Introduction
Derivative is a financial contract that derives its value from a
specific market reference, such as a common stock, index, interest
rate, commodity, or currency. Derivatives are one of the three main
categories of financial instruments; the other two includes
equities and debt. Derivative transactions include a variety of
financial contracts, including structured debt obligations and
deposits, swaps, futures, options, caps, floors, collars, forwards,
and various combinations thereof. Derivative contracts are entered
either for risk management or for speculation and, therefore either
of the contractual parties can be obligated to make payment to the
other depending on the value of the underlying asset. The most
crucial legal question that arises in such derivative transactions
is whether the relationship of the parties can be construed as that
of a lender and borrower and, consequently whether the Master
Circular issued by RBI dated July 1, 2008 on
