The Karnataka High Court on Wednesday ruled that a writ Petition under Article 226 of the Constitution of India is maintainable against private banks as regards implementation of the loan moratorium announced by the Reserve Bank of India in the wake of lockdown.
Immediately after Lockdown 1, the RBI issued a Circular dated 27.03.2020 permitting all lending institutions - 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) - to grant a moratorium of three months on payment of all term loan instalments falling due between March 1st 2020 and May 31st 2020.
"What is to be seen here is whether the prayers sought for by the Petitioner for implementation of the Circular issued by the RBI would amount to the enforcement of any statutory obligations or obligations of public nature casting a positive obligation upon Respondent banks", observed the Bench of Justice Suraj Govindaraj.
The Single Judge was of the view that the said Circular having been issued "to protect and preserve the economy of the country on account of the COVID 19 pandemic", the issuance of the Circular is "in the public interest, interest of the economy and the country".
The 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 made by the Petitioner to all three lenders, Respondent Nos.5 and 6 had been unilaterally appropriating the dues from the rents received from the Technology Park without sharing any portion of the cash flow with Respondent No.7. They suggested that they could consider the request of the Petitioner for moratorium along with other lenders provided Respondent No.5 shares the cash flow in the escrow account proportionately.
When the complaint filed by the Petitioner before the Banking Ombudsman was taken up, the Federal Bank-Respondent No.6 submitted that in principle it has no objection for extension of a moratorium to the Petitioner subject however to Respondent No.5 extending a moratorium. In view of the above, the Petitioner once again approached the Respondent No.5 by submitting a representation to consider the request of a moratorium favourably, which was not so considered.
"It is in the above background and aggrieved by said actions on the part of the Respondent Nos.5, 6 and 7 that the Petitioner is before this Court", narrates the Single Bench
Writ of mandamus can be issued against a private bank to implement the Circular issued by the RBI dated 27.03.2020?
The bench acknowledged that subsequent to the invocation of the DMA apprehending the adverse impact thereof on the economy of the country, the RBI with alacrity had issued the Circular dated 27.03.2020, in order to discharge its above obligation and duty- "The aim, object and intention of the said Circular being to mitigate the burden of debt servicing brought about by disruptions on account of Covid-19 pandemic and to ensure the continuity of a viable business, which is in the interest of the country and as such in the public interest"
Noting that the RBI vide its Circular has permitted the grant of a moratorium to all borrowers so as to keep the viable borrowers/businesses running, it was clear to the Court that the Circular is issued in the public interest and any aspect relating thereto would attract a public law element.
"The enforcement thereof would also come within the purview of enforcing a public duty", concluded the bench.
The bench was of the view that being related to the enforcement of statutory obligations or obligations of public nature, it cast a positive obligation upon Respondents to implement the same- "In terms of the RBI Circular, a right is created in the Petitioner as a borrower from the Bank to avail a moratorium which has been rejected by Respondent No. 5 and consequently by Respondent 6 and 7, which according to the Petitioner is a violation by them of the said Circular"
Hence, the Court asserted that a writ petition would be maintainable against the Respondents in the present facts and circumstances for the enforcement of the public duty under the Circular dated 27.03.2020.
Case Title : Velankani Information Systems Ltd vs Union of India and others.