RBI’s Moratorium Circular Not Applicable To Mutual Funds, Bombay High Court Says
The Reserve Bank of India’s circular allowing banks to grant moratorium on term loans isn’t applicable to mutual funds and debentures, the Bombay High Court has said.
Zee Learn Ltd. moved court against UTI Asset Management Co., which holds 650 unlisted redeembale non-convertible debentures issued by it in 2015. The redemption date for these NCDs was July 8. This should be extended to a date three months after the government allows schools to reopen, Zee Learn said.
The company argued that though the moratorium circular doesn’t refer to mutual funds or debentures, principles behind the relief facilitated by RBI should be extended to it. The default occurred as a result of Covid-19 outbreak and extension of time is sought to make the balance payment—approximately Rs 44 crore—to UTI AMC, Zee Learn said.
But UTI AMC contested this claim and said the company has been a defaulter since July 2019, and that the last default occurred in March this year. Any relief to Zee Learn, it said, would impact over 21,000 small investors who are required to be paid by UTI AMC out of the debentures’ proceeds. It also said Zee Learn is attempting to protect the guarantor—Zee Entertainment Enterprises Ltd.—which is a profit-making company.
A two-judge bench of the high court agreed with UTI AMC that as the guarantor, Zee Entertainment is liable to face consequences of the default. It held that Zee Learn can’t be granted any relief on the basis of the RBI circular, which doesn’t apply to mutual funds. Also, the regulator has only permitted and not directed banks and non-bank lenders to consider grant of a moratorium to their borrowers, the court said.