The Karnataka High Court on 8th July, 2020 held that the Reserve Bank of India (RBI) must monitor the implementation of their circular providing a loan moratorium to all the borrows who wish to seek reliefs from the loan installments amid Covid-19 pandemic. The Order by Justice Suraj Govindaraj of Karnataka High Court, directed three private banks to extend the loan moratorium provided to the borrowers and directed the RBI to make sure the relief was implemented.
This Order was passed in the matter where owner of a Technology Park and a posh hotel who had procured loans from three private banks namely- HDFC Bank, Federal Bank and Aditya Birla Finance; approached the Court seeking relief as his total loan amount of Rs. 475 crore with these abovementioned banks. In his plea the owner of the Park and hotel stated that his business had been shut since the lockdown was announced and the Petitioner has had almost nil income from his business since then. All of the Petitioner’s securities were in favour of these banks and he feared he would at loss of security if he did not approach the Court. On 27th march, 2020, RBI had announced via a circular that all banks had to grant a loan moratorium for a period of three months to all the borrowers unless they opt otherwise. The period of moratorium was later extended by RBI.
When the Petitioner approached banks to get relief with the help of a loan moratorium, his request was denied. HDFC Bank while rejecting said that there was rental income which was earned by the Petitioner hence a moratorium was not required. Federal Bank stated that they would grant a moratorium only if HDFC Bank was willing to provide one to the Petitioner whereas Aditya Birla rejected the Petitioner’s request by stating that the other two banks had been unilaterally appropriating the installments as per the Petitioner’s cash flow and hence so will they. Therefore before the High Court, the Federal Bank and Aditya Birla in defense stated that they had not rejected the request but had simply provided an alternative. RBI in its statement before the Hon’ble Court said that it had allowed the banks to use their discretion in granting of moratorium since the banks were best suited to assess the borrower’s situation.
The Court after hearing all the parties held that a writ of mandamus can be issued against private banks to implement RBI’s circular. The Court further held that it is up to the borrower’s discretion to avail the benefits of the moratorium while adding that it is mandatory for the Banks to ensure the borrower is in a state where a moratorium is not required otherwise with irregular and not sufficient income, it would be unfair to the borrower to not grant them the benefits of moratorium. The Court further held that only if the continuity of business is affected then only can a borrower seek benefits of a loan moratorium. In case if one bank grants a borrower of moratorium and another doesn’t, the Court stated that after keeping in mind the viability if one bank grants moratorium to a borrower then, any other bank cannot refuse to grant moratorium to the same borrower. The Court also quashed all the rejection letters by these three banks to the Petitioner and directed these banks to grant moratorium. The Court further directed RBI to ensure not just these banks but all banks follow the circular issued by the RBI on 27th March, 2020.
