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2021 (2) TMI 256 - HC - Companies LawFreezing of Bank Account - applicability of the RBI Circulars of March 27 and May 23 2020 - Counsel argues that the opinion of the RBI as expressed in the present writ petition cannot be a determinant of the independent assessment of the effect of the Circulars by the court - Whether there was a concluded OTS scheme between the parties? - HELD THAT - The materials on record as referred to by the parties clearly indicate that there was a concluded OTS scheme between petitioner no.1 and the respondent no.2-Bank as on August 19 2019. The Bank s letter dated August 19 2019 assumes particular importance in this context. However admittedly the petitioners failed to honour such scheme. Instead petitioner no. 1 alleged deviation from the original proposal on the bank s part vide letter dated August 26 2019. Interestingly petitioner no. 1 by its letter dated November 5 2019 allegedly accepted the compromise proposal of UCO Bank . There could not arise any proposal being issued by the Respondent No.2-Bank since the proposal was initiated by petitioner no. 1 itself. The bank at best modified the proposal and accepted it on the Bank s terms. Hence the petitioner no. 1 cannot claim that November 5 2019 was the date of acceptance of any proposal. The letter dated November 5 2019 at best reopened the discussions on settlement thereby rendering irrelevant the concluded OTS scheme already reached on August 19 2019. Thereafter further correspondences were exchanged between the Bank and the petitioners each of which sought to offer new modifications to the already-concluded OTS scheme but there was no consensus ad idem between the parties at any other juncture fit to crystallise into a further concluded OTS scheme. As such the several correspondences between the parties could not justify the petitioners arguments that there was an existing OTS scheme at the juncture when the RBI Circulars came in. If the petitioners take the stand that the OTS scheme was concluded on November 5 2019 such contention has to be turned down in view of the subsequent replies of the Bank. Vide the communication dated February 13 2020 for example the Respondent No. 2-Bank categorically iterated that the date of acceptance of OTS would be from the issuance of sanction letter by the branch to the company that is August 19 2019 - the only concluded OTS if any was reached on August 19 2019 by the Bank s acceptance and sanction of the previous offer of petitioner no. 1. In the event the petitioners argue that OTS was not finalized on August 19 2019 there is no other concluded OTS scheme that the petitioners can rely on. Since the petitioner no.1 failed to honour its commitments under the concluded OTS scheme of August 19 2019 as mentioned above no further extension of time on the basis of the OTS could be claimed validly by the petitioners. The Respondent no. 2-Bank by its letter dated August 10 2020 made it clear that in view of the failure of petitioner no. 1 to honour payment of OTS amount as per sanction terms the OTS was treated as failed and as a consequence requested petitioner no. 1 to pay up the entire outstanding due of Rs. 16.01 as on that date with interest - The petitioners have consistently defaulted in repayment having only paid a meagre part of the dues let alone interest and having subsequently defaulted on the OTS scheme as well. Thus there is no handle in favour of the petitioners to extend the benefits of the RBI Circulars to them. In the present case not only was there no existing OTS in place when the RBI Circulars were issued in view of the previous OTS scheme having been revoked due to default of the petitioners there was no scope to argue that the benefits of the RBI Circulars were applicable to the petitioners since an incomplete OTS in any event cannot be a trigger for extending the benefits of the RBI Circulars - Petitioner no. 1 clearly admitted inter alia in its letter dated December 10 2019 (Annexure P-57 at page 180 of the writ petition) that its account had become NPA in October 2017 (as per the Bank s version though it stood NPA since the year 2015). Subsequent talks of settlement which never reached fruition cannot afford leverage to the petitioners to claim benefits under the 2020 RBI Circulars as those extend only to standard accounts which character was lost by the account of petitioner no. 1 the moment it was classified as NPA long prior to the onset of the pandemic. As on February 29 2020 the cut-off date provided in the Circulars the account of petitioner no. 1 was already marked NPA and was not a standard account to which the benefits of the Circulars could be extended. Petition dismissed.
Issues Involved:
1. Existence and conclusion of One-Time Settlement (OTS) scheme between the petitioners and the respondent bank. 2. Applicability of RBI Circulars dated March 27, 2020, and May 23, 2020, to the petitioners' account. 3. Petitioners' entitlement to an extension of time under the OTS scheme due to the Covid-19 pandemic. Issue-Wise Detailed Analysis: 1. Existence and Conclusion of OTS Scheme: The court examined whether there was a concluded OTS scheme between the petitioners and the respondent bank. The materials on record indicated that an OTS scheme was concluded on August 19, 2019, through the bank’s letter which approved the compromise proposal submitted by the petitioners. However, the petitioners failed to honor this scheme, alleging deviations from the original proposal. The court noted that the subsequent correspondences did not culminate in a new concluded OTS scheme, and the petitioners' argument that the OTS was concluded on November 5, 2019, was rejected. The only concluded OTS was the one dated August 19, 2019, which the petitioners failed to comply with, leading to its revocation by the bank. 2. Applicability of RBI Circulars: The court addressed whether the RBI Circulars, which provided a moratorium on loan repayments due to the Covid-19 pandemic, applied to the petitioners' account. The RBI Circulars were intended to mitigate the burden of debt servicing for standard accounts affected by the pandemic. The petitioners' account, however, was classified as a Non-Performing Asset (NPA) since 2017, and thus did not qualify as a standard account. The court held that the RBI Circulars did not apply to accounts already declared as NPAs, and since the petitioners' account was in default prior to the pandemic, they could not claim the benefits of the Circulars. 3. Extension of Time under OTS Scheme: The court considered whether the petitioners were entitled to an extension of time to make payments under the OTS scheme due to the Covid-19 pandemic. The petitioners argued that the pandemic adversely affected their business, justifying an extension. However, the court found that the petitioners had consistently defaulted on their payments and had not honored the concluded OTS scheme. The court noted that the RBI Circulars were not applicable to the petitioners' account, and there was no basis for extending the benefits of the Circulars to them. The court also referenced previous judgments, including Amit Khaneja & Ors. Vs. IL&FS Limited, which supported the view that OTS settlements are independent of the RBI Circulars and cannot be tested on their benchmark. Conclusion: The court dismissed the writ petition, concluding that there was no valid OTS scheme in place when the RBI Circulars were issued, and the petitioners' account did not qualify for the benefits of the Circulars. The petitioners' consistent defaults and the classification of their account as an NPA precluded them from claiming any relief under the RBI Circulars.
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