In yet another instance of courts granting relief to borrowers impacted by the COVID-19 outbreak-related disruptions, the Bombay High Court has allowed the lockdown period to be excluded from computing the 90-day time for declaring a loan as an NPA, or a non-performing asset.

The court granted this relief in the case of Anant Raj versus Yes Bank and restrained debenture trustees from selling shares of Future Retail in the recent past.

The petitioner, in this case, were two real estate companies- Transcon Skycity Pvt Ltd and Transcon Iconica Pvt Ltd- who had moved the Bombay High Court against their lender- ICICI Bank- seeking protection from being declared an NPA amid the lockdown.

The court has passed an interim order granting the realty companies relief, but also directed them to repay the bank within 15 days of the lockdown being lifted. Importantly, the court clarified that the relief granted to the petitioners is not applicable across the board, and was specific to the case.

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The order read, “To be abundantly clear about these provisions: this order is therefore not a backward extension of the moratorium to January 2020. It is predicated on, and only on, the current lockdown period which makes normal functioning impossible. The moratorium period of 1st March 2020 to 31st May 2020 does not per se give the Petitioners any additional benefits in regard to the prior defaults, i.e. those that occurred before 1st March 2020. Thus, the relief to the Petitioners is co-terminus with the lockdown period, not the declared end of the moratorium. This is the only way to harmonize the present requirements of both sides with the observations of Menon J.”

Transcon Iconica & Transcon Skycity had taken term loans from ICICI Bank for a construction project in the Mumbai suburbs to be repaid in installments. The amounts due under the repayment schedule on January 15 and on February 15, were not paid, and have been pending since. The 90-day NPA recognition cycle in respect of January 15 default would be April 15th and for the Feb 15th default, the 90-day cycle would be completed on May 15th.

As per RBI guidelines, if a loan installment remains unpaid for 90 days, the account is declared a Non-Performing Asset. However, on March 27th, RBI had permitted all lending institutions to allow a 3-month moratorium on the payment of installments of term loans outstanding between March 1, 2020, and May 31, 2020.

The court observed "There seems to be no dispute that in regard to any installment due after 1st March 2020, the moratorium fully applies. The question is whether the moratorium period is excluded in the computation of the 90-day period for amounts that fell due prior to 1st March 2020 and which remain unpaid or in default. To put it even more precisely, if there was a default that triggered the beginning of a countdown for the 90-day NPA-declaration period, would this countdown timer stop on 1st March 2020 and resume only after the end of the lockdown/moratorium period?"

While the court has caveated the interim order saying it is not must not be construed as a backward extension of the moratorium, by granting the relief for a default that occurred much before the March 1 date specified by RBI, the order may well be used by other borrowers to get similar relief.

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First Published:Apr 13, 2020 12:43 PM IST