Gujarat High Court orders Bank of Baroda to refund Rs 49 lakh in hedging charges

The Gujarat High Court on 9 October 2026 ordered Bank of Baroda to refund Rs 49,24,068 that it had debited as hedging charges from the Man-Made Textile Research Association, a research society and trust serving the textile industry. A division bench held that the bank could not recover these charges because the customer had given a 110% cash margin on the basis that no forward contract would be booked. The bank must also pay 8% interest from the date of the debit until the refund.

What Happened

According to the judgment, the association imported machines from Germany, Korea and China in 2011 and 2012 and obtained three lines of credit from Bank of Baroda. The bank's sanction terms required a 100% cash margin in fixed deposits, plus an extra 10% margin if a forward contract was not booked. A forward contract locks in a future exchange rate to guard against currency swings. The court recorded that it was admitted the association kept the 110% margin and asked the bank not to book forward contracts.

When the credit lines were closed in April and May 2014, the bank debited Rs 49,24,068 as hedging charges. The bank argued that RBI instructions required hedging on rollovers and that the association's consultant had agreed to it. The court held that the RBI circulars relied on dealt with unhedged foreign-currency exposure, and that the exposure here was not unhedged because the bank already held the 110% margin. It noted that the bank had no written consent for the hedging. It also rejected the bank's objection that a contractual dispute could not be heard in a writ petition, saying the facts were admitted.

What It Means

The court held that, on the admitted facts, the bank could not recover charges for hedging that the customer had declined under the sanction terms. Its reasoning rested on the written sanction letter, the customer's renewal letters and the absence of any written consent from the customer.

Customers who believe a bank has debited charges they did not agree to can first complain to the bank and, if the issue is not resolved, approach RBI's complaint portal at https://cms.rbi.org.in.

Source: High Court judgment