Court’s altruistic approach in granting Moratorium for NPA

Transcon Skycity Private Limited Vs. ICICI Bank (Bombay High Court)

A major relief was provided to two real estate companies (“Petitioners”), Transcon Skycity Private Limited (Writ Petition LD-VC No. 28 of 2020) and Transcon Iconica Private Limited (Writ Petition LD-VC No. 30 of 2020) by the Hon’ble Bombay High Court vide its order dated 11^th April 2020 (matter heard by video conferencing), with regards to the correct interpretation of ‘Moratorium on Term Loans’ given under RBI Press Release ‘Statement on Developmental and Regulatory Policies’ dated 27^th March 2020 (“Press Release”).

Facts:

The Petitioners had taken finance facilities from ICICI Bank (“Respondent”) to be repaid in instalments fixed by a contractual agreement. Until December 2019, little/no significant default was observed on the part of Petitioners. However, the Petitioners failed to service the debt instalments of initial two months of the year 2020. In fact, the amount of default occurred on 15^th January 2020 and 15^th February 2020 has still not been paid until now.

According to the prevailing RBI circulars and notifications, if payment due is not made and the accounts are not regularised within 90 days of the date of default, then the borrower’s account gets classified as Non-Performing Assets (“NPAs”), following other consequences of the same. However, before the completion of this default period of 90 days for the Petitioners, the nationwide lockdown was announced by the Government, due to the global outburst of Covid-19 Pandemic. Amidst the lockdown, RBI came up with various circulars and Press Release stating that there has to be a moratorium period commencing from 1^st March 2020 extending upto 31^st May 2020 with regards to the repayment of loans and classification of debts as NPAs.

Issue:

The Press Release clearly states that any loan instalment due after 1^st March 2020 is entitled for complete moratorium. But what if the default is already existing even prior to the commencement of moratorium? Hence, question in the present case was, whether the moratorium period so announced is to be included or excluded in computation of the 90 days default period, for the amounts that fell due, prior to 1^st March 2020 and remain unpaid till date.

Contentions:

Thus, the Petitioners moved the Hon’ble High Court by a Writ Petition stating that if the moratorium period is not excluded from the NPA declaration period, the moratorium rationale itself would be meaningless in situations such as those of Petitioners. They also made a plea to restrain ICICI Bank from taking any coercive actions against them. They further sought the court’s declaration that they were entitled to benefits under the COVID-19 – Regulatory Package announced by RBI vide its circular dated 27^th March 2020. However, the Respondent maintained that the Court should be slow in extending any such relief by an ad-interim order, taking into consideration the unintended adverse consequences on the borrower as well as the economy.

Decision:

The single judge bench headed by Justice G.S. Patel observed that the Petitioners are twice in default and their accounts are at present classified as the Special Mention Account – 2. Having regard to the facts of this case and recognizing the need to sufficiently protect the interests of both sides, the court concluded that purpose of the moratorium and the entire rationale would be nullified if moratorium isn’t extended for accounts outstanding as on 1^st March 2020. Hence, the order was thereby passed in favour of the Petitioners that, the period of the moratorium during lockdown will not be reckoned by ICICI Bank for the purposes of computation of the 90-day NPA declaration period. Further, if the lockdown extends beyond 31st May 2020, then these days will be deferred accordingly, irrespective of whether the moratorium itself is extended beyond 31^st May 2020. It added further that in case the lockdown is lifted before 31^st May 2020, the Petitioners will have 15 days post lockdown to regularize the payment under the first instalment and a further period of three weeks thereafter, in order to regularize the payment under the second instalment. The exclusion from the 90-day NPA-declaration timer and countdown can only therefore operate during the lockdown period, full or partial, and will end upon the complete lifting of the lockdown. Thus, it can be inferred that the extended ad-interim relief to the Petitioners is co-terminus with the lockdown period, not the declared end of the moratorium.

Observation:

It was observed that concluding remarks were clarified by Justice Patel while passing the order. They are as follows:

• This order was prima facie, specific to the case, and will not act as a precedent for any other matter involving loan defaults by a borrower.
• ICICI Bank is not to be held accountable or liable for these extensions.
• This order is not a backward extension of the moratorium to January 2020.

In this period of global emergency, almost all businesses and industries are somehow adversely affected and are having a hard time keeping up with the ongoing scenario. Everyone is currently facing the ugly side of the economic downfall. Thus, recovery of loans by lending institutions in present circumstances seems not only difficult, but also unadvisable. Hence, the decision of Hon’ble High Court seems only logical. Above judgement proves that the lender is directed to extend the moratorium on all standard loans, irrespective of whether they were due as on 1^st March 2020 or before. Although there is a possibility that the order may get challenged in a higher court, but until then, financial institutions may consider such rulings to frame their policy for asset classification.