Exclude Moratorium Period During Lockdown From 90-Day NPA Timeline: Bombay High Court To ICICI Bank
In a relief to two real estate companies, the Bombay High Court directed ICICI Bank to exclude the period of moratorium amid coronavirus lockdown while computing 90 days for declaration of non-performing assets.
The order was prima facie, specific to the case, and will not act as a precedent for any other matter involving loan defaults by a borrower, Justice Gautam Patel said in the order. The protection granted to the two real estate companies—Transcon Skycity Pvt. Ltd. and Transcon Iconica Pvt. Ltd.—was co-terminus with the lockdown and will cease immediately on lifting of the shutdown by the government.
Transcon Skycity and Transcon Iconica had moved the court seeking protection from being declared as an NPA by the private lender. The companies had obtained credit facilities from ICICI Bank for certain development projects in the suburbs of Mumbai. The lender had sought to classify Transcon Iconica’s account as an NPA after it defaulted on two loan installments due for repayment in the first two months of the year.
The real estate companies also made a plea to restrain ICICI Bank from taking any coercive actions against them and sought the court’s declaration that they were entitled to benefits under the Reserve Bank of India’s relief packages.
The central bank had allowed lenders to offer a moratorium to businesses and consumers on their loan repayments for a period of three months beginning March 1 to tide over the crisis stemming from the pandemic.
Courts in India are granting relief to beleaguered companies hit hard by the outbreak of Covid-19 and the resultant lockdown imposed by the central government. The Delhi High Court recently restrained Yes Bank from declaring Anant Raj Ltd. as an NPA. Also, the Bombay High Court restrained debenture trustees from selling shares of Future Retail Ltd. and MEP Infrastructure Developers Ltd. due to a slump in their share prices caused by the worst selloff in Indian equities in more than a decade.
What Real Estate Companies Said
Birendra Saraf, senior counsel for the real estate companies, argued:
- The period of moratorium during lockdown must be excluded from the computation of 90-day timeline for declaring an NPA in light of the Delhi High Court’s judgment in the Anant Raj case.
- Its inclusion would defeat the intended purpose behind its declaration.
- The RBI’s moratorium applies to all parties that are in default as on March 1.
- The high court has a jurisdiction to pass an order against ICICI Bank even if it was a private entity as the matter pertained to interpretation of orders passed by the RBI, which is binding on banks.
ICICI Bank's Argument
Virag Tulzapurkar, counsel for ICICI Bank, argued:
- A restraint order could result in unintended consequences for banks and hence a broad-based relief must not be granted to the two real estate companies.
- A writ petition under Article 226 of the Constitution cannot be filed against ICICI Bank as it is a private entity. The Bombay High Court had dismissed Chanda Kochhar's plea against the bank on the same reasoning.
- Real estate companies are not entitled to any relief in light of the order passed by the Bombay High Court in the MEP Infra case where the court indicated that the RBI’s moratorium did not apply with respect to installments which became overdue before March 1.