DERIVATIVE CONTRACT: WHETHER AN INSTRUMENT OF HEDGING OR A MERE WAGERING AGREEMENT?
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Abstract
Comprehensive analysis of the wagering agreement under the Indian Contract Act 1872 and the derivative contract under the Securities Contract Regulations Act, 1956 reflects some similarities. On the one side, an agreement by way of a wager is declared void under section 30 of the Contract Act and on the other side derivative contract has been declared a valid contract by inserting section 18A and repealing section 20 through an amendment of the of the Securities Contract Regulation Act, 1956. The reason behind making a critical discussion on the nature of the derivative contract and other similar contracts is essential to know why the first is permitted and the other is prohibited. This study helps to understand truly why legal authorities have a different approach towards the two and treat them differently. Understanding a topic from the legal angle requires a comprehensive analysis of that topic, and it further requires a discussion on the same from every aspect. Therefore researcher is going to study this concept on one particular aspect, i.e., the true nature of the derivative contract. This article analyses what are those areas where derivatives are used only for speculation and the consequences if those speculative elements are not eliminated. This article will be focusing on the betting elements of the derivative contract mainly.
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