Delhi HC Temporarily Restrains 6 PSU Banks From Taking Coercive Action Against Company For Defaults Under TReDS

The Delhi High Court on Monday temporarily injuncted 6 PSU banks from taking any coercive action against Eastman Auto & Power Limited vis-à-vis default(s) arising out of and/or in relation to Reverse Factoring payment obligations under Trade Receivables Discounting System (TReDS).

While granting ad-interim relief to the Petitioner, Bank of Baroda, Bank of India, Punjab National Bank, Union Bank & SBI Global Factors Limited were thereby injuncted from taking any coercive action against the Petitioner Company as aforementioned.

"the respondent nos. 2 to 5 and 7 (respondent no. 6 has been deleted today) are restrained from taking any coercive action against the petitioner, including declassification of the petitioner, for the default committed by the petitioner in the Reverse Factoring Facility availed by the petitioner from such respondents, subject to the condition that the petitioner shall" the order read.

A Single Judge bench comprising Justice Navin Chawla observed that RBI notifications/circulars dated 27.03.2020 & 17.042020 enunciated financial relief to the parties who availed term loans and that it was prima facie apparent that working capital facilities and that "Factoring facilities" was to be considered "at par with loans and advances extended by the banks"

The RBI also sought time to seek instructions on whether the facility availed by the petitioner would be covered in terms of the COVID-19 Relief measure notifications.

The writ petition was filed by Mr. Gaurav H Sethi and Mr. Keshav Sehgal. Arguments for Petitioner(s) were led by Advocate Ms. Manmeet Arora. The plea sought directions to the RBI to issue clarification in as much as, repayment obligations that arise out of factoring services, which are in turn availed on a platform called TReDS are concerned.

The petitioner-company had averred that 6 PSU banks were denying and lacked decisiveness thereto, in terms of the relief measures notified by the RBI vide its COVID-19 Regulatory Package, which had in fact included the factoring services via TReDS.

Accordingly, the plea contended that as the Regulatory package was announced by RBI to ease financial stresses and to mitigate the risk of debt default, caused to business on account of the pandemic by granting moratorium period (3 months) to all kinds of loans and working capital facilities availed by the borrowers between March 1st & May 31st 2020, the petitioner-company could not have been de-classified.

"the Respondent Nos. 2 to 7, in utter disregard to COVID - 19 Regulatory Package issued repayment notices to the Petitioner for default in payment obligations under TReDS and any such act by the Respondent Nos. 2 to 7, will have major financial implications in the form of initiation of insolvency proceedings or reduced credibility for re-payment of debts of the Petitioner"

RBI governor Shaktikanta Das on March 27 announced a slew of measures, including a moratorium on loan repayments, to provide relief to India's distressed borrowers. 

Reportedly, three operators of the TReDS platforms had also sought clarity on the issue with the finance ministry, RBI & MSME Ministry.

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