Bilateral Netting of Qualified Financial Contracts Act, 2020

By INSOL India - Editorial Team Posted On : October 29, 2020

The Bilateral Netting of Qualified Financial Contracts Act 2020 (“Netting Act”) has been enacted on September 28, 2020 with a view to facilitate financial stability by providing enforceability of bilateral netting of financial contracts. Bilateral netting allows the offsetting of claims between two parties in order to determine a net balance amount payable between them. Bilateral netting is applicable to contracts that constitute ‘qualified financial contracts’ between two ‘qualified financial market participants’ as notified by the relevant authorities provided for under the Netting Act. Such relevant authorities inter aliainclude the RBI, SEBI, and the Insurance Regulatory and Development Authority of India, and the qualified financial market participants notified by them may be a banking institution, an NBFC, an individual, partnership form or company, amongst others. 
In order to undertake bilateral netting of qualified financial contracts, the contacts must incorporate an agreement to that effect, i.e. must have an agreement for netting of amounts. The Netting Act also provides for close-out netting, which refers to the termination of obligations under the qualified financial contracts in case of default by a party or a termination as provided under the contract.