Delhi High Court Orders Deutsche Bank To Refund Rs 3.45 Crore To MSME Exporter

The Delhi High Court has ordered Deutsche Bank to refund Rs 3.45 crore to an MSME exporter, M D Overseas Private Limited. The court held that the bank wrongly recovered interest subvention benefits that had already been given upfront under the Interest Equalization Scheme.

A single-judge bench of Justice Amit Bansal said the bank's move defeated the purpose of the scheme. The scheme, the court noted, was meant to "enhance the global competitiveness of Indian exports by lowering the cost of finance"

The bank was directed to refund the amount with 8 percent interest from June 22, 2022, along with costs.

M D Overseas, an MSME manufacturer exporter, took post-shipment credit of about Rs 240.90 crore from Deutsche Bank in September 2021. The loans were against three export bills. At that time, MSME exporters were entitled to a 5 percent interest subvention under the scheme. The scheme was valid until September 30, 2021.

The bank applied the full 5 percent benefit upfront. It did so for the entire loan period, even though the export bills were due to mature in June 2022.

In March 2022, the Reserve Bank of India extended the scheme. It reduced the subvention rate for MSMEs from five percent to three percent. The change was stated to be effective from October 1, 2021. Relying on this, Deutsche Bank calculated a 2 percent differential and debited Rs 3.45 crore from the exporter's account in June 2022.

The bank said the RBI circular allowed the recovery. The court disagreed. “The reliance placed by the Defendant Bank on the RBI Circular dated 8th March, 2022, is completely misplaced,” Justice Bansal said.

The court said the circular did not permit retrospective recovery. “The use of the word “now” in paragraph 2.2 makes it clear that the change in rate is prospective,” the court observed.

Since the circular was issued on March 8, 2022, “it appears that the intention of RBI was to reduce interest rates prospectively from 1st April, 2022. Paragraph 3 of the Circular does not refer to reduction of rate.”

The court stressed that upfront benefits could not be taken back later. “The 5% subvention rate was granted as an upfront discount,” it said. “The said discount could not be altered or reversed at a subsequent stage.”

The court also relied on a clarification from the Directorate General of Foreign Trade. It said banks must pass on benefits upfront for disbursements made before September 30, 2021. This applied even if the loan period went beyond that date.

The court said the Interest Equalisation Scheme was meant to reduce the interest burden on exporters. The bank's stance, it said, “would completely defeat the objective of the IE Scheme.”

The court finally held that Deutsche Bank had wrongly recovered the money. It ordered a refund of Rs 3.45 crore with 8 percent interest from June 22, 2022, until payment, plus costs.