Loan Moratorium- Real Estate, Power Sectors Not 'Persons Affected By Disaster' For Relief In Loan Repayment: Harish Salve Tells SC

In the course of the loan moratorium hearing on Wednesday, it was urged on behalf of the Indian Banks Association that because of the court's directions, people who had no hope of debt-restructuring are now enjoying because their accounts cannot become NPA, and hence, the moratorium must now come to an end.The bench of Justices Ashok Bhushan, R. Subhash Reddy and M. R. Shah heard Senior Advocate Harish Salve for the IBA.Resolution to be at the instance of banks and norms cannot be applied uniformly"What is resolution by the banks? Both Dr. Abhishek Manu Singhvi and Mr. V. Giri for the RBI have said that resolution is the right of the borrower and not the bank...Your Lordships are aware that the NPAs of the banks had reached threatening proportion. At that time, the IBC was brought....Banks would always takes steps to rectify the loans which have fallen bad and commercial banks all over the world do that. This is what is called resolution. The banks have their own norms for restructuring of the loans, which the Kamath Committee has now relaxed. The heart of the resolution plan is that the borrower should be able to repay his debt if his immediate obligations are deferred", he explained."It was argued that the pandemic has brought about frustration, so the borrowers have been relieved from paying the loans back. But the fundamental aspect of frustration has been overlooked. If you argue frustration, be ready for the logical consequence. There will be restitution", he continued."There is a phrase called Debt Coverage Ratio (DCSR). It means that the amount of cash flow should be such that it can cover the debt. Kamath indicated, sectorally, what reforms banks should adopt in the restructuring. To suggest that it should be left to the borrower to decide whether the debt is resolvable or not is unstateable. It is for the lender to decide whether the situation can be resolved or whether bankruptcy has to be proceeded with. The downside of Your Lordships' interim order is that the businesses which have gone flat, by their own reasons or on account of the pandemic or because of a little of both, their accounts can't be declared bad. Resolution is a restructuring of the debt and the banks cannot uniformly apply norms", submitted Mr. Salve.He advanced that even though the SBI has majority government share, it is a listed company; that banks are listed companies with private shareholders. He explained that when we see banks and government as seamless, in asking banks to write off debts, we are actually asking the government to write them off. When banks give relief, it is the government which supplies them the money that they lose. "Asking the court to judicially review, it is not correct.The challenge to the resolution packages of the banks is misconceived", he argued.'People affected by disaster'As regards the larger issue of what are the rights which can be enforced as regards borrowers generally or any specific sector, Mr. Salve urged that this proceeding has metamorphosised from a public interest litigation to nudge the government to help people who are jobless and have zero cash flow to large commercial interests. "Your Lordships have an application by the CREDAI, asserting that the real estate market had met the pandemic under unfavourable market conditions, and further damage has been caused by Covid. Has any material been placed on record to show how wobbly their house was before? No. It is claimed that the real estate sector has been brought to a standstill by the lockdown as there was no possibility of any work from home. But during lockdown I and II, every industry was closed. They have spoken of the nonavailability of sufficient labour and the reduced purchasing power of the banks. This is way beyond relief for any disaster!", he contended."The economic sentiment is such that if I have money in the bank, I don't want to invest it but I want cash-in-hand. Restaurants say that they are open but the customers are running away. The shopkeepers say that the mood is sombre despite the festive season. Does disaster management say that because people are spending less, cheques should be written to everybody by the government? Is this a case where your house has been swept away? Or where a road has broken?", he argued."But there is a special provision in section 13 (of the DM Act, 2005). The government has to consider everything and allocate money for everyone. But when there is a special provision…?", asked Justice Bhushan.SG Tushar Mehta interjected to submit that section 13 has been considered by the government, and that for good reason, the government did not find it possible or permissible or in public interest. "Section 13 does not let them off the hook. Section 13 provides for recommendation by the National Disaster Management Authority of relief as regards repayment of loans or for grant of fresh loans to persons affected by the disaster on concessional terms. Government may scale down the interest or...

Loan Moratorium- Real Estate, Power Sectors Not 'Persons Affected By Disaster' For Relief In Loan Repayment: Harish Salve Tells SC

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