Bombay HC Orders Exclusion Of Lockdown Duration From 90-Days Period For NPA Declaration [Read Order]

The Bombay High Court has passed an interim order that the lockdown period must be excluded from computing the 90 day period for declaring a loan account as Non-Performing Asset(NPA).

The loan account was already on default on March 1, 2020, the date from which the moratorium advised by the Reserve Bank of India as part of COVID-19 relief package is applicable.

The petitioner in the case claimed full benefit of the RBI's relief package, with respect to NPA declaration of a loan account already in default as on March 1. The bank, ICICI Bank, opposed the plea.

Justice G S Patel, after an urgent hearing via video-conferencing on Saturday, passed the nterim order to preserve the status-quo, without making any categorical finding regarding the rights of the petitioner under the RBI circular.

"the period of 1st March 2020 until 31st May 2020 during which there is a lockdown will stand excluded from the 90-day NPAdeclaration computation until — and this is the condition — the lockdown is lifted", ordered the Court.

In the 30-page order, Justice Patel clarified that the relief granted to the petitioners is not applicable across the board and directed the petitioners to pay the default amount within 15 days of the lockdown being lifted.

Case Background

Transcon Iconica had availed a term loan of Rs.80 crores from ICICI Bank for a construction project in the Mumbai suburbs. Out of the total loan, Rs 30 crores has been disbursed. There was a facility agreement between the parties which specifies a repayment schedule of 18 instalments and interest instalments. However, the amounts due under the repayment schedule on January 15 and on February 15, were not paid.

As per RBI guidelines, if payment of default amount is not made within 90 days of such default, the account is declared a Non-Performing Asset. However, keeping in mind the exigencies faced due to the outbreak of the global pandemic of coronavirus, last month RBI had announced that all commercial banks and non-banking financial companies are permitted to allow a 3-month moratorium on the payment of installments of term loans outstanding as on March 1, 2020.

Therefore, the question before the Court was whether the moratorium period is excluded in the computation of the 90-day period for amounts that fell due prior to March 1, 2020 and which remain unpaid or in default.

Submissions

Senior Advocate Dr.Birendra Saraf appeared for the petitioners and Senior Advocate Virag Tulzapurkar appeared on behalf of the respondent ICICI Bank.

Dr Saraf cited the decision of a single judge of the Delhi High Court in Anant Raj Ltd vs Yes Bank Ltd wherein it was held that the advisory issued by Reserve Bank of India on moratorium on loans is applicable even to loans which were on default as on March 1, 2020.

Whereas, Mr.Tulzapurkar questioned the maintainability of the petition and said that a broad-based declaration or finding returned by a Court could have all manner of unintended consequences in respect of other borrowers and that the Court should be slow in extending any such relief by an ad-interim order that may be construed to apply across the board.

He further relied upon the decision of another bench of the Bombay High Court in the case of Chanda Deepak Kochhar v ICICI Bank Ltd and Anr, which clearly states that a writ petition will not lie against a private bank such as ICICI Bank.

To this, Dr Saraf contended that judgement in Chanda Kochhar is entirely distinguishable on the facts of the case. That dispute was entirely contractual; a case of an employee, albeit at a very high position. What is being assailed here is not any action by the ICICI Bank on its own but a circular issued by the RBI, which is undoubtedly an instrumentality of the State within the meaning of Article 12 of the Constitution of India, Saraf submitted.

Moreover, reliance was placed on the recent ad-interim order dated April 7, 2020 of Justice AK Menon in a commercial suit accompanied by an interim application. In the said order, ICICI Home Finance Ltd. was restrained from selling shares of MEP Infrastructure Developers Ltd. offered as a collateral against a term loan by MEP's promoter group firm.

Mr Tulzapurkar placed reliance on paragraph 12 of this order and submitted that there should be no ambiguity about the extension of the moratorium period to the petitioners. Also, the format and structure of Menon J's order ought to be followed by the Court even today and the reason is that in paragraph 12, Menon J fixed an absolute date or finite period for payment of the defaulting instalments. This should not be left open-ended, he argued.

Order

After hearing both parties at length, Justice Patel noted -

"My task, as I see it, is to attempt to preserve the parties in status quo ensuring minimal prejudice to both sides in these unprecedented and exceptionally difficult times. Clearly the petitioners are in distress. Equally clearly, ICICI Bank should not, on account of the lockdown, the moratorium declared by the RBI and the default of the Petitioners, find itself to be in difficulty or not in compliance with the directives issued by its regulatory authority, the RBI. Of course, ICICI Bank itself cannot, therefore, make any concession in regard to the RBI directions and moratorium. Therefore, nothing that Mr Tulzapurkar says or submits today is therefore to be construed or read as an admission or as a concession on his part.

What needs to be done is to fashion a workable order limited to the facts of this particular case ensuring that it sets no precedent for ICICI Bank in other cases and yet ensuring that the petitioners have enough latitude to be able to service their debt."

Thus, the following order was passed-

(a) Subject to the conditions set out below, the period of the moratorium during which there is a lockdown will not be reckoned by ICICI Bank for the purposes of computation of the 90-day NPA declaration period. Thus, irrespective of the continuance of the moratorium until May 31, 2020, if the lockdown is lifted at an earlier date, then this protection available to the petitioners will cease on the date of lifting of the lockdown.

(b) In that scenario, should the lockdown be lifted before May 31, 2020, the Petitioners will have 15 days after the ending of the lockdown in which to regularize the payment under the first instalment due on 15th January 2020 and a further three weeks thereafter to regularize the payment under the second instalment due on 15th February 2020.

(c) If the lockdown extends beyond 31st May 2020, then these days will be deferred accordingly, irrespective of whether the moratorium itself is extended beyond 31st May 2020.

Finally, Court clarified that this order is not a backward extension of the moratorium to January 2020. Justice Patel observed-

"It is predicated on, and only on, the current lockdown period which makes normal functioning impossible.

It is also clarified that this order will not serve as a precedent for any other case in regard to any other borrower who is in default or any other bank. Each of these cases will have to be assessed on their own merits." 

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