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

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 Circular and the Subvention Scheme, under which the Government of India subsidizes Indian Rupee-denominated export credit, must be read purposively so as to not undermine the policy objectives of these instruments.

Noting that the interpretation that furthers the objective of beneficial legislation must be adopted, the Court held that the Banking Ombudsman's decision was incorrect in rejecting Jindal Cocoa's complaint for the First Lot.

“In our opinion, to hold that Paragraph 1.1.2(ii) of the Master Circular mandates that despite exports actually having materialized within 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 thus directed HDFC Bank to rectify the reversal of the subvention pertaining to the First Lot within four weeks.

Second Lot- When Export Doesn't Take Place Within 450 Days Credit Advanced Is Not Export Credit

With respect to the Second Lot, Jindal Cocoa contended that there is no requirement in the Master Circular that the exports have to materialise within 450 days. It argued that the only requirement is that the exports must actually materialise at some point of time.

The Court however disagreed with this contention and remarked that accepting such view would be against the policy objective of the Master Circular.

“In our opinion, such a reading would lead to the Master Circular enabling longterm debt capital to exporters at special rates coupled with subvention, which is not at all the policy objective evident from the two instruments in question. Such an interpretation too would undermine the objective of the Master Circular and further the mischief sought to be curtailed, instead of furthering the objective and suppressing the mischief.”

It observed that holding there is no requirement for exports to materialise within 450 days would warrant waiting for 'eternity' to see if the exports take place.

“Any other reading would entail waiting, arguably for eternity, to see if the exports actually materialise. Such a reading too would make a mockery of the finely-balanced regulatory framework implemented in the Master Circular.”

The Court thus held that when the export has not taken place at all within the 450-day period, the credit advanced would not be considered as export credit.

With these observations, the Court disposed of the petition.

Case title: Jindal Cocoa LLP & ors. vs. Reserve Bank of India & ors. (Writ Petition (L) No. 8980 Of 2024)

Citation: 2025 LiveLaw (Bom) 5