An Indian court has denied relief to a jewellery exporter that asked its bank to stop payments on letters of credit (L/Cs) after its cash flow dried up as a result of business disruption caused by the coronavirus pandemic.

Rajesh Exports, which had bought gold from its subsidiary Valcambi SA on L/C terms, may appeal the Karnataka High Court's judgment.

Deferral agreed

Valcambi delivered gold ordered by Rajesh and then discounted the L/Cs with the Hong Kong and London branches of Canara Bank.

The bank continued to make payments against the L/Cs, even though the beneficiary, Valcambi, had agreed to a deferral.

Court ruling

But the court found that banks are required to comply with the Reserve Bank of India's L/C timelines, in this case a 90-day limit on L/Cs issued for gold imports.

The court also ruled that any injunction against L/Cs can only be allowed on the grounds of fraud or irreparable loss.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.