (TSHC), (2021) 16 SCC 35, para 39.6.

The parties’ contractual terms required 100% cash margin and prescribed an additional 10% margin if no forward contract was booked.

The RBI circulars relied on by the bank concerned monitoring unhedged foreign-currency exposure.

The material facts—including the 110% margin, the petitioner’s instruction against forward contracts, and the debits—were admitted, leaving no factual dispute requiring a civil trial.

The bank produced no written consent authorising hedging; its assertion that the petitioner’s consultant had agreed to it did not establish such consent.

Because the bank had obtained the additional margin, the Court considered the exposure not to be unhedged and held the RBI circulars inapplicable to justify the charges.

The contractual character of the dispute therefore did not bar the Court from granting relief under Article 226.

It directed the bank to refund that amount with interest at 8% per annum from the respective dates of debit until repayment.