RBI Must Monitor Implementation Of Loan Moratorium Circular; Borrower Entitled To Seek Moratorium As A Matter Of Right For Continuity Of Business : Karnataka HC

The High Court of Karnataka has held that a borrower is entitled to seek loan moratorium on the basis of the Reserve Bank of India's March 27 circular, on the ground that the non-grant of it would affect the continuity of buisness.While acknowledging that the grant of moratorium as per the RBI circular is the discretion of the bank, the Court stated that it is "mandatory" for the banks to ensure that continuity of business is not affected due to the non-grant of moratorium."...though 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", observed a bench of Justice Suraj Govindaraj.The Court added that borrowers can seek the moratorium as a matter of right if they could establish that the growth and continuity of their business would be affected."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 bench added.The court also directed the RBI 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, and to 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."The contentions of the RBI that the dispute is between the Petitioner and Respondents No.5 to 7 is not acceptable since the dispute arises out of the implementation or not of a Circular issued by the RBI", the bench observed."Admittedly, there is no mechanism which created for redressal of grievance on account of improper implementation or non-implementation of the recovery package or the Circular", observed the Court, noting that pending creation of such a forum, the court would have to intervene to provide for a remedy to the aggrieved Petitioner, to give effect to the principle, Ubi jus ibi remedium.The Court directed the HDFC Bank Ltd, Federal Bank Ltd and Aditya Birla Finance Ltd to grant moratorium to the petitioner for three months from 01.03.2020 to 31.05.2020 as also for the extended period from 01.06.2020 to 31.08.2020. Further, the bench restrained these institutions from either jointly or severally recovering the loan repayment instalments/EMI due in respect of loan accounts of the petitioner during the period of moratorium. There was a further direction to reverse the recovery of loan repayment instalments/EMI already effected including that for the months of March and April, 2020 and transfer the same to the Current Account of the Petitioner.FactsThe Petitioner was 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.The Petitioner had availed term loan facilities from Respondent Nos.5 to 7 viz., HDFC Bank Limited, Federal Bank and Aditya Birla Finance Limited, totalling up to Rs.475 crores.In view of the lockdown and other measures announced by the Union of India and the State Government, the Petitioner was constrained to shut down its hotel business since the same could not be carried out adhering to the social distancing. However, the Tech Park was being functioned by the tenants of the Tech Park by following the applicable laws. In view of the shut down of the hotel business, the revenues of the Petitioner was adversely effected and as such, the Petitioner applied to Respondents seeking for grant of moratorium "However, Respondent No.5-HDFC Bank vide its letter dated April 6th 2020 had informed the Petitioner that there were rentals which were being received by the Petitioner from the Tech Park, hence the moratorium could not be extended to the Petitioner and therefore rejected the said application", records the Bench.The judgment further narrates that Respondent No. 5 post rejection of the moratorium application made by the Petitioner, debited the amounts due to it from and out of the Escrow Account wherein the lease rental amount were being deposited by the concerned tenants. This was also followed up with similar debiting by Respondent No.6, debiting being made for the EMIs payable for the months March and April, 2020.Subsequently, Respondent No.7 informed the Petitioner that its loan was secured by way of a pari passu charge and though a request had been...

RBI Must Monitor Implementation Of Loan Moratorium Circular; Borrower Entitled To Seek Moratorium As A Matter Of Right For Continuity Of Business : Karnataka HC

Mehal Jain

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