Velankani Information Systems Limited Vs Secretary, Ministry of Home Affairs Government of India (Karnataka High Court)
The issue under consideration is whether denying to grant moratorium by banks regarding payment of all term loan installments during lockdown is justified in law?
In the present case, the petitioner is the owner of a Technology Park and a five-star hotel in Bangalore. The Petitioner had availed term loan facilities from Respondent Nos. 5 to 7 viz., HDFC Bank Limited, Federal Bank and Aditya Birla Finance Limited. The business had to be closed down owing to the nation-wide lockdown. The person approached the banks for availing the moratorium in pursuance of the March 27 circular of RBI which granted a moratorium on the payment of installments of term loans taken by borrowers for a period of three months. However, such a request was denied by all the banks ans financial sector.
High Court states that, the Circular issued by the RBI dated 27.03.2020 is discretionary in so far as the power to grant or not a moratorium by a bank, it is mandatory for the Bank to ensure the continuity of viable businesses, in that, the non-grant of a moratorium should not result in adversely affecting the survival and continuity of a viable business. The understanding of the banks by reference to their respective answers to the FAQ’s is also in line with the above. All borrowers are eligible to seek for a moratorium, if a borrower were to seek for grant of a moratorium on the ground that continuity of its business would be affected and establish the same, the borrower would as a matter of right be entitled for the grant of moratorium so that such continuity is not adversely affected. The contentions of the RBI that the dispute is between the Petitioner and Respondents is not acceptable since the dispute arises out of the implementation or not of a Circular issued by the RBI. RBI is therefore directed to monitor the implementation of the Circular, including verification of whether there are Board-approved policies formulated by each of the lenders, direct all the banks to submit the Board-approved policies for approval to the RBI, to approve such board-approved policy, verify if such a board-approved policy contains objective criteria, set up a proper and effective grievance redressal forum for any aggrieved borrower to approach on account of the improper or non-implementation of the Policy and/or Circular etc.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. The Petitioner is before this Court seeking
1.1. for directions to Respondent Nos.1 to 4 to enforce the Regulatory Package announced by the Reserve Bank of India (RBI, for short) in letter and spirit
1.2. for quashing and setting aside the decision of Respondent No. 5-HDFC Bank as per communications dated 06.04.2020 and 08.04.2020, the decision of Respondent No.6 as per communication dated 28.04.2020, the decision of Respondent No.7 as per communication dated 24.04.2020 and 22.02.2020,
1.3. a direction to Respondent Nos. 5, 6 and 7 to grant moratorium as regards payment of all term loan instalments falling due.
1.4. consequently to restrain Respondent Nos.5 to 7 from recovering loan repayment instalments/EMI due in respect of Loan Account Nos. 009LN18173530003 and 009LN18173530002 of Respondent No. 5, Loan Account Nos.14377600006908 and 14377600006916 of Respondent No. 6 and Loan Account Nos.80001471 and 80001472 of Respondent No.7 in any manner;
1.5. to direct Respondent No. 5 to reverse the recovery of EMI of Rs.3,45,47,459.96 effected for March and April 2020 and Respondent No. 6 to reverse the recovery of EMI of Rs.2,29,48,565/- effected for March and April 2020
1.6. To direct the Respondents to transfer forthwith as and when received, all the credits corresponding to loan repayment instalments/EMIs for March, April and May 2020 into Escrow account Nos. 5750000106944 and 57500000286555 (maintained with HDFC Bank Limited), to the Petitioner’s current account No. 57500000131681 (maintained with HDFC Bank Limited).
2. The facts, according to the Petitioner, are as under:
2.1. The Petitioner had availed term loan facilities from Respondent Nos. 5 to 7 viz., HDFC Bank Limited, Federal Bank and Aditya Birla Finance Limited, out of which, a sum of Rs.190.57 crores was advanced by Respondent No. 5-HDFC Bank, Rs.124.43 crores by Respondent No. 6-Federal Bank and Rs. 160 crores by Respondent No. 7-Aditya Birla Finance Limited totalling up to Rs.475 crores. According to the Petitioner, the Petitioner is in the business of running an Information Technology Park (Technology park or Tech Park) and a 5 star Hotel, both of which have been constructed on the land belonging to the Petitioner.
2.2. In order to service the aforesaid loan, there is an agreement arrived at between lenders i.e., the Respondent Nos.5 to 7 that the revenue from the lease rentals of the Technology Park would be credited into Escrow Account No. 57500000106944 and revenue from the Petitioner’s hotel business would be credited into Escrow Account No. 57500000286555. Respondent Nos.5 and 6 were entitled to appropriate the Equated Monthly Installment (EMI, for short) payable on the loans due to them from the Escrow Account where the lease rentals were deposited; the excess rental was to be released from the Escrow Account to the current account of the Petitioner for utilisation by the Petitioner to meet its expenses. Similarly, the revenue arising out of the hotel business was to be deposited in the Escrow Account relating to the hotel business, from and out of which, the Petitioner was entitled to draw monies to its current account on a daily basis for use in connection with its hotel business and from the balance, make payment of the equated monthly instalment on the loan borrowed on account of the hotel business to Respondent No.7 on the due date that it 13th of every month.
2.3. A pari passu first charge by way of hypothecation of all securities, including the Petitioner’s cash flows and receivables, rentals from the Technology Park as also the revenues from the hotel business without exception were created in favour of all the Banks viz., Respondent Nos.5 to 7. It is the case of the Petitioner that the Petitioner is regular in repaying the loan amounts and all the EMIs are current in payment. Therefore, the loan account of the Petitionerare standard account, there is no default on the part of the Petitioner in the repayment of any amount due to any of Respondent Nos. 5 to 7.
2.4. At this stage, due to the unfortunate spread of Novel Corona Virus – 19 (“N-Covid-19”), the Government of India invoked the Disaster Management Act, 2005 (“DMA”, for short) by its order dated 24.03.2020. Directions were issued to all the Ministries, Departments of Government of India/State, Union Government and State/Union Territory authorities to take effective measures so as to prevent the spread of N-Covid 19.
2.5. On the very same day, the Secretary, Ministry of Home Affairs, Government of India also issued guidelines under the provisions of DMA as regards the measures to be taken for containment of N-Covid 19 in the country which included a direction for the closure of all commercial and private establishments, suspension of transportation, etc.
2.6. Thereafter from time to time, the Government of India as also the various State Governments have been, under the DMA, issuing directions as regards maintaining of social distancing, closure or restrictive operation of private and public enterprises/establishments etc., These directions being required to be followed by one and all including the Petitioner, its employees, tenants and the persons availing services of the Petitioner, the non-following would result in punitive action under the DMA.
2.7. The RBI acting with alacrity realising the potential disturbance that could be caused to the economy and institutions across the country vide a press release dated 27.03.2020 set out the various development and regulatory policies to address the stress in the financial condition caused by N-Covid 19 so as to ease the financial stress.
2.8. One of the modes for doing so was by relaxing the repayment pressures on the borrowers and by improving access to the working capital by such borrowers. Realising that much of the economic establishment across the country would not be able to operate on account of social distancing, lockdown, the prohibition of transportation, etc., as also realising that there would not be many economic activities and/or revenue generated therefrom, RBI had also proposed a moratorium for a period of three months on the repayment of all loans by way of instalments in respect of loans outstanding as on March 1st, 2020 to be provided by all commercial Banks (including regional rural Banks, small finance Banks, local area Banks), Co-operative Banks, All India Financial Institutions and NBFCs (including Housing Finance Companies and Micro Finance Institutions) – for brevity referred to as lending institution/s.
2.9. On the very same day, the RBI issued a Circular dated 27.03.2020 which contains detailed instructions as regards the above Regulatory Package permitting the aforesaid lending institutions to grant a moratorium of three months on payment of all term loan instalments falling due between March 1st 2020 and May 31st 2020. Para 2 relating to rescheduling of payments for term loans and working capital facilities would be relevant according to the Petitioner and the same is extracted hereinbelow.
“2. In respect of all term loans (including agricultural term loans, retail and crop loans), 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) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments falling due between March 1st, 2020 and May 31st, 2020. The repayment schedule for such loans as also the residual tenor will be shifted across the Board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.”
2.10. Para 4 relating to Easing of Working Capital Financing is reproduced hereinbelow:
“4. In respect of working capital facilities sanctioned in the form of CC/OD to borrowers facing stress on account of the economic fallout of the pandemic, lending institutions may recalculate the ‘drawing power’ by reducing the margins and/or by reassessing the working capital cycle. This relief shall be available in respect of all such changes effected up to May 31st, 2020 and shall be contingent on the lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from COVID-19. Further, accounts provided relief under these instructions shall be subject to subsequent supervisory review with regard to their justifiability on account of the economic fallout from COVID-19.”
2.11. The manner and methodology of the moratorium being extended is in terms of Para 8 which comes under the heading Other Conditions. It is extracted hereunder:
“8. Lending institutions shall frame Board approved policies for providing the above mentioned reliefs to all eligible borrowers, inter alia, including the objective criteria for considering reliefs under paragraph 4 above and disclosed in public domain.”
2.12. Subsequent to and in furtherance to the said Circular issued by the RBI, the Press Information Bureau, Government of India, Ministry of Finance published the answers to the frequently asked questions given by the Indian Bank Association on April 1st 2002. The relevant questions and answers for the present matter according to the Petitioner are question Nos.1, 2, 3 and 14 which are extracted hereinbelow:
“QUESTION 1: When/what was the RBI announcement?
ANSWER: Last week, the Reserve Bank of India announced a three-month moratorium on all term loans outstanding as on March 1st, 2020, as well as on working capital facilities.
QUESTION 2” Why has RBI announced the relief package?
ANSWER: Reserve Bank of India has announced certain regulatory measures to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. It was felt that there may be a temporary disruption in the cash flows, and in some cases loss of income, for the businesses/individuals and the present measures work to bring relief to those businesses/individuals.
QUESTION 3: Which are the facilities eligible for availing the benefits under the RBI COVID-19 regulatory package and whether the facility is extended across the Board to all borrowers?
ANSWER: All term loans (including agricultural term loans, retail, crop loans and loans under Pool Purchase) and cash credit / overdraft are eligible to avail the benefits under the package. This is available to all such accounts, which are standard assets as on March 1st 2020. Further, to avoid unnecessary paperwork the facility has been extended across the Board to all the borrowers by extending repayment of term loan installments (includes interest) by 90 days. The original repayment period for term loans will get extended by 90 days e.g. a loan repayable in 60 installments maturing on March 1st 2025 will mature on 1st June 2025.
QUESTION 14: Will all these measures of RBI be treated as “restructuring”? What about eh provisions applicable?
ANSWER: The measures stipulated by RBI under the March 27th, 2020 Circular on COVID-19 Regulatory package will not be treated as “restructuring” and hence will not result in assets classification downgrade. Accordingly, the enhanced provisions for Restructured Accounts will not apply.”
2.13. The said answers by the Indian Bank Association to the frequently asked questions were also accompanied by the answers by some of the Banks to those and some other frequently asked questions, which are web-hosted on the web site of the respective banks. Some of the answers are extracted hereunder:
2.14. HDFC – 5th Respondent
“RBI Covid-19 Regulatory Package: EMI Moratorium
These are unprecedented times and it is a time that we need to be together to fight this COVID-19 crisis.
In line with the RBI guidelines and to show our solidarity in standing with you, HDFC Bank is offering its customers EMI moratorium and credit card outstanding moratorium as a relief measure.
1. What is the EMI moratorium provided for loans under COVID 19- regulatory package?
The prevailing situation may pose a huge challenge for people at large. As a measure of solidarity, RBI has permitted all Indian Banks/Indian Financial Institutions to offer it’s customers up to 3 months moratorium on their EMI payments falling due between March 1st, 2020 to May 31st, 2020.
2. Who is eligible?
All HDFC Bank customers who have availed of retail instalment loan or any other retail credit facilities prior to March 1st 2020 are eligible.
Customers having overdues prior to March 1st 2020 may also opt for the moratorium, and their requests shall be considered by the Bank based on its merits.
All Agri Loans (Kisan Gold Card) and Microfinance customers under the Bank’s Sustainable Livelihood Initiative are also eligible.
All Corporate as well as SME customers are also eligible. Our Relationship Managers will get in touch with you or you can contact them to get further details.
2.15. Federal Bank – 6th Respondent
FAQs – COVID 19 RELIEF PACKAGE PRADHAN MANTRI GARIB KALYAN PACKAGE: The Reserve Bank of India has announced a regulatory package on March 27th, 2020, permitting Bank’s to allow a one-time rescheduling of payments in terms loans and deferment of interest in working Capital facilities, to mitigate the burden of debt servicing on account of the fall-out of COVID-19 pandemic and to ensure the continuity of viable businesses.
Federal Bank is pleased to extend the benefits of moratorium to our customers in line with the RBI guidelines. The details are given below.
Term Loans
a) Term Loans coming under Business Loans, Retail Loans & Agricultural Loans outstanding as on 01st March 2020 with repayment either in installments/bullet are eligible (The processes for each segment of customers is provided separately)
b) Moratorium shall be extended to term loans is standard status as at the end of February 29th 2020.
c) Moratorium shall be applicable for the installments and interest payments falling due between 01st march 2020 and May 31st 2020.
d) Interest shall continue to accrue on the outstanding balance of term loans during the moratorium period at the contracted rate.
e) If a customer opts for moratorium, repayment schedule for the account shall be shifted/tenor will be increased.
f) The revised installment/EMI to be remitted by the customer after moratorium shall be inclusive of the interest accrued during the moratorium period.
g) If any customer, whose account was standard as at the end of February 29th 2020, requests for reversal of installment/EMI deducted, if any, after March 1st 2020, the same will be refunded within a reasonable time.
h) Installments, for the purpose of moratorium will include the following payments falling due from 01st March 2020 to May 31st 2020.
