Borrower Can't Claim Loan Moratorium As A Right Based On RBI's Circular Of March 2020 : Karnataka High Court
The Karnataka High Court recently set aside the directionsissued to Reserve Bank of India by a single judge bench of the High Court directing it to monitor the implementation of Covid-19 package announced on March 27, 20202, by which RBI had allowed Banks to declare a three-month moratorium on all term loans, outstanding as on March 1, 2020.The High Court also held that the RBI's circular...
The Karnataka High Court recently set aside the directionsissued to Reserve Bank of India by a single judge bench of the High Court directing it to monitor the implementation of Covid-19 package announced on March 27, 20202, by which RBI had allowed Banks to declare a three-month moratorium on all term loans, outstanding as on March 1, 2020.
The High Court also held that the RBI's circular was a guideline and cannot be construed as a mandatory requirement, creating a right in favour of a borrower to avail loan moratorium.
RBI had filed an intra-court appeal challenging the order dated 8.7.2020, by which the court had directed the appellant to monitor the implementation of Covid-19 package including verification of whether there are board approved policies framed by each lender. The banks were told to submit the board approved policies for approval to the appellant. The appellant was to approve such policies, to verify if such board approved policies contain objective criteria. RBI was told to set up a proper and effective grievance redressal forum for any aggrieved borrower to approach on account of improper or non-implementation of the policy and/or circular, etc.
Senior Advocate R.V.S.Naik appearing for RBI submitted, "The said observations/directions are contrary to the finding of the Hon'ble Apex Court rendered in Small Scale Industrial Manufacturers Association (Registered)v. Union of India and others."
Further he said, "RBI can frame guidelines which serve as broad indicators for lending institutions which have the authority and discretion to make free independent assessments and decisions based on the requirements of the borrowers and the interest of its depositors. In that direction, the Circular dated March 27, 2020 was issued."
It was contended that the Single Judge erred in coming to a conclusion that a right had been created in favour of respondent No.1 as a borrower to avail a moratorium in view of the said circular. Moreover, the relief now extended by the learned Single Judge was not which was sought nor contemplated by the parties to the proceedings. Thus the learned Single Judge committed an error in exceeding the jurisdiction.
The counsel for the respondent 1 (Velankani Information Systems Limited) submitted that no such relief was sought by the original petitioner inasmuch as the direction was issued by the Single Judge and had no objection if the directions were set aside. The Union and State governments also supported the contention raised by the RBI.
Court findings:
A division bench of Justice S.Sujatha and Justice P.Krishna Bhat, relied on the Apex court judgement in the case of Small Scale IndustrialManufacturers Association (Registered) v. Union of India, wherein the challenge was to the Circular dated 27.3.2020 – Covid 19 Regulatory Package issued by the RBI.
The Apex court had held that, "RBI and/or the Union of India can provide for broad guidelines while recommending to give the reliefs. It has further held that whether more relief should be offered by the Union of India/RBI/Bankers/lenders, would not come within the judicial scope of the Courts to issue such directions. The economic policy decisions even announced to mitigate the impact of Covid 19 pandemic cannot come within the realm of judicial review. Merely for the reason that some of the reliefs are not suiting the desires of the borrowers, the same cannot be said to be arbitrary/or violative of Article 14 of the Constitution of India."
Following which the bench held, "These observations/directions made by the learned Single Judge run contrary to the dictum enunciated by the Hon'ble Apex Court in the Small Scale Industrial Manufacturers Association (Registered)."
The court observed, "RBI can issue only broad guidelines for mitigating the Covid 19 crisis as done in the Circular dated 27.3.2020. Based on paragraphs 23.5 and 25.4, the direction issued to the appellant to enforce the recovery package as per paragraph 26(i) of the impugned order cannot be approved. More particularly, no such relief was sought by the petitioner/respondent No.1 and some discretion is necessary for lending institutions to take decisions which are essentially commercial decisions based on financial considerations."
It added, "The Circular dated 27.3.2020 itself being a guideline, cannot be construed as a mandatory requirement, creating a right in favour of respondent No.1 to avail moratorium, which certainly has to be decided from case to case considering the terms and conditions of different types of loans/advances extended by the lending institutions. Hence, paragraphs 23.5, 25.4 and 26(i) of the order dated 08.07.2020 passed in W.P.No.6775/2020 call for interference and deserve to be set aside."
Case Title: The Governor Reserve Bank Of India v. Velankani Information Systems Limited
Case No: W.A.No.625/2020
Date of Order: 5th Day Of January, 2022
Citation: 2022 LiveLaw (Kar) 19.
Appearance: Senior Advocate R.V.S.Naik, a/w Advocate V.Vinay Giri for appellant; Advocate Ajay Kumar M, for R-1; Advocate Kumar M.N, for R-2, 3; Advocate Shashikumar G.V for R-4; Advocate H.N.Vasudevan, for R-5; Advocate I.P.Rawlay Muddappa, for R-7