Part-II:
RBI’s Covid-19 Loan Moratorium & Judicial Responses
RBI’s
Covid-19 Interventions & Relief Measures:
The Reserve Bank of India (“RBI”), as the Central Bank
of our country, did not remain a mute witness in the face of the Covid-19
global pandemic. Taking a cue from the
various steps initiated by the Modi Government for the prevention and control
of the local transmission of the disease, the RBI for its part devised and put
in place operational and business continuity plans for the banking sector, with
a view to ensuring that one of the major critical infrastructures of any
country, is not derailed by the rapid spread of the disease. On March 16, 2020, RBI issued advisories to
all the scheduled commercial banks, local area banks, small finance banks,
payment banks, urban cooperative banks and Non-Finance Business Companies
(“NBFCs”) aimed at (a) devising strategy and monitoring mechanism concerning
the spread of the disease within the said organisations and their employees and
to prevent spread of panic amongst staff and members of the public; (b) taking
stock of critical processes and revisiting business continuity plans to prevent
any disruption of banking services due to absenteeism arising from infections
or quarantine of employees; (c)
sensitizing employees at all levels on preventive measures from time to time;
(d) encourage their customers to use digital banking facilities as far as
possible and it also called upon the sector to constitute a Quick Response Team
to monitor the situation closely from business and social perspective(1).
The RBI had since March 19 sequestered and quarantined a cross-disciplinary and critical team of 150
officials to operate from a remote location in a hotel (away from their homes
so as not to be affected by Covid-19) closer to its data centre so that it can
continue to seamless operate, issue advisories and directives to the banking
sector, maintain its oversight and control over the sector, protect its data
centres and run the entire gamut of RBI activities on a 24X7 basis without any
hindrance during the pandemic(2). In this fashion, RBI managed not only to
stay afloat without being down and drowned in the gulf of the global pandemic,
but, also managed to provide critical leadership and direction to the banking
sector in the country paving way for the continued availability and
accessibility to the banks, ATMs and their digital payment platforms even when
the entire country had remained in lockdown which is no mean an achievement
considering the massive population, technology barriers and social and geographical
challenges of our country.
RBI’s
Covid-19 Loan Moratorium Announcements:
Recognising the extraordinary and unprecedented
situation caused by Covid-19 outbreak, the RBI had been in action on an almost
daily basis to alleviate the financial stress, build confidence and keep the
financial system sound and functional.
It recognized the significance of mitigating the burden of debt
servicing brought about by disruptions on account of Covid-19 pandemic and
decided to devise moratorium on term loans; deferring interest payments on
working capital; easing of working capital financing, amongst others. In line with the same, all commercial banks
(including regional rural banks, small finance banks and local area banks),
co-operative banks, all-India Financial Institutions and NBFCs (including housing
finance companies and micro-finance institutions) (“Lending Institutions”) were
permitted by its March 27, 2020 announcement to allow a moratorium of three
months on payment of installments in respect of all term loans outstanding as
on March 1, 2020(3). The said announcement also permitted the
Lending Institutions to allow deferment of three months on the payment of
interest in respect of working capital facilities such as cash credit/overdraft
so as to collect the accumulated interest for the period after the expiry of
the deferment period. It also took care
to stipulate that the moratorium on term loans and the deferring of interest
payments on working capital shall not result in asset classification downgrade
i.e. NPA declaration or as a default for the purposes of reporting to the credit
information companies or have any adverse impact on the credit history of the
borrowers. Soon, the Indian Banking
Association clarified on April 1, 2020 that this RBI announcement will be
applicable to all term loans (including agricultural term loans, retail, crop
loans and loans under Pool Purchases) and cash credit/overdraft facilities
whose accounts were standard assets as on 1st March 2020(4).
It was also clarified that due to this relief package no penal interest
or charges will be payable to the banks and SEBI had also allowed Credit Rating
Agencies not to consider the delay as default by listed companies. Indian Banking Association also assured that
the borrowers need not get upset if any bank staff or its collection agents
approach for repayment and that all that they need to inform is that they wish
to avail the benefit of being extended under the regulatory package. It was also clarified that the RBI moratorium
will also apply to credit card dues.
In continuation to its earlier announcement dated
March 27, RBI realized that the onset of Covid-19 had exacerbated the
challenges of borrowers even to honour their commitments which had fallen due
on or before February 29, 2020 in standard accounts. Hence, it directed the Lending Institutions to
grant moratorium or deferment to all accounts which were standard as on March
1, 2020 by excluding the moratorium period from the 90-day NPA norm i.e. to
effect a standstill in the asset classification for all such accounts from
March 1, 2020 to May 31, 2020(5). In view of the extension of the lockdown and
continuing disruptions on account of Covid-19, on May 22, 2020, RBI permitted
the Lending Institutions to extend moratorium by another three months i.e. from
June 1, 2020 to August 31, 2020, both in respect of the term loans and working
capital facilities and also clarified that the asset classification would be
subject to a standstill from March 1, 2020 to August 31, 2020(6).
Covid-19
Moratorium and Judicial Responses:
While the RBI had initiated laudable relief packages
to borrowers who were having difficulty in servicing their loan obligations,
the judiciary, also rose up to the occasion and doled out reliefs
liberally. As ‘procedure is only a handmaiden
of justice’, the higher judiciary in this country accepted online writ
petitions and suits and entertained the submissions of the counsels through
video conferencing and orders were passed subject to the condition that court
fees and other filing formalities will need to be complied with by the
applicants with a timeframe after lockdown is formally lifted. In this fashion, in order to protect critical
operations and asset classifications as well as the inescapable consequences
that may befall on a borrower being declared NPA during the Covid-19 pandemic de hors the RBI announcements, the higher
judiciary moulded and granted equitable reliefs which we will trace briefly
hereunder.
Intervention
in SARFAESI proceedings during lockdown:
The Karnataka High Court intervened and granted
interim protection to borrowers restricting the banks from auctioning the
secured properties initiated under the SARFAESI Act during the lockdown period(7).
Andhra Pradesh High Court came to the rescue of a defaulting borrower
and instead of auctioning the hospital mortgaged with banks under the SARFAESI
Act which would lead to closure of its operations, the Court accepted the
request of the borrower to use the hospital alongwith their doctors and the
medical facilities available therein to treat Covid-19 patients until further orders(8). The Delhi High Court
permitted a borrower and his family with minor children who was disposed of the
secured property under SARFAESI Act to temporarily re-occupy a portion of the
secured property until lockdown is lifted(9).
Intervention
in Sale of Pledged Shares and Credit Rating Downgrade during lockdown:
The Bombay High Court restrained a debenture trustee by
way of interim injunction against the sale of the shares pledged by the
borrower when the share values had collapsed in the market during Covid-19
lockdown(10). An injunction was issued to restrain a credit
rating agency from proceeding to downgrade the credit rating of the borrower(11).
Intervention
in NPA Declaration during lockdown:
The Delhi High Court came to the rescue of a borrower by
liberally interpreting RBI’s moratorium announcement to cover default periods
falling earlier to March 1, 2020 thereby temporarily restraining the bank
against declaring such account as NPA(12). The Bombay High Court in similar
circumstances took a view to protect both the borrower and the bank’s interests
and passed interim order directing the borrower to regularize the defaulted
instalments prior to March 1, 2020 so as to take benefit of the RBI moratorium
order within a timeframe fixed by it and in the meanwhile restrained the bank
from selling the pledged shares or declare the account as NPA(13) and relying on this decision,
although a writ petition (and not a commercial suit) was preferred against a
private bank, notwithstanding the non-maintainability of writ petition and
other defects in the writ petition, the Bombay High Court once again balanced
both the borrower and bank’s interest in view of the Covid-19 and lockdown by
temporarily injuncting the bank from declaration of NPA till the lockdown
period subsists and subject to the condition that the petitioner regularize the
earlier two monthly instalments which had fallen due prior to March 1, 2020(14).
The Delhi High Court restrained byway of an interim injunction a bank from declaring
the borrower’s account as NPA as it could not collect fees from its students
during the lockdown period in view of the orders issued by the Uttar Pradesh
Government directing educational institutions not to collect fees from students
during the lockdown(15). The Delhi High Court also granted interim
injunction against the invocation and encashment of bank guarantees until such
time the National Company Law Tribunal (which had closed its sittings) resumes
its hearings in view of the lockdown(16). Telangana High Court restrained by way of
interim injunction a bank from debiting amounts due under Letters of Credit or taking other coercive steps including
imposition of ancillary interest(17). Delhi High Court once again granted the restoration
of status quo ante to a borrower’s
account rather than declaring it NPA in terms of the RBI’s moratorium announcement
by directing it to regularize the past defaults which arose in December 2019(18).
Assessment orders passed by income tax authorities in disregard to the
lockdown period and rejecting the requests for adjournment were set aside and liberty
was granted to the authorities to issue fresh showcause notices after the
lockdown is lifted by granting due opportunities to the assessee(19).
In the light of its earlier orders, the Delhi High Court once again
restrained a financial institution from taking any coercive action against the
borrower including declassification of it in relation to a factoring facility
availed by it(20). During the lockdown period, the Delhi High
Court had also restrained the disconnection of the interconnecting feeder lines
of the wind turbine generators and power generation to the pooling substation
until further orders(21). The Supreme Court had also issued a direction
to the RBI to ensure the implementation of its moratorium announcement dated
27.03.2020 in its letter and spirit(22). The Delhi High Court had also restrained a
bank in relation to the borrower (which is an NBFC having several fixed
deposits created with the bank) from not insisting on replenishment of the
amount till the next hearing(23). Delhi High Court had also directed the RBI to
permit customers during the pandemic from withdrawing their money from their
accounts by relaxing the moratorium against withdrawal from the PMC Bank(24).
Rajasthan High Court restrained a secured lender from auction and sale
of the property of the borrower in a very unusual manner to third parties despite
the borrower was willing to purchase the same(25). However, the Delhi
High Court refused to grant injunction against the encashment of bank
guarantees established on behalf of the contractor despite recognizing that
Covid-19 constitutes force majeure, since
the contractor had committed the contractual breaches and default well before
the Covid-19 pandemic arose and lockdown was imposed in the country(26).
It would be evident from the above that taking a cue
from the Modi 2.0 Government’s resolve to grant reliefs and ameliorative
measures to the borrowers during the Covid-19 pandemic, the RBI, as a
regulator, and the higher judiciary reveled each other in coming to the rescue
of the hapless borrowers who were/are bearing the brunt of the pandemic with
their businesses hit and employees affected and revenue streams having almost
dried up. It is heartening to note that
all the powers that be are working in a mission mode during this hour of
unprecedented crisis and it is only satisfying that law and its just
enforcement has not lagged behind in this regard.
End
Notes:
(1) RBI
Letter No.RBI/2019-20/172 DoS.CO.PPG.BC.01/11.01.005/2019-20 dated March 16,
2020.
(2) See https://economictimes.indiatimes.com/industry/banking/finance/banking/a-secret-rbi-team-is-fighting-a-parallel-war-against-covid-19/articleshow/74743678.cms?from=mdr
as last accessed on May 22, 2020. See
also https://www.business-standard.com/article/economy-policy/rbi-s-coronavirus-contingency-plan-keep-it-going-from-a-secret-location-120032100060_1.html
as last accessed on May 22, 2020.
(3) RBI
Governor’s Statement – Seventh Bi-monthly Monetary Policy Statement, 2019-20,
March 27, 2020 and RBI Press Release No.2019-2020/2130 dated March 27, 2020.
(4) Frequently
Asked Questions: RBI Allowed Banks to Declare Moratorium on Term Loans, issued
by Press Information Bureau on April 1, 2020.
(5) RBI
Governor’s Statement, April 17, 2020 and RBI reference No.2019-RBI/2019-20/220
DOR.No.BP.BC.63/21.04.048/2019-20 dated April 17, 2020.
(6) RBI
Press Release No.2019-2020/2392 dated May 22, 2020.
(7) Order
dated 24.03.2020 in W.P.No.6632, 6641, 6643, 6645 and 6653 of 2020.
(8) Purna Sai Hospitals vs. Syndicate Bank and
Anr. Order dated 31.03.2020 in W.P. No.8150/2020.
(9) Ajay Kumar vs. IIFL Home Finance Limited
Order dated 09.04.2020 passed in W.P.(C) 2958/2020.
(10) Rural Fairprice Wholesale Limited & Anr.
vs. IDBI Trusteeship Services Limited & ors. Order dated 30.03.2020
passed in commercial suit No.(L) 307/2020.
(11) India Bulls Housing Finance Ltd. Vs.
Securities Exchange Board of India and Anr. Order dated 03.04.2020 passed
in W.P.(C) Urgent No.7/2020.
(12) Anant
Raj Limited vs. Yes Bank Ltd. Order dated 06.04.2020 in W.P.(C) Urgent 5/2020.
(13) Order dated 07.04.2020 in Commercial Suit
No.LD-VC-7 of 2020 alongwith IA No.LD-VC-7(IA) of 2020.
(14) Transcon
Skycity Pvt. Ltd. And Ors vs. ICICI Bank and Ors. Order dated 11.04.2020
passed in W.P. Nos.LD-VC No.28 & 30 of 2020.
(15) Shakuntla
Educational & Welfare Society vs. Punjab & Sind Bank Order dated
13.04.2020 passed in W.P.(C) No.2959/2020.
(16) Ashwini
Mehra vs. Indian Oil Corporation Limited and Ors. Order dated 17.04.2020
passed in W.P.(C) No.2966/2020 & CM Appeals.10297-99/2020.
(17) Pennar
Industries Limited & Anr. vs. Reserve Bank of India and Anr. order
dated 01.05.2020 passed in I.A No.3 of 2020 in WP No.6573/2020.
(18) JR
Toll Road Private Limited vs. Yes Bank Ltd. Order dated 17.04.2020 passed
in W.P (C) No.2970/2020
(19) BT
India Private Limited vs. Income Tax Officer Order dated 22.04.2020 passed
in W.P.(C) Nos.2981 & 2984 of 2020.
(20) Eastman
Auto & Power Limited vs. Reserve Bank of India and Ors. Order dated
27.04.2020 passed in W.P.(C) No.2997/2020 & CM Appl. 10397-10399 of 2020.
(21) Vanilla
Clean Power Pvt. Limited and Anr. vs. Inox Wind Infrastructure Services Limited
Order dated 29.04.2020 passed in OMP.(I) (Comm) 103 & 104 of 2020.
(22) Kamal
Kumar Kalia vs. Union of India and Anr. Order dated 30.04.2020 passed in Diary
No.10955/2020.
(23) India
Bulls Housing Finance Ltd. vs. HDFC Bank Ltd. & Ors. Order dated
01.05.2020 passed in W.P (C) 3033/2020.
(24) Bejon
Kumar Mishra vs. Union of India & Ors. Order dated 28.05.2020 in W.P(C)
11543/2019
(25) Gyanesh
Kumar Sharma and Anr. vs. RBI & Ors. Order dated 29.05.2020 in S.B.
Civil WP No.5748/2020.
(26) Halliburton
Offshore Services Inc. vs. Vedanta Limited & Anr. Order dated
29.05.2020 in OMP(I) (Comm.) No.88/2020 & I.A.s.3696-3697/2020.
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