AI Drafter 
TaxTMI 
TaxTMI 
2026 (1) TMI 289
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....rmany and is carrying on business in India ('Defendant Bank'). 4. An 'Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit' ('IE Scheme') was launched by the Directorate General of Foreign Trade ('DGFT') and the Reserve Bank of India ('RBI') with effect from 1st April, 2015 to provide interest subvention to certain categories of exporters beyond the existing concessional rate of interest for export credit. The IE Scheme came into effect from 1st April, 2015 and was originally applicable for a period of 5 years i.e. until 31st March, 2020. 5. Under the IE Scheme, interest subvention of 3% was provided to eligible exporters, which was increased to 5% with effect from 2nd November, 2018 in respect of exports made by MSME manufacturer exporters. For non MSME manufacturer exporters, interest subvention was kept at 3%. 6. The interest subvention of 5% for MSME and 3% for others was further extended multiple times and vide Circular dated 1st July, 2021, it was further extended till 30th September, 2021. 7. In September 2021, the Plaintiff being an MSME manufacturer exporter, applied for post-shipment credit from Defendant Bank for 3 Export bills bearing nu....
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....mount calculated at 2% is on account of the 8th March, 2022 Circular issued by the RBI. On 4th July, 2022, plaintiff issued an email to the Defendant Bank seeking the refund of the debited amount. 16. Since the Defendant Bank did not refund, the present suit has been filed. SUBMISSIONS ON BEHALF OF THE PARTIES PLAINTIFF 17. In terms of clause 2(e) of the IE Scheme, the banks are required to pass on the full benefit of interest equalisation upfront, as applicable to eligible exporters and submit claims to the RBI for reimbursement. The IE Scheme states that the interest equalisation benefit should be available from the date of disbursement until the date of repayment. Therefore, the Defendant Bank is required to pass on the interest subvention upfront for the entire duration of the export credit. 18. In September, 2021 when the plaintiff applied for post-shipment credit from Defendant Bank, it was disclosed in the Collection Order that the tenor/maturity is 17th June, 2022. Therefore, the Defendant Bank knew that tenor of the credit was beyond the last date of the IE Scheme which was till 30th September, 2021. 19. The RBI Circular dated 8th March, 2022, reducing the i....
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....y for the period up to 30th September, 2021 irrespective of whether the tenure of the advance transcended beyond the 30th September, 2021. 27. The amount reclaimed by the Defendant Bank from the plaintiff was in line with the RBI Circular dated 8th March, 2022, and the clarification issued by the DGFT on 8th July, 2022. The interpretation placed by the plaintiff on the DGFT clarification and the RBI Circulars is misplaced. ANALYSIS AND FINDINGS 28. Based on the pleadings in the suit and submissions made on behalf of the counsel for the parties, the issue that arises for consideration is whether the Defendant Bank has correctly deducted the amount of Rs. 3,45,37,097/-, in terms of communication/circulars issued by the RBI and the DGFT. In other words, whether the plaintiff would be entitled to interest subvention at the rate of 5% for the entire duration of the credit or the interest subvention would stand reduced to 3% with effect from 1st October, 2021. 29. The IE Scheme was launched by the DGFT and the RBI with effect from 1st April, 2015 to provide interest subvention to certain category of manufacturer exporters. 30. By a subsequent Circular dated 29th November, ....
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....the right to modify/amend the Scheme at any time. *** *** *** (e) Banks are required to completely pass on the benefit of interest equalisation, as applicable, to the eligible exporters upfront and submit the claims to RBI for reimbursement, duly certified by the external auditor." [emphasis supplied] 35. Clause 2(e) of the IE Scheme mandates that the banks shall "completely" pass on the benefit under the Scheme to the eligible exporters "upfront". The use of the words "completely" and "upfront" indicate a sense of finality i.e., it cannot be undone at a later stage. Accordingly, during the period of the IE Scheme was in force, the eligible exporter would be entitled to the entire amount of the claim upfront, irrespective of the tenor of the credit, and the same cannot be claimed back. 36. At this stage, a reference may be made to the RBI Circular dated 8th March, 2022 (at pages 55-58 of the documents filed by the plaintiff). The relevant extracts from paragraph nos. 2, 2.2, 3 and 4 of the RBI Circular of 8th March, 2022 are set out below: "... 2. Government of India has approved the extension of Interest Equalization Scheme for Pre and Pos....
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....ircular, it does not authorise the Defendant Bank to claim benefits that are already been given by the Bank to the eligible exporters until 30th September, 2021. The 5% subvention rate was granted as an upfront discount at the time when the credit facilities were extended to the plaintiff in terms of the existing IE Scheme. The said discount could not be altered or reversed at a subsequent stage on account of change in the subvention rate in the future. The Circular dated 8th March, 2022 cannot be given effect retrospectively to recover the amounts from the plaintiff that had been paid earlier when the earlier Scheme was in force. 40. In this regard, on 16th June, 2022, the plaintiff sought a clarification from DGFT with regard to paragraph no. 2(e) of the IE Scheme issued by the DGFT (at pages 119-121 of the documents filed by the plaintiff). The relevant extracts from the clarification sought by the plaintiff are set out below: "We seek a clarification that in cases where the usance export bill was lodged with the bank on or before 30.09.2021 and the repayment date fell beyond 30.09.2021, the banks were required to pass on the complete benefit of interest equalisation....
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.... 1st, 2021 in accordance with RBI Circular ...... dated March 8, 2022." would apply only in respect of an exporter who availed the credit after 1st October, 2021 and not in respect of an exporter who had availed the credit before 30th September, 2021. 47. It is important to bear in mind that the IE Scheme was launched to alleviate the interest burden on manufacturer exporters by providing subsidised pre and post shipment rupee export credit and thereby enhance the global competitiveness of Indian exports by lowering the cost of finance. Therefore, Clause 2(e) of the IE Scheme required the banks to completely pass on the interest subvention benefit upfront to the exporters and claim the same from RBI. The position taken by the Defendant Bank would completely defeat the objective of the IE Scheme. 48. In light of the discussion above, I am unable to accept the explanation given on behalf of the Defendant Bank that the benefit was given by the Defendant Bank to the plaintiff on the assumption or belief that the Scheme would be extended beyond 30th September, 2021. If the defendant was of the view that the subvention amount has wrongly been given to the plaintiff, it would have t....
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....e exporter is found to be eligible. 51. As per Clause 2(B)(ii) of the Circular, the Defendant Bank was obliged to submit a reimbursement claim to the RBI within 15 days from the end of each month. Therefore, in the present case, the Defendant Bank was required to submit its reimbursement claim to RBI by 15th October, 2021 for the interest subvention at the rate of 5%, which amounted to Rs. 8,80,95,479/-. 52. From the written statement filed by the Defendant, it appears that the Defendant Bank raised only a partial reimbursement claim amounting to Rs.17,52,740/- on 29 October 2021, by applying the interest equalisation rate of 5% from the date of discounting up to 30 September 2021 [Paragraph 19(c) of the written statement.]. The Defendant Bank has not offered any explanation for its failure to seek reimbursement of the entire eligible amount from the RBI. 53. It was only on 10th June, 2022, 15th June, 2022 and 15th July, 2022, after the Circular of 8th March, 2022 was issued that the Defendant Bank filed its reimbursement claims with the RBI for a total amount of Rs. 4,81,14,000/-. The Defendant Bank limited its claim for reimbursement to 3% and not 5%. 54. It is inexpl....