1. Short title and commencement.—(1) This Act may be called the Bilateral Netting of Qualified
Financial Contracts Act, 2020.
(2) It shall come into force on such date1
as the Central Government may, by notification in the
Official Gazette, appoint, and different dates may be appointed for different provisions of this Act.
2. Definitions.—(1) In this Act, unless the context otherwise requires,—
(a) “administration” means proceedings of the nature of placing under administration and
includes imposition of moratorium, reorganisation, winding up, liquidation (including any
compulsory winding up procedure or proceeding), insolvency, bankruptcy, composition with
creditors, receivership, conservatorship or any proceedings of nature similar to or resulting in any
of the foregoing, initiated or commenced under any law for the time being in force, against a
qualified financial market participant;
(b) “administration practitioner” means the liquidator, receiver, trustee, conservator, resolution
professional or any other person or entity, by whatever name called, which administers the affairs
of a party subject to administration under any law for the time being in force;
(c) “authority” means the Central Government or any of the regulatory authorities as specified
in the First Schedule;
(d) “banking institution” means,—
(i) scheduled bank as defined in clause (e) of section 2 of the Reserve Bank of India Act,
1934 (2 of 1934); and
(ii) any other bank as the Reserve Bank of India may specify;
(e) “close-out netting” means a process involving termination of obligations under a qualified
financial contract with a party in default and subsequent combining of positive and negative
replacement values into a single net payable or receivable as set out in section 6;
(f) “collateral” means,—
(i) money, in the form of cash, credited to an account in any currency, or a similar claim for
repayment of money, such as a money market deposit;
(ii) securities of any kind, including debt and equity securities;
(iii) guarantees, letters of credit and obligations to reimburse; and
(iv) any asset commonly used as collateral under any law for the time being in force;
1. 1st October, 2020, vide notification No. S.O. 3463(E), dated 1st October, 2020 see Gazette of India, Extraordinary, Part
II, sec. 3 (ii).
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(g) “collateral arrangement” means any margin, collateral or security arrangement or other
credit enhancement related to or forming part of a netting agreement or one or more qualified
financial contracts to which a netting agreement applies, and includes,—
(i) a pledge or any other form of security interest in collateral, whether possessory or nonpossessory;
(ii) a title transfer collateral arrangement; and
(iii) any guarantee, letter of credit or reimbursement obligation by or to a party to one or
more qualified financial contracts, in respect of those qualified financial contracts; or a netting
agreement;
(h) “insolvent party” means the party to a qualified financial contract in relation to which
insolvency, winding up, liquidation, resolution, administration or similar proceedings have been
instituted under any law for the time being in force in India or under the laws of any other country,
including of its incorporation;
(i) “margin” means the amount, form and type of collateral required as a performance bond for
the purchase, sale or carrying of a qualified financial contract and includes—
(A) initial margin which protects the transacting parties from potential future exposure
likely to arise from future changes in the mark-to-market value of the qualified financial
contract during the close-out and replace the position in the event of counterparty default; and
(B) variation margin which protects the transacting parties from the current exposure that
has already been incurred by one of the parties from changes in the mark-to-market value of
the qualified financial contract after the transaction has been executed;
(j) “netting” means determination of net claim or obligations after setting off or adjusting all the
claims or obligations based or arising from mutual dealings between the parties to qualified
financial contracts and includes close-out netting;
(k) “netting agreement” means an agreement that provides for netting, and includes,—
(i) an agreement that provides for the netting of amounts due under two or more netting
agreements; and
(ii) a collateral arrangement relating to or forming part of a netting agreement;
(l) “non-insolvent party” means the party to a qualified financial contract that is not the
insolvent party;
(m) “notification” means a notification published in the Official Gazette and the term “notify”
shall be construed accordingly;
(n) “qualified financial contract” means a qualified financial contract notified by the authority
under clause (a) of section 4;
(o) “qualified financial market participant” includes,—
(i) a banking institution, or a non-banking financial company, or such other financial
institution which is subject to regulation or prudential supervision by the Reserve Bank of
India;
(ii) an individual, partnership firm, company, or any other person or body corporate whether
incorporated under any law for the time being in force in India or under the laws of any other
country and includes any international or regional development bank or other international or
regional organisation;
(iii) an insurance or reinsurance company which is subject to regulation or prudential
supervision by the Insurance Regulatory and Development Authority of India established under
the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
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(iv) a pension fund regulated by the Pension Fund Regulatory and Development Authority
established under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of
2013) ;
(v) a financial institution regulated by the International Financial Services Centres Authority
established under the International Financial Services Centres Authority Act, 2019 (50 of
2019); and
(vi) any other entity notified by the relevant authority under clause (b) of section 4;
(p) “Schedule” means the First Schedule or the Second Schedule to this Act;
(q) “title transfer collateral arrangement” means a margin, collateral or security arrangement
related to a netting agreement based on the transfer of title to collateral, whether by outright sale or
by way of security, including a sale and repurchase agreement, securities lending agreement,
securities, buy or sell-back agreement or an irregular pledge.
(2) Words and expressions used but not defined in this Act and defined in the Reserve Bank of
India Act, 1934 (2 of 1934), the Insurance Act, 1938 (4 of 1938), the Banking Regulation
Act,1949 (10 of 1949), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), the Securities and
Exchange Board of India Act,1992 (15 of 1992), the Foreign Exchange Management Act,1999 (42
of 1992), the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), the
Payment and Settlement Systems Act, 2007 (51 of 2007), the Companies Act, 2013 (18 of 2013)
the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the
Insolvency and Bankruptcy Code, 2016 (31 of 2016), shall have the meanings respectively
assigned to them in those enactments.