Mere Late Submission Of Documents Proving Timely Materialisation Of Exports No Ground To Disqualify 'Export Credit': Bombay HC

The Bombay High Court has observed that the credit advanced to the exporter would 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 Court was considering a Writ-Petition challenging the interpretation of the Reserve Bank of India’s Master Circular on Rupee/Foreign Currency Export Credit & Customer Service to Exporters, dated July 1, 2015 by the Banking Ombudsman appointed by the Reserve Bank of India.

The division- bench of Justice B.P. Colabawalla and Justice Somasekhar Sundaresan observed, "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 Petitioner was Senior Advocate V. Sridharan while Respondent was represented Advocate Y.R. Mishra.

Under the Master Circular, banks 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 tonormal borrowings by clients. The export credit availed of by the Borrower was eligible for the benefit of further concessional interest due to a subvention provided by the Government of India, under an Interest Equalization Scheme notified by the Ministry of Commerce andIndustry, Government of India vide Trade Notice dated December 8, 2015. 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. The RBI had issued a circular dated December 4, 2015 on the subject, with detailed operational modalities. The maximum tenure of any export credit under the Master Circular was stipulated at 360 days. However, due to extensions granted during Covid-19 period, the maximum period applicable under the Master Circular for adjucating purpose of present petition is 450 days instead of 360 days.

At the heart of the dispute is the interpretation of one paragraph and its implication for the entire Master Circular. HDFC Bank had argued that in view of the disputed paragraph, whether exports took place within the said timeframe and whether the export credit was redeemed within the said timeframe are not sufficiently relevant. What is truly relevant is whether the export documents were provided within this period, failing which, the advances given to finance the exports would never be regarded as “export credit” ab initio i.e. right from the very first date of the advance being made.Consequently, according to HDFC Bank, since the Subvention Scheme provides Government-sponsored discount only to “export credit”, the exporter would not be entitled to any benefit of the Subvention Scheme where the advance ceases to be “export credit” ab initio.

HDFC thus had three stances, (i) exports should be made; (ii) the advances should be redeemed; and (iii) the documents proving exports must be delivered; all within 450 days.

Under the Master Circular, it argued, even a day’s delay in submission of the export documents (despite exports actually having been effected within 450 days, and the export proceeds being used to redeem the credit) would lead to the advances not qualifying as “export credit” from the date of the advance, thereby losing the benefit of the Subvention Scheme.

Out of the 107 export orders bagged by the Borrower and financed by HDFC Bank, the financing of 15 export orders, lies at the core of the controversy in the Petition. The main issue was related to the first lot, wherein with respect to four orders, the Borrower effected the exports within 450 days of the advance. However, delivery of the export documents to HDFC Bank was delayed by a few days beyond such period. Therefore, according to HDFC Bank, 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 second lot, the remaining 11 exports did not take place within 450 days of the advance – they indeed materialised well after this period. In fact, before the exports were effected, the Borrower had asked HDFC Bank to foreclose the advances relating to the Second Lot, stating that it would submit proof of the exports as and when they eventually materialise. The amount of subvention was thus reversed.

The Petitioners, in sharp contrast, submitted that under the Master Circular, there is no requirement at all for exports to materialise within 450 days – the only requirement is that the exports must actually materialise at some point of time. It was their submission that where the exports have materialised within 450 days, the exports documents could be supplied eventually without having to be given within 450 days. The Petitioners would go a step further and submit that even where export shave not materialised within 450 days, but eventually materialise thereafter, the benefits of the Subvention Scheme ought to be available for the 450-day period.

The Court disagreed with the Banking Ombudsman and HDFC Bank in relation to the reversal of subvention for export credit towards the First Lot and disagreed with the Petitioners in relation to the Second Lot. The Court found their respective positions unreasonable and arbitrary.

"In our opinion, for the reasons articulated in this judgement, the Master Circular, which is aimed at providing competitively-priced workingcapital to help Indian exporters compete with the world, requires exports to be effected within the stipulated period and the export credit to be redeemed from permissible sources such as export proceeds and purchase or discounting of export bills. A mere delay in submission of documents despite exports actually having been effected within 450 days, would not result in the credit ceasing to be “export credit”. Where the export has not materialised at all within the 450-day period, we find that the credit advanced would get disqualified as export credit. Any other view, in our opinion, would result in the very objective of the Master Circular being undermined (in relation to the First Lot) and the Master Circular becoming a device for availing of long-term cheap debt with no commitment to timely exports (in relation to the Second Lot)," the Court observed.

The Court stated that Counsels from both the sides attempted to adopt a literal and extreme reading of the specific provisions of the Master Circular in a manner that would advance their client’s respective positions

"In our opinion, the Master Circular and the Subvention Scheme, are both instruments of law that seek to implement the stated economic policy objectives. It is not drafted by legislative draftsmen who would draft subordinate law that would be tabled for review by the legislature, but by regulatory and government officials, seeking to propound a bundle of incentives and disincentives to further the State’s policy choice. Therefore, when such instruments fall for interpretation, they ought to be read purposively, contextually, and in a manner that has due regard to the text as well as context, without inflicting violence on the policy objective. If more than one view is possible in interpreting such instruments, the interpretation that would further the object and suppress the mischief sought to be addressed by them, is the one that Courts should adopt," the Court observed.

The Court was of the view that the two instruments would need to be interpreted not only with an “inter-textual” reading (whereby the consequence under one instrument would have implications for the other) but also with an “intra-textual” reading (whereby the concepts covered by various portions within each instrument would draw their meaning by necessary regard to other portions of the same instrument, as an integral inter-woven whole)

It accordingly examined the overall scope and salient features of the Master Circular and the Subvention Scheme.

"...the Master Circular partakes the character of a statutory instrument that furthers the regulatory policy objectives of the RBI. The Subvention Scheme too is in the nature of a policy on providing subsidy on the interest burden shouldered by exporters, by the Government of India through the Ministry of Commerce and Industry to help Indian exporters compete in the international markets. Since banks would have to deal with their own costs of borrowings, the Government of India took on the burden of the discount on interest. Therefore, indeed one must read these two instruments in a purposive manner. Any interpretation that undermines the policy objectives of these instruments would deserve to be shunned," the Court concluded.

The Court was unable to agree with an extreme and absolute proposition calling it patently and manifestly unreasonable and arbitrary.

"Such a reading of one of the provisions in the Master Circular in a manner that effaces the very objective of the instrument, misses the substance for the form. Such an approach undermines the regulatory objective of the Master Circular, which is to promote Indian exports,make them competitive in the world markets, and aid such exports with short-term working capital at competitive interest rates," the Court said.

"In our opinion, to hold that Paragraph 1.1.2(ii) of the Master Circular mandates that despite exports actually having materialised ithin 450 days and regardless of the proceeds being realized, even one day’s delay in submission of the export documents would be fatal to the very status of “export credit”, inflicts serious violence to the very policy objective of the Master Circular. It is trite law that in interpreting beneficial legislation, if two views are possible, the view that advances the objective of the legislation and suppresses the mischief is the view that must be adopted. Therefore, we have no hesitation in holding that the Banking Ombudsman’s endorsement of HDFC Bank’s reading of Paragraph 1.1.2(ii) of the Master Circular, is untenable and does not lend itself to acceptance", the Court stressed.

The Court, pertinently, inter-alia concluded that 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 Petition was accordingly disposed off.

Cause Title: Jindal Cocoa LLP vs. Reserve Bank of India (2025:BHC-OS:75-DB)

Appearances:

Petitioner- Senior Advocate V. Sridharan with Advocate Gopal Machiraju, Advocate Krusha Maheshwari, Advocate Ruchi Wagaralkar, Advocate Sriram Sridharan

Respondent- Advocate Y.R. Mishra, Advocate Upendra Lokegaonkar, Advocate Shailendra Y. Mishra, Advocate Prasad Shenoy, Advocate Parag Sharma, Advocate Aditi Pathak, Advocate Vijay Salokhe, Advocate Kirti Ojha, Advocate Megha More, Advocate Ankit Upadhyay, Senior Advocate Mustafa Doctor with Advocate Gaurav Mehta, Advocate Chaitanya Mehta, Advocate Amir Ali Shaikh, Advocate Tanjul Sharma, Advocate

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