Delhi High Court provided relief to a Charitable society and directed Bank to not declare Pending Loan Accounts as Non-Performing Assets (NPA)

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Shakuntla Educational & Welfare Society, a Charitable society engaged in the business of technical and higher education filed petition seeking direction to the Punjab and Sind Bank  to not  declare  pending loan accounts as  Non Performing Assets (NPA), after  it defaulted on loan repayment due before March 31. The society also requested to provide moratorium of three months according to the terms of circular issued by the Reserve Bank of India.

The RBI on 27.03.2020 issued circular, to facilitate the financial emergencies being faced by borrowers, providing a moratorium of three months in regard of all term loans as outstanding on 01.03.2020. Considering the equivalent, the Society argued that the respondent cannot pronounce the petitioner’s accounts as NPA only on account of its inability to pay the installments, which were payable on or before 31.03.2020.

Suruchi Aggarwal, counsel for Punjab & Sind Bank, opposed relief, contended that the society cannot be granted any protection, as the loans had become due on Dec. 31 and that RBI’s moratorium applies only for installments turning out to be payable post March 1. RBI’s circular on moratorium cannot supersede the central bank’s regulatory policy, which does not make any provision for delay of NPAs due to the Covid-19 outbreak.

However, on continuance of the countrywide lockdown, The Delhi High Court has restrained the loan accounts of Educational Society to be declared as NPA. Taking note of a “grave and irreparable damage” that could be caused to the general public, a single-judge bench of Justice Rekha Palli, who heard the matter via video conferencing, granted a conditional stay.

Since the various Institutes run by the petitioner are educational institutes situated in the State of Uttar Pradesh, where the State Government has issued a specific directive prohibiting the petitioner from coercing the students to pay the due fees, the petitioner on account of its inability to collect or demand pending fees from the students, is not in a position to repay the installments as payable in March, 2020 qua the term loan. The Court directed that after Uttar Pradesh withdraws its directive, the Society is subject to payment of installments within a week.

The court, expressed;

“It is accordingly directed that till the next date, the respondent will stand restrained from declaring the petitioner’s accounts as NPA. It is, however, made clear that, in case, before the next date, the directive issued by the State of Uttar Pradesh prohibiting the petitioner from demanding fees from its students are withdrawn, the petitioner would be liable to forthwith pay the installments within one week from the date of the said withdrawal.”

However, the high court will decide if the moratorium is applicable to the society after considering the RBI’s view on May 5.

Courts in India have been giving help to ambushed companies hit hard by the episode of Covid-19 and the resultant lockdown forced by the central government. The Delhi High Court had before restrained Yes Bank Ltd. from declaring Anant Raj Ltd. as an NPA. Essentially, the Bombay High Court provided relief to two real estate companies by restraining ICICI Bank on comparative grounds.


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