Courts in India are granting relief to companies hit hard by the COVID-19 outbreak. The Delhi High Court recently restrained Yes Bank from declaring Anant Raj Ltd. as an NPA on similar grounds. The following is the case of Ideal Toll & Infrastructure Pvt. Ltd., Mumbai and Anr. V/s. ICICI Home Finance Co. Ltd., Mumbai & Anr.
Brief Facts of the Case
Defendant No.1 (ICICI Home Finance) has sanctioned a line of credit by way of term loan for a sum of Rs. 5 crores for a period of 12 months with an option to renew the same on the terms set out in the Sanction Order. Plaintiff No. 1 has pledged 14 lakhs shares of MEP Infrastructure Development Limited (‘suit shares’) and this constitute the security for the suit term loan. Defendant No. 2 is a depository participant, with whom the suit shares lie. Defendant No.1 claims that the plaintiffs were liable to pay a sum of Rs. 4.72 crores to defendant No.1 as of 20th January 2020 and the defendant had notified the plaintiffs of the same and in the process, the sale of shares had commenced.
Mr. Nankani, canvassing the plaintiffs put forward that:
Because of the lockdown in the country, BSE Sensex had fallen by 9878.71 points from 1st March 2020 and as a result, the price of the suit shares had also dropped. In light of the same, the only source of income of the plaintiff company was also terribly affected. The defendants had ignored this.
RBI had issued a Press Release as a result of the financial condition caused by Covid-19, which provides for all commercial banks and lending institution to permit to a moratorium of three months on payment of instalments. Despite that, the defendants proceeded to sell the shares and had not extended time for payment.
According to RBI’s ‘Statement on Developmental and Regulatory Policies’ and ‘Covid-19-Regulatory Package’, that the benefit of the moratorium must be extended to the plaintiffs in view of the guidelines and instructions and hence, the plaintiff company should not be declared as NPA.
Mr. Shetty, canvassing for the defendant put forth that:
As per the suit filed by Ideal Toll & Infrastructure Pvt. Ltd and one of its Directors, and as per the shares pledged to Defendant no.1, a sum of Rs.1.71 crores is due from the plaintiffs. As per the companion suit filed by a different individual and director and as per the shares pledged, a sum of Rs. 3.01 crores is due from the plaintiffs. Both these dues are as on 12th January 2020.
The moratorium would be made applicable for loan repayments only from 1st March 2020 and hence the amount payable by the plaintiff was overdue in January 2020 itself.
If the plaintiff company fails to regularise the payment of the dues with Rs.1.71 crores by 13th April, it would be declared NPA.
The RBI’s ‘Statement on Developmental and Regulatory Policies’ and ‘Covid-19-Regulatory Package’ would apply in respect of payment of instalments of terms loans outstanding “as of 1st March 2020”.
The plaintiffs were liable to pay Rs.1.71 crores as of 12th January 2020. There is no doubt that defendant no.1 has a vested right to sell the pledged shares. The sale of shares at this moment would appear to be prompted by anxiety to recover the amount of Rs.1.71 crores that is overdue from the plaintiffs.
Paragraph 2 of the RBI Circular No.RBI/2019-20/186 (DOR No.BP.BC.47/21.04.048/2019-20) dated 27th March 2020 reads that,
“2. In respect of all terms loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), cooperative banks, all-India Financial Institutions and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments 1 falling due between March 1, 2020 and May 31, 2020. The repayment schedule for such loans as also the residual tenor will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.”
It is therefore clear that the grant of the moratorium of three months would apply to the payment of all instalments falling due between 1st March 2020 and 31st Mach 2020. Hence the amount admittedly due as of January 2020 would not be covered by the moratorium. The moratorium would, however, cover the amounts claimed by defendant no.1 in the companion suit filed by the individual Director.
In the view that the condition of the plaintiff company is seriously depleted, the plaintiff shall pay a sum of Rs.71 lakhs, along with accrued interest on overdue amount as of 12th January 2020 to defendant no.1 on or before 15th May 2020.
In the meantime, the defendant company shall not sell the shares and the plaintiff company cannot be declared as an NPA.
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