Bombay HC passes an interim order that the lockdown period must be excluded from computing the 90 days for declaring a loan account as NPA

Bombay Bar Association and Lawyers wrote to HC; requested to give them option to choose from virtual & physical hearings

The Bombay High Court has allowed the lockdown period to be excluded from computing the 90-day time for declaring a loan as an NPA, or a non-performing asset.

Prior Facts:

  • The petitioner, in this case, were two real estate companies- Transcon Skycity Pvt Ltd and Transcon Iconica Pvt Ltd– who had moved the Bombay High Court against their lender- ICICI Bank- seeking protection from being declared an NPA amid the lockdown.
  • Transcon Iconica & Transcon Skycity had taken term loans from ICICI Bank for a construction project in the Mumbai suburbs to be repaid in installments.
  • The amounts due under the repayment schedule on January 15 and on February 15, were not paid, and have been pending since.
  • The 90-day NPA recognition cycle in respect of January 15 default would be April 15th and for the Feb 15th default, the 90-day cycle would be completed on May 15th.

Key Features:

  • The court granted this relief in the case and restrained debenture trustees from selling shares of Future Retail in the recent past.
  • As per RBI guidelines, if a loan instalment remains unpaid for 90 days, the account is declared a Non-Performing Asset.
  • However, on March 27th, RBI had permitted all lending institutions to allow a 3-month moratorium on the payment of instalments of term loans outstanding between March 1, 2020, and May 31, 2020.
  • The single-judge bench headed by Justice G.S. Patel observed that the period of the moratorium during which there is a lockdown will not be reckoned by ICICI Bank for computation of the 90-day NPA declaration period.

Judgment:

While allowing the exclusion of the Lockdown Period the Bombay High Court observed that, “To be abundantly clear about these provisions: this order is therefore not a backward extension of the moratorium to January 2020. It is predicated on, and only on, the current lockdown period which makes normal functioning impossible. The moratorium period of 1st March 2020 to 31st May 2020 does not per se give the Petitioners any additional benefits regarding the prior defaults, i.e. those that occurred before 1st March 2020. Thus, the relief to the Petitioners is co-terminus with the lockdown period, not the declared end of the moratorium. This is the only way to harmonize the present requirements of both sides as per views of Justice Menon”.

The court also observed “There seems to be no dispute that regarding any instalment due after 1st March 2020, the moratorium fully applies. The question is whether the moratorium period is excluded in the computation of the 90 days for amounts that fell due before 1st March 2020 and which remain unpaid or in default. To put it even more precisely, if there was a default that triggered the beginning of a countdown for the 90-day NPA-declaration period, would this countdown timer stop on 1st March 2020 and resume only after the end of the lockdown/moratorium period?

Finally, the Court gave the following orders as:

1. Subject to the conditions set out below, the period of the moratorium during which there is a lockdown will not be reckoned by ICICI Bank for computation of the 90-day NPA declaration period. As currently advised, therefore, the period of 1st March 2020 until 31st May 2020 during which there is a lockdown will stand excluded from the 90-day NPA declaration computation until — and this is the condition — the lockdown is lifted. Thus, irrespective of the continuance of the moratorium until 31st May 2020, if the lockdown is lifted at an earlier date than 31st May 2020, then this protection available to the Petitioners will cease on the date of the lifting of the lockdown, and the computing and reckoning of the remainder of the 90 days will start from that earlier lifting of the lockdown-ending date.

2. In that scenario, should the lockdown be lifted before 31st May 2020, the Petitioners will have 15 days after the ending of the lockdown in which to regularize the payment under the first instalment due on 15th January 2020 and a further three weeks thereafter to regularize the payment under the second instalment due on 15th February 2020.

3. If the lockdown extends beyond 31st May 2020, then these days will be deferred accordingly, irrespective of whether the moratorium itself is extended beyond 31st May 2020.

4. The whole of the moratorium period is excluded for all amounts that fall due during that moratorium period.

Edited by J. Madonna Jephi

Approved & Published – Sakshi Raje

Reference:

  • Combined Cases of Transcon Skycity Pvt Ltd & Ors vs. ICICI Bank & Ors, Writ Petition LD-VC No. 28 of 2020 and Transcon Iconica Pvt Ltd & Ors vs. ICICI Bank & Ors, Writ Petition LD-VC No. 30 of 2020, in the High Court of Judicature at Bombay Ordinary Original Civil Jurisdiction decided on April 11, 2020.
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Vaibhav Goyal is a 3rd year BA.LLB (H) student of UILS, Panjab University, Chandigarh, India. He also basically belongs to the “City Beautiful-Chandigarh”. He had interned and have work experience at various Central and State Government bodies of India including the National Human Rights Commission, New Delhi; the Central Information Commission, New Delhi; U.T. Legal Services Authority, Chandigarh, etc. His research projects includes the study on the Right to Emergency Services (PSHRC), Resettlement of Migrant People (NHRC), Implications of RTI in Financial Institutions (CIC), etc. His publications involve articles in different fields of law like administrative, jurisprudence, etc. on online journals including the Juscholars Blog, Burnished Law Journal, etc. His research paper on Prison Reform was published in the Panjab University Journal and his paper was selected in category of best abstract on the topic of Naxalism: A State of Lawlessness and Arbitrariness. He had scored well in various competitions of law consisting of Quiz, Essay Writing, Lecture, Declamation, etc. He had also participated in various conferences including the World Law Forum Conference on Strategic Lawsuits on Public Participation held in New Delhi on Oct 20, 2018 and the National Law Conclave 2020 held at Vigyan Bhawan, New Delhi on Jan 11, 2020.