Section 4 in The Bilateral Netting of Qualified Financial Contracts Act, 2020
Title: Powers of authority.
The relevant authority may, by notification,--
(a) designate any bilateral agreement or contract or transaction, or type of contract regulated by it, as qualified financial contract:
Provided that the contract, so designated under this clause, shall not include any contract,--
(i) entered into between such parties and on such terms as the Central Government may, by notification, specify; or
(ii) entered into on multilateral basis in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Payment and Settlement Systems Act, 2007 (51 of 2007);
(b) specify any entity regulated by it, as a qualified financial market participant to deal in qualified financial contracts.
Title: Enforceability of netting.
(1) Netting of the qualified financial contract shall be enforceable—
(a) where such contract is entered into with a netting agreement, in accordance with the terms of the netting agreement:
Provided that the inclusion of any non-qualified financial contract in a netting agreement shall not invalidate the enforceability of netting of qualified financial contract under such agreement; or
(b) where such contract is entered into without a netting agreement, in accordance with the provisions of section 6.
(2) A qualified financial contract shall not be void and shall be deemed never to have been void or unenforceable by reason of any law for the time being in force.
(3) Close-out netting of a qualified financial contract shall be enforceable against an insolvent party, and, wherever applicable, against a guarantor or other person providing collateral or security for a party and shall not be affected or stopped or otherwise limited by:--
(i) the appointment of, or any application for the appointment of, an administration practitioner, or
(ii) applicability of any provision of law relating to administration, or
(iii) any other provision of law that may be applicable to an insolvent party
(4) Where a qualified financial market participant is subject to administration, then notwithstanding,--
(i) any stay, injunction, avoidance, moratorium or similar proceedings or any other order of a court, tribunal or authority, or
(ii) any order of adjudication or dissolution or winding up or resolution or insolvency, or
(iii) any rule, regulation, scheme, direction, guideline, circular or order,
made or issued under any law for the time being in force, close-out netting shall be applicable and nothing contained therein shall affect the validity of close-out netting under this Act.
(5) The amount payable or other claims to be made in accordance with the close-out netting under this Act shall be final, irrevocable and binding upon the parties to a qualified financial contract and upon the administration practitioner, of the party in administration.
Title: Invocation of close-out netting.
(1) Close-out netting may be commenced by a notice given by one party to the other party of a qualified financial contract upon the occurrence of an event of default with respect to the other party or a termination event that may, in certain circumstances, occur automatically as specified in the netting agreement:
Provided that where any one of the parties to a netting agreement is subject to administration, then no prior notice to or consent of the party in insolvency, winding up, liquidation, administration or resolution proceeding, or to the administration practitioner of such proceeding, shall be required.
Explanation.--For the purposes of this sub-section,--
(i) "event of default" means failure to pay or deliver or honour the obligations of a qualified financial contract, or bankruptcy, or any other event as may be agreed upon by the parties in the agreement; and
(ii) "termination event" means the occurrence of any event mentioned in the netting agreement which gives one or both parties the right to terminate relevant transactions under that agreement.
(2) The parties to a qualified financial contract shall ensure that all obligations owed by one party to another party under a qualified financial contract are reduced to or replaced with single net amount which has the following effect, namely:--
(a) the termination, liquidation or acceleration of any present or future payment or delivery rights or obligations arising under or in connection with any one or more qualified financial contracts to which a netting agreement applies;
(b) the calculation or estimation of a close-out value, market value, liquidation value or replacement value in respect of each right and obligation or group of rights and obligations terminated, liquidated or accelerated under clause (a) and the conversion of each such value into a single currency; and
(c) the determination of the net balance of the values calculated under clause (b), whether by operation of set-off or otherwise, giving rise to the obligation of one party to pay an amount equal to the net balance to the other party.
(3) Without prejudice to the provisions of any law for the time being in force requiring the realisation, appropriation or liquidation of collateral, and unless otherwise agreed by the parties, the realisation, appropriation or liquidation of collateral under a collateral arrangement shall take effect without any requirement of prior notice to, or consent from, any party, person or entity.
(4) Close-out netting shall be applicable to all qualified financial market participants who are parties to a qualified financial contract notwithstanding anything to the contrary contained in any law specified in the Second Schedule or any other law pursuant to which any qualified financial market participant has been incorporated, constituted or is regulated.
Title: Net amount.
(1) Where parties to the qualified financial contract enter into a netting agreement, the net amount payable under the close-out netting shall be determined in accordance with the terms of the netting agreement entered into by the parties.
(2) In the absence of the netting agreement, where the parties to a qualified financial contract fail to agree on the sum with regard to the net amount payable under the close-out netting, such sum shall be determined through arbitration.
Title: Limitations on powers of administration practitioner.
The administration practitioner shall not render or seek to render ineffective,--
(a) any transfer, substitution or exchange of cash, collateral or any other interests under or in connection with a netting agreement between the insolvent party and the non-insolvent party to a qualified financial contract; or
(b) any payment or delivery obligation incurred by the insolvent party and owing to the non-insolvent party under or in connection with a netting agreement on the grounds of it constituting a preference including a fraudulent preference or a transfer for undervalue, including during a suspect period by the insolvent party to the non-insolvent party.
Explanation.--For the purposes of this clause, "suspect period" means the relevant period referred to in sub-section (4) of section 43 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) in respect of "preferential transaction" and in sub-section (1) of section 46 of the said Code in respect of "undervalued transaction".