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Infinity Law Chambers > Insights  > Key highlights of the Judicial Pronouncements on moratorium granted by Reserve Bank of India via Regulatory Package

Key highlights of the Judicial Pronouncements on moratorium granted by Reserve Bank of India via Regulatory Package

Brief analysis of Judicial Pronouncements on moratorium granted by Regulatory Package in regard to the repayments and classifications as NPAs are as below

  • Anant Raj Limited Versus Yes Bank Limited 2020 SCC Online Del 543:

The Hon’ble High Court of Delhi held that the RBI moratorium is applicable even to loans which were on default as on 01.03.2020. The Hon’ble Court observed that the RBI intended for the extension of benefit even to accounts that were included in SMA-1 and SMA-2 categories as on 01.03.2020. That is to say, even an account that is SMA-II as on the date of the effect of the RBI guidelines, it cannot be further classified as an NPA in case if the instalments have not been paid.

The Hon’ble Single Judge, therefore, passed the interim order directing the bank to restore status quo vis-à-vis the further classification of the Company’s account. However, the Court also made it clear that interest and penalty will continue to accrue and the company will be in default if the dues are not cleared after the expiration of the moratorium period.

  • Future Group Wholesale Limited & Anr. v. IDBI Trusteeship Services Limited & Ors., Commercial Suit (O) 307 of 2020:

The Hon’ble High Court of Bombaygranted an ad-interim relief to Future Group, restraining their lenders from selling the shares pledged to them. The shares, when pledged, were listed at close to INR 350 per share and fell to below INR 100 thereby severely breaching the security cover agreed with the lender causing the lender to invoke and sell the pledged shares, which has been, at least temporarily, been restrained by the order of the court.

  • Transcon Skycity Private Limited & Ors. v. ICICI Bank & Ors., MANU/MH/0520/2020:

The Hon’ble High Court of Bombay while dealing with the question that whether the moratorium period is excluded in the computation of the 90-day period for amounts that fell due prior to 1st March 2020 and which remain unpaid or in default, it was observed that the RBI document itself would prima facie indicate that this moratorium operates with effect from, that is to say it starts from, 1st March 2020, and, as currently advised, goes on up to 31st May 2020.

The Honorable High Court further passed the following order:

  1. The period of the moratorium during which there is a lockdown will not be reckoned by ICICI Bank for the purposes of computation of the 90-day NPA declaration period. As currently advised, therefore, the period of 1st March 2020 until 31st May 2020 during which there is a lockdown will stand excluded from the 90-day NPA-declaration computation and this is the condition until the lockdown is lifted. Thus, irrespective of the continuance of the moratorium until 31st May 2020, if the lockdown is lifted at an earlier date than 31st May 2020, then this protection available to the Petitioners will cease on the date of lifting of the lockdown, and the computing and reckoning of the remainder of the 90-day period will start from that earlier lifting of the lockdown-ending date.
  2. Should the lockdown be lifted before 31st May 2020, the Petitioners will have 15 days after the ending of the lockdown in which to regularize the payment under the first instalment due on 15th January 2020 and a further three weeks thereafter to regularize the payment under the second instalment due on 15th February 2020.
  3. If the lockdown extends beyond 31st May 2020, then these days will be deferred accordingly, irrespective of whether the moratorium itself is extended beyond 31st May 2020.
  4. The whole of the moratorium period is, evidently, excluded for all amounts that fall due during that moratorium period.

However, the Hon’ble High Court while passing the said order clarified that the relief to the Petitioners is co-terminus with the lockdown period, not the declared end of the moratorium and this order will not serve as a precedent for any other case in regard to any other borrower who is in default or any other bank. Each of these cases will have to be assessed on their own merits.

  • Kamal Kumar Kalia v. Union of India & Anr., Diary No. 10955/2020:

The Hon’ble Supreme Court vide order dated 30.04.2020 while declining to entertain the writ petition on the ground that the Petitioners were not borrowers, disposed off the said writ petition with direction to the Reserve Bank of India (RBI) to ensure that its circular dated 27.03.2020 on three-month moratorium on loan repayment between March 1 and May 31 is implemented in its letter and spirit.

Conclusion: A perusal of the RBI Regulatory Package and various judicial precedents it can be construed that automatic applicability of the moratorium is not the rule but rather depends upon the request preferred by the Borrowers seeking the benefit of the Regulatory Package. At the time of accepting requests of three-month moratorium from the Borrowers, Banks/ NBFCs must endeavour to explain the true essence of the Regulatory Package issued by the RBI to the Borrower and its implications thereon. The Borrowers must be duly explained that interest on the loans, though not mandatorily payable immediately, will get postponed by 3 months and as such will continue to accrue, on account of which, it will result in higher cost. Thus, resorting to such steps will help the Borrowers in making informed choices and will ultimately lead to fewer litigations.

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