2015 RBI Master Circular | Mere Delay In Submitting Export Documents Wouldn't Disqualify Credit Advanced As 'Export Credit': Bombay High Court

Interpreting Reserve Bank of India's (RBI) 2015 Master Circular on Rupee/Foreign Currency Export Credit & Customer Service to Exporters, the Bombay High Court said that a delay in submitting export documents despite the export taking place within the given time, would not result in the credit ceasing to be an 'export credit'.As per the Master Circular, banks can extend credit to their clients who are exporters, at a special interest rate applicable to export credit, which is lower than the standard interest rates applicable to normal borrowings by clients. The maximum tenure of any export credit under the Master Circular is 360 days. However, due to Covid-19 pandemic, the RBI on May 23, 2020 extended the maximum permissible tenure of export credit to 450 days.The export credit availed of by the Borrower was eligible for the benefit of further concessional interest due to a subvention (grant) provided by the Government of India, under an Interest Equalization Scheme notified by the Ministry of Commerce and Industry, Government of India (Respondent No. 2) vide Trade Notice dated December 8, 2015 (Subvention Scheme). The Government of India would bear the value of the further discount on the interest rate, through a mechanism put in place by the RBI to administer it. A division bench of Justice B.P. Colabawalla and Justice Somasekhar Sundaresan in its order said:"The maximum tenure of pre-shipment credit under the Master Circular is 360 days (extended to 450 days during the Covid-19 pandemic) and exports have to materialise within such period; If exports materialise within such period and export documents demonstrate that the exports have materialised, the credit advanced to the exporter would indeed not be disqualified for being treated as “export credit”, merely on the ground that the export documents that prove the timely materialisation of exports were submitted late; The period of delay in submission of export documents would not be fatal to the treatment of the advances as “export credit” – what is vital is that the export documents ought to prove that exports took place within the stipulated period". The court was considering a petition by Jindal Cocoa LLP and its two partners' challenging the interpretation of the Reserve Bank of India's Master Circular by the Banking Ombudsman (Respondent No.3) appointed by the Reserve Bank of India. The Banking Ombudsman dismissed the Petitioners' grievance against the very same interpretation that had been taken by HDFC Bank Limited. Jindal Cocoa LLP, is a limited liability partnership engaged in the business of exporting cocoa and cocoa products. HDFC Bank (respondent no. 4) had extended Indian Rupee-denominated pre-shipment credit by way of a running account facility under the Master Circular to Jindal Cocoa. Out of the 17 export orders, four export orders ('First Lot'), were effected by Jindal Cocoa within 450 days of the bank's advance. However, the delivery of the export documents to HDFC Bank was delayed by a few days.Due to the delay, HDFC Bank stated that the entire set of advances that financed the First Lot ceased to qualify as “export credit” ab initio, and therefore, the full amount of subvention relating to the First Lot ought to be reversed. With respect to the remaining export orders ('Second Lot'), the exports did not take place within 450 days of the advance. HDFC Bank thus reversed the subvention amount.Jindal Cocoa filed a complaint with the Banking Ombudsman (respondent no. 3) against the subvention reversals for the First Lot and the Second Lot. However, the Banking Ombudsman rejected its complaint and endorsed the view taken by the HDFC Bank that the export documents ought to be filed within the time limit of 450 days, failing which the credit would cease to be export credit.First Lot- Delay In Submitting Export Documents Would Not Disqualify Credit As Export Credit The Court was of the view that disqualifying credit advanced due to delay in submission of the export documents would go against the very policy objective of the Master Circular.It observed that the purpose of providing export documents is to prove that exports took place within the required time. It remarked that advances not being considered as export credit for delivering the export documents a few days after the required period amounts to saying that the exports never took place. It held that the provision in the Master Circular to provide such documents within 360 days is a 'directory requirement' and not a mandatory one. It also noted that as pet the Master Circular the delay in submitting the export documents would attract interest at the normal interest rate along with penal interest.The Court stated that HDFC's interpretation undermines the regulatory objective of the Master Circular, which is intended to promote Indian exports and make them competitive in the world markets by providing short-term working capital finance.The Court further noted that the Master...

2015 RBI Master Circular | Mere Delay In Submitting Export Documents Wouldn't Disqualify Credit Advanced As 'Export Credit': Bombay High Court

Sanjana Dadmi

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