Background: The trigger point was request by the 2 export client comprising 3 export bills for additional time for payment of export discounted bills. Application of extension of due date was given by exporter to bank and bank did extend the due dates. However, bank crystallised the bills for limiting Forex exposure immediately on expiration notional due date. The buyers were covered by ECGC guarantee by way of policy between the exporter & ECGC. The terms of FBD sanction limit stipulated that bank would discount only those export bills whose buyer is covered under ECGC guarantee. Further, as per credit sanctioned terms bank would obtain whole turnover Post shipment and preshipment ECGC cover for sanctioned advances to the exporter.
Due to non-payment of export bill on notional due date, even when the accounts were standard, the bank took various measures which resulted in stoppage of flow of funds:
A. They suspended Forex bill discounting facility even though there was sufficient balance in limits sanctioned.
B. Two payments received from non defaulting export customers by way of advance & other for payment for bills sent on collection was refused to be credited to any account on pretext of adjusting towards outstanding export discounted bills. (These payments are not reflected in export bills discounting account submitted by bank to DRT).
C. They debited the cash credit account for Rs. 1.80 Lacs on 20th March on pretext of adjusting towards Export bills outstanding because we gave letter to them to clear interest / EMI dues in all accounts due till March end, the balance sheet. (This payment is not reflected in export bills discounting account submitted by bank to DRT).
D. In Jan, bank refused to renew the working capital credit facilities which were due 3 months back. However, they renewed the Machinery term loan a/c’s.
E. The branch did not maintain “Export Bills register”. Therefore, they had no proper records of payment received and outstanding against each bill, due and overdue dates of each bill, application of normal and overdue interest rates, etc. Due to this, the bank always demanded inflated outstanding “crystallised Liability” as a precondition for taking measures to permit flow of funds? The buyers had paid 50% of the bills on extended due date and had asked for further time.
F. The exporter filed final claim with ECGC for balance outstanding amount through the bank.
Immediately thereafter, in April the bank classified all accounts as NPA due the balance outstanding in “Crystallised Liability” and within 30 days served Sarfaesi act 13(2) notice and its 60 days expiration served 13(4) possession notice.
The above measures taken by bank resulted in stoppage of flow of funds which eventually resulted in sickness and closure of the SSI – EOU unit.
After Sarfaesi act notices, based on Bank’s written promise of revival of funds on clearing the “crystallised Liability” and other overdues, the exporter did clear the dues repeatedly but the bank backed out each time and adjusted the payments to wipe out Principal amounts and kept interest outstanding.
After 1 year, ECGC paid the bank the proceeds of the exporter’s claim which was settled for full amount.
Thereafter, bank sold the mortgaged properties under Sarfaesi act and has filed OA at DRT for balance amount recovery from Exporter and guarantors.
1. In view of the above measures taken by bank to stop flow of funds, under which clause for breach of contract of Indian Contract act can the exporter and also the guarantors now file their defense?
2. The action by bank in ‘B’ above – can it be termed as ‘misappropriation of funds’ by bank officials??
3. The action by bank officials in ‘C’ above – can it be termed as ‘Siphoning of funds’??
4. Can there be a case of ‘Breach of Trust”
5. Who is responsible to maintain the “Export Bills register” – The branch or Forex dept??
I am a friend of the exporter and seek legal advice urgently.