Due to the outbreak of pandemic COVID-19, the High Court of Delhi in its recent ruling held that the Reserve Bank of India’s (RBI’s) advisory on moratorium is applicable even to loans on default as on March 1, 2020.
The High Court reiterated the objective that Reserve Bank of India (RBI) has announced certain regulatory measures to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. It was felt that there may be a temporary disruption in the Cash Flows, and in some cases, loss of income, for the businesses or individuals and the present measures work to bring relief to those businesses or individuals.
The petitioner, Anant Raj Limited availed a bank loan facility from the respondent bank, Yes Bank to a tune of Rs. 815 crores which have been paid in full. Thereafter between 2016 –2018, the respondent bank extended further loan facilities to the petitioner.
The petitioner contended that he had been regularly servicing the loans in terms of the loan conditions until December 31, 2019. It is stated that the instalment for repayment which fell due on January 1, 2020, could not be paid by the petitioner because of adverse economic conditions brought about by the effects of COVID-19 pandemic.
The respondent bank contended that in terms of the Income Recognition and Asset Classification Guidelines (IRAC Guidelines) of the Reserve Bank of India if an instalment is overdue by a period of 30 days, the borrower’s account is classified as Special Mention Account – 1 (SMA-1) and if the instalment is overdue by 60 days, the account is classified as Special Mention Account – 2(SMA-2) and if the instalment is overdue by a period of 90 days, the account is classified as Non-performing Asset (NPA).
The single-judge bench held that the Reserve Bank of India’s (RBI’s) advisory on moratorium is applicable even to loans on default as on March 1, 2020.
The bench however clarified that if the borrower fails to clear the dues after the moratorium the interest and penal charges will continue to accrue and that the loan clarification will change to Non-performing Asset (NPA).
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