Timely submission of export documents is crucial for maintaining export credit eligibility, but minor delays do not negate export credit status if exports were made within the permissible period.

JUDGMENT :

Somasekhar Sundaresan, J.

1. Rule. Rule is made returnable forthwith. Respondents waive service. By consent, heard finally.

Introduction:

2. This Petition essentially challenges 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 (“ Master Circular ”) by the Banking Ombudsman (Respondent No.3) appointed by the Reserve Bank of India (Respondent No.1, “ RBI ”). The Banking Ombudsman dismissed the Petitioners’ grievance against the very same interpretation that had been taken by HDFC Bank Limited (Respondent No.4, “ HDFC Bank ”).

3. Jindal Cocoa LLP (“ Borrower ”), is a limited liability partnership engaged in the business of exporting cocoa and cocoa products. HDFC Bank had extended Indian Rupee-denominated pre- shipment credit by way of a running account facility under the Master Circular to the Borrower. The Borrower, along with its two partners Mr. Vijay Jindal and Ms. Jayshree Vijay Jindal, are collectively the Petitioners.

Regulatory Context and Background:

4. 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 to normal 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 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. The RBI had issued a circular dated December 4, 2015 (“ RBI Circular on Subvention ”) on the subject, with detailed operational modalities.

5. The maximum tenure of any export credit under the Master Circular was stipulated at 360 days. On May 23, 2020, owing to the outbreak of the Covid-19 pandemic, the RBI extended the maximum permissible tenure of export credit from one year to 15 months i.e. a further 90 days was allowed, which would lead to the permissible period expanding from 360 days to 450 days. At the time of the original sanction of the advances, and at disbursement, differing tenures had been envisaged between the parties, but the period of the credit was extended to the maximum permissible limit under the Master Circular. For all purposes of adjudicating this Petition, the maximum period applicable under the Master Circular is 450 days (instead of 360 days) and inter-changeable references are made.

6. At the heart of the dispute is the interpretation of one paragraph and its implication for the entire Master Circular. It is placed in the section that deals with tenure of pre-shipment credit – Paragraph 1.1.2 (ii), reads thus:-

(ii) If pre-shipment advances are not adjusted by submission of export documents within [360] [As stated earlier, this period would be 450 days for all purposes of this Petition] days from the date of advance, the advances will cease to qualify for prescribed rate of interest for export credit to the exporter ab initio.

[Emphasis Supplied]

7. HDFC Bank has argued that in view of the aforesaid 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 Subvent