2020 (12) TMI 1236 - HC - Indian Laws

Existing loans to NBFCs classified as standard - grievance of the writ petitioner is that the petitioner has been saddled with a double whammy inasmuch as NBFCs have been excluded from the purview of an RBI notification dated August 6, 2020, which extend several benefits? - HELD THAT - It is manifest from the circulars dated August 6, 2020 that the NBFCs have been subjected, prima facie, to a two-pronged offensive, on the one hand curtailing their rights, as lenders, to downgrade assets of borrowers and, on the other, excluding them from the benefits regarding borrowing, in the capacity of borrowers - The petitioner rightly argues that there has been a prima facie manifest arbitrariness, by the exclusion of the NBFCs from the benefits of the impugned circulars in their capacity as borrowers, while imposing fetters on the NBFCs in their role as lenders. The matter will appear in the list for hearing on January 11, 2021. The respondents shall be restrained from taking any coercive action against the NBFCs comprising the petitioners, in terms of the exclusion clause appearing in item 2 of the Annexure to the RBI circulation dated August 6, 2020 till January 31, 2021, or until further orders, whichever is earlier.

Summary

Issues:
- Exclusion of NBFCs from RBI notification benefits
- Downgrading of assets for NBFCs
- Violation of Article 14 of the Constitution
- Prima facie arbitrariness in circulars
- Legislative domain interference

Exclusion of NBFCs from RBI notification benefits:
The petitioner raised concerns about NBFCs being excluded from the benefits of an RBI notification dated August 6, 2020, which provided relief to borrowers. The petitioner argued that NBFCs play a significant role in the finance sector and should not be unfairly excluded from such benefits, especially during the pandemic situation. The contention was that while other borrowers could restructure loans, NBFCs were subject to downgrading without the same relief.

Downgrading of assets for NBFCs:
The petitioner highlighted that the circulars issued by RBI created a situation where NBFCs could not downgrade assets of their borrowers, while being subject to downgradation themselves. This was seen as arbitrary treatment and a hindrance to the functioning of NBFCs as lenders. The argument emphasized the need for equal treatment under the law and the potential impact on the financial stability of NBFCs.

Violation of Article 14 of the Constitution:
The petitioner contended that the exclusion of NBFCs from the benefits of the circulars violated the principles enshrined in Article 14 of the Constitution of India. It was argued that such arbitrary exclusion had no nexus with the objective of providing economic benefits to the pandemic-affected sections of society. The petitioner sought relief based on the constitutional violation and the need for fair treatment.

Prima facie arbitrariness in circulars:
The judgment acknowledged the prima facie manifest arbitrariness in the exclusion of NBFCs from the benefits of the circulars. The court recognized the concerns raised by the petitioner regarding the unequal treatment of NBFCs compared to other borrowers. The court found that the exclusion of NBFCs from certain benefits while imposing restrictions on them was arbitrary and needed further examination.

Legislative domain interference:
The respondents argued that the reliefs sought by the petitioner fell within the legislative domain and were matters of policy decision not typically interfered with by the court under the writ jurisdiction. However, the court considered the arguments presented by both parties and concluded that the petitioner had made out a strong prima facie case and a triable issue to be decided in the writ petition. The respondents were directed to file their affidavits-in-opposition, and the matter was set for further hearing to address the concerns raised by the petitioner.