‘STATUS QUO ANTE’ RESTORED FOR ACCOUNT CLASSIFIED AS NPA BY YES BANK

The Delhi High Court as on 6th April, 2020 passed an order favouring the petitioners, Anant Raj Limited, who sought the court’s advisory to issue a direction against the respondents, Yes Bank, for classifying their account as a Non-Performing Asset (NPA).

The petitioners, had initially borrowed by the respondents, an amount of Rs. 850 crores, which was substantially increased over a period of time, through different sanction letters by Yes Bank, ultimately amounting to Rs. 1570 crores. 

The petitioners were up-to-date with the payment of the principal instalments along with the accrued interest until 31/12/2019. However, failed to pay the instalment amounts due on 01/01/2020 and subsequently on 01/02/2020 and 01/03/2020.

The respondent bank, according to the Income Regulation and Asset Classification (IRAC) Guidelines provided by RBI, first classified the petitioners, as SMA-1(payment overdue for a period of 30 days). Then, as SMA-2, on account of their second failure to pay the due amount (payment overdue for a period of 60 days). And currently, have now classified the petitioners as NPA, for a failure of payment of the due instalment of principal and the accrued interest amount, for a period of 90 days. 

The petitioners argued in court, and stated that they could not pay the due instalment amounts on time, as well the interest due to the drowning economic conditions, hit by the global COVID-19 pandemic. They also stated that, according to the recent moratorium guidelines and the COVID-19 Relief Package, developed and issued by the RBI, allows the borrowers, a three month deferment period, for the non-payment of term loans and other long term loans, which are due from 01/03/2020. 

The respondents, however pursued that the petitioners, were not due from 1st March, 2020 but were already on default, for payment of their previous principal and interest amounts on this date. Moreover, as far as the classification of the petitioners as NPA is is considered, the respondents pleaded that according to the IRAC guidelines, clause 4.2.2 states that it is mandatory for all banks to impose a system or some form of technology which directly classifies the borrowers into such assets, in case of default on payments. Thus, it was not solely, in the hands of the Bank, to prevent the classification of such assets. 

The case, which was decided by a single judge bench, Justice Sanjeev Sachdeva, passed an order, favouring the petitioners such that their position as an NPA was removed and their previous status quo was restored. Moreover, the petitioners have also been directed to pay the amount due on or before 25th May, 2020.

Given, that such a judgment shall be a precedent in all the future cases that may arise relating to such default of payments by the borrowers, a very important question that rises is whether the judgment actually justified, provided that the instalments were actually due from the beginning of the year itself, and not only in the month of march, as contrary to the guidelines provided for the moratorium. 

Another question that develops, is whether, the present moratorium guideline laid down by the RBI, shall prevail over the other related guidelines, relating to the repayment of loan amounts, for the time this pandemic continues, and what remedies will it leave behind for the banks, provided that they follow the guidelines and procedures/systems laid down by RBI.