2016 (5) TMI 776 - HC - Customs

Entitlement to extension of EPCG licence - Export licence had expired prior to the policy spoken of by the petitioner - Recovery of certain claims - Petitioner submitted that BIFR has extended the export obligations for a period of ten years from March 31 2008 and the scheme sanctioned by the BIFR is under implementation. Therefore it is binding upon the respondents - Held that - the authorities will look into the performance of the first petitioner in respect of the EPCG Licence subsequent to the expiry of the period sanctioned by the BIFR i.e. ten years from March 31 2008. The authorities will be at liberty to take such steps against the petitioners in respect of its obligations under such licence if the petitioners have failed to discharge such obligations. Security for the event of default - in fulfilling the obligations under the licence within the extended time - Petitioner submitted that relevant circulars of the department allow the petitioner to furnish security by way of a bank guarantee. Also the bank guarantee in question has been renewed on May 3 2016 and is in terms of the General Exemption No. 56 and the Circular No. 52/95 the same should be allowed to be accepted. Moreover as the petitioner being a sick company it would be harsh and burdensome if it is directed to put in cash security. Held that - the petitioner has obtained the bank guarantee by furnishing cash security to the bank issuing the bank guarantee. Therefore the petitioner is in a position to put in a cash security with the bank concerned to obtain the bank guarantee. The plea of undue hardship is not available to the petitioner in such circumstances. Moreover the present bank guarantee is valid upto March 31 2019. In the event of the authorities not making any demand within such period of time the petitioner will be entitled to take the plea that the bank guarantee is no longer valid. In such eventuality the State Exchequer ultimately suffers. Conversely if money is allowed to be deposited with the authorities the same will enure to the benefit of all the parties. The petitioner will receive refund of the money deposited in the event it is found to be refundable. However in the event the petitioner is found to be a debtor to the authorities then the money lying with the authorities can be adjusted against such claim without any further action. Invoking the bank guarantee and receiving the payment entails further proceedings and allows a party furnishing the bank guarantee to indulge in further litigation. If a banker issues a bank guarantee without taking 100% cash security in respect thereof then such banker is extending a credit facility out of public money. If such a bank guarantee is invoked then the public money stands to be jeopardized. Such a scenario is not healthy. A private party should not be allowed to do its business on the strength of public money. Therefore the petitioner will deposit a cash security with the authorities as security for the subject licence. - Petition disposed of

Issues:
1. Extension of export license entitlement under Import and Export Policy.
2. Validity and renewal of bank guarantee for securing authorities' claim.
3. Interpretation of General Exemption No. 56 and Circular No. 52/95 regarding security requirements.
4. Consideration of cash security vs. bank guarantee for fulfilling export obligations.
5. Implications of bank guarantee on public money and potential risks.

Extension of Export License Entitlement:
The petitioner sought a declaration for an extension of the export license in accordance with the Import and Export Policy, as approved by the Board for Industrial and Financial Reconstruction (BIFR) in a scheme for rehabilitation. The BIFR sanctioned a scheme granting the petitioner ten years from March 31, 2008, to fulfill export obligations under the license.

Validity and Renewal of Bank Guarantee:
The petitioner argued that a bank guarantee, as per General Exemption No. 56 and Circular No. 52/95, adequately secured the authorities' claim. The petitioner renewed the bank guarantee up to March 31, 2019, to cover the obligations. However, subsequent events raised concerns about the sufficiency of a bank guarantee as security.

Interpretation of Security Requirements:
The court analyzed General Exemption No. 56 and Circular No. 52/95, noting that while bank guarantees were permissible, other forms of security could be required. The petitioner's reliance on the BIFR reference to avoid cash security in favor of a bank guarantee was deemed misplaced.

Cash Security vs. Bank Guarantee:
Considering the risks to the State Exchequer and potential misuse of public money, the court directed the petitioner to deposit cash security of a specified amount with the authorities instead of relying solely on the bank guarantee. The court emphasized the importance of safeguarding public funds and preventing undue financial risks.

Implications on Public Money and Risks:
The court highlighted the potential risks associated with issuing bank guarantees without full cash security, cautioning against jeopardizing public funds. It emphasized the need for private parties to bear the financial responsibility adequately and not rely solely on public money for credit facilities.

In conclusion, the court directed the petitioner to deposit cash security with the authorities within a specified timeframe, emphasizing the importance of financial prudence and protecting public funds. The judgment highlighted the balance between fulfilling obligations and ensuring adequate security measures to prevent financial risks and misuse of public resources.

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