2020 (7) TMI 262 - HC - Indian Laws

Grant of Moratorium due to COVID-19 pandemic situation - Restraint on respondent from recovering loan repayment instalments/EMI due - RBI Circular dated 27.03.2020 - grievance of the Petitioner relates to compliance/non- compliance by Respondent 5 to 7 of the RBI Circular. Whether a Writ of mandamus can be issued against a private bank to implement the Circular issued by the RBI dated 27.03.2020? - HELD THAT - The obligation and duty of the RBI to regulate the financial institutions, its business as also the credit system of the country, by exercising the powers vested with it under the Act - Subsequent to the invocation of the DMA apprehending the adverse impact thereof on the economy of the country, the RBI with alacrity had issued the Circular dated 27.03.2020, in order to discharge its above obligation and duty. The aim, object and intention of the said Circular being to mitigate the burden of debt servicing brought about by disruptions on account of Covid-19 pandemic and to ensure the continuity of a viable business, which is in the interest of the country and as such in the public interest. In the present case, it is not an Employer-employee dispute, recruitment dispute or one relating to contractual terms, but a dispute relating to the enforcement of a Circular issued by the RBI, as that in the case laws relied upon by Mr Holla, Learned Senior Counsel. The said Circular having been issued to protect and preserve the economy of the country on account of the COVID 19 pandemic. The issuance of the Circular is in the public interest, interest of the economy and the country. The enforcement thereof would also come within the purview of enforcing a public duty - a writ petition would be maintainable against the Respondents in the present facts and circumstances for the enforcement of the public duty under the Circular dated 27.03.2020. Is the Circular issued by the RBI dated 27.03.2020 mandatory, directory or discretionary? - Whether the grant of a moratorium is at the discretion of the Bank or as a corollary would it be a right to be exercised by the borrower? - HELD THAT - All corporate, as well as SME customers, are eligible for a moratorium and it is for the customer to choose whether to avail a moratorium that is to say that the offer for a moratorium having been made by the Bank, it is for the customer to accept the moratorium by choosing to do so and making an application in that regard. Once such a choice is made and an application was submitted, the rest of the process is automatic - Once the banks have in the public domain on their respective websites expressed their solidarity with all their customers and stated that all the customers are eligible for grant of a moratorium, in accordance with RBI guidelines, it is not permissible for such banks to nit-pick and later on, refuse the grant of a moratorium, to the Petitioner, who is otherwise eligible. That is to say the Banks cannot take one stand in the public domain and a contradictory stand while implementing what they have stated in the public domain. Both the RBI and the banks have held out that all customers are eligible for a moratorium. The availing of or otherwise of the moratorium is at the sole discretion of the borrower more so when the borrower would be required to make payment of additional interest, during the said moratorium period. There being no waiver of interest and or the principal amount by the mere grant of a moratorium. Though the Circular issued by the RBI dated 27.03.2020 is discretionary in so far as the power to grant or not a moratorium by a bank, it is mandatory for the Bankto ensure the continuity of viable businesses, in that, the non-grant of a moratorium should not result in adversely affecting the survival and continuity of a viable business. The understanding of the banks by reference to their respective answers to the FAQ s is also in line with the above. All borrowers are eligible to seek for a moratorium, if a borrower were to seek for grant of a moratorium on the ground that continuity of its business would be affected and establish the same, the borrower would as a matter of right be entitled for the grant of moratorium so that such continuity is not adversely affected. Can a request made by a borrower be rejected by a lender on the ground that the loan of the lender is structured and therefore, the lender can recover the amounts due on the making of such structured loan like an Escrow account? - HELD THAT - It cannot be accepted that the Circular dated 27.03.2020 is not applicable to a structured loan like LRD availed by the Petitioner since the appropriation of the monies of the LRD would have a negative impact on the continuity of the Petitioner itself - There is no distinction in terms of the Policy and Circular, giving a separate treatment to structured loans. Hence Circular is applicable to all loans/advances and facilities extended by a lending institution, including structured loans. Where multiple banks are involved in a loan transaction, can one Bank deny the extension of a moratorium, when another is willing to extend the benefit of a moratorium? - HELD THAT - The Board approved Policy of Respondent No.5-HDFC apart from not having any objective criteria contained therein, it does not also deal with a situation where there are other loans apart from the structured loan in favour of HDFC Bank. The said Policy reads as if there is only one loan and there is only one lender in respect of such structured loan - The Policy relating to a consortium or multiple bank lending only contemplates that a Bank in the consortium ought to extend the moratorium on terms similar to those offered by HDFC. This would presuppose a situation where Respondent No.5-HDFC has approved and formulated the terms for grant of a moratorium and the other Banks in the consortium have failed to agree to such terms - In the present case, the situation is reverse, in that Respondent Nos.6 and 7 have agreed to extend a moratorium to the Petitioner, however it is on account of refusal on part of Respondent No.5 to grant a moratorium that they have not been able to extend a moratorium to the Petitioner. Thus, even this particular Policy of Respondent No.5 would not be of any assistance to Respondent No.5. The spirit of the Circular is required to be given due importance, it is to be seen to it that the Petitioner continues to be in business, thus helping the economy. Needless to say that the business of the Petitioner provides employment to various people, taxes are paid to the respective authorities, facilities and services are provided to various other companies who depend on the Petitioner. If the business of the Petitioner is disrupted, it is bound to have a cascading effect on all the above and thereby have an adverse impact on the economy. Can a direction be issued to Respondents 1 4 to enforce the Circular dated 27.03.2020 issued by the RBI? - HELD THAT - There is no default on the part of the Petitioner by itself till 1.3.2020. The RBI cannot in the circumstances contend that the discretion is left to the lender to either grant or refuse the grant of a moratorium and in the same breath contend that it is for the Bank to establish as to why the Petitioner did not qualify for the benefit of Moratorium without stating as to before whom such establishment is to be made. Admittedly, there is no mechanism which is created for redressal of grievance on account of improper implementation or non-implementation of the recovery package or the Circular, there is no forum which has been created for the Petitioner to complain of as regards any of the actions of the Bank or a forum created for the Bank to establish as to how the Petitioner s request has been property rejected. Pending creation of such a forum, this court would have to intervene to provide for a remedy to the aggrieved Petitioner, to give effect to the principle, Ubi jus ibiremedium. Thus, it is held that no directions could be issued to Respondent 1 and 2 Union of India or Respondent No. 3 State of Karnataka, to inturn issue directions to Respondent No.4 - RBI for the implementation of the Circular. The contentions of the RBI that the dispute is between the Petitioner and Respondents No.5 to 7 is not acceptable since the dispute arises out of the implementation or not of a Circular issued by the RBI. RBI is therefore directed to monitor the implementation of the Circular, including verification of whether there are Board-approved policies formulated by each of the lenders, direct all the banks to submit the Board-approved policies for approval to the RBI, to approve such board-approved policy, verify if such a board-approved policy contains objective criteria, set up a proper and effective grievance redressal forum for any aggrieved borrower to approach on account of the improper or non-implementation of the Policy and/or Circular etc.

Summary

Issues Involved:
1. Whether a writ of mandamus can be issued against a private bank to implement the RBI Circular dated 27.03.2020.
2. Whether the RBI Circular dated 27.03.2020 is mandatory, directory, or discretionary.
3. Whether the grant of a moratorium is at the discretion of the bank or a right of the borrower.
4. Whether a request made by a borrower can be rejected by a lender on the ground that the loan is structured and serviced through an escrow account.
5. Whether one bank can deny the extension of a moratorium when another bank is willing to extend it.
6. Whether a direction can be issued to the Union of India to enforce the RBI Circular dated 27.03.2020.

Detailed Analysis:

1. Issuance of Writ of Mandamus Against Private Banks:
The court held that a writ petition is maintainable against private banks for the enforcement of public duties under the RBI Circular dated 27.03.2020. The Circular, aimed at mitigating financial stress due to COVID-19, involves public interest and thus attracts a public law element. The court noted that the Circular's implementation relates to statutory obligations or obligations of a public nature, casting a positive obligation on banks to comply.

2. Nature of the RBI Circular:
The court determined that although the Circular permits banks to grant a moratorium, it is mandatory for banks to ensure the continuity of viable businesses. The Circular's intent is to provide relief to borrowers affected by COVID-19 disruptions, making it imperative for banks to act in line with this objective. The court emphasized that the Circular should be read in conjunction with the RBI's development and regulatory policies aimed at easing financial stress and ensuring business continuity.

3. Right to Moratorium vs. Bank's Discretion:
The court found that the Circular, while discretionary for banks in terms of granting a moratorium, mandates that banks should not adversely affect the continuity of viable businesses. The FAQs issued by banks indicated that all borrowers are eligible for a moratorium, and it is for the borrower to choose to avail it. The court held that if a borrower establishes that their business continuity would be affected without a moratorium, they are entitled to it as a matter of right.

4. Rejection of Moratorium Based on Structured Loans:
The court rejected the contention that the Circular does not apply to structured loans like Lease Rental Discounting (LRD) facilities. It held that the Circular is applicable to all loans and advances, including structured loans. The court noted that the refusal to extend a moratorium based on the structured nature of the loan and uninterrupted cash flows from the Tech Park was not justified, as it would negatively impact the Petitioner's overall business continuity.

5. Denial of Moratorium by One Bank:
The court held that one bank cannot deny the extension of a moratorium when another bank is willing to extend it. The court emphasized that all lenders must ensure the survival and continuity of the borrower's business. The refusal by one bank to grant a moratorium, while others are willing, would be contrary to the Circular's objective of ensuring business continuity.

6. Direction to Union of India:
The court held that no directions could be issued to the Union of India or the State Government to enforce the RBI Circular, as the RBI is an autonomous and independent entity. However, the court directed the RBI to monitor the Circular's implementation, ensure board-approved policies contain objective criteria, and set up a grievance redressal forum for borrowers.

Court's Order:
1. A mandamus was issued to the RBI to enforce the recovery package as per the Circular dated 27.03.2020.
2. The communications by Respondent Nos. 5, 6, and 7 rejecting the moratorium were quashed.
3. Respondent Nos. 5 to 7 were directed to grant a moratorium on all payments due by the Petitioner, subject to the payment of interest at the contracted rate during the moratorium period.
4. Respondent Nos. 5 to 7 were restrained from recovering loan repayments during the moratorium period.
5. Respondent Nos. 5 and 6 were directed to reverse the recovery of loan repayments already effected and transfer the amounts to the Petitioner's current account.
6. The writ petition was disposed of with directions for parties to bear their respective costs.