On Wednesday, a single-judge bench of the Karnataka High Court held that it is mandatory for the Reserve Bank of India (RBI) to monitor the implementation of its circular dated March 27, which extended the benefit of opting for a moratorium on the repayment of loans and their installments for three months, in view of the COVID-19 pandemic.
The case revolves around the owner of a Technology Park and a five-star hotel in Bangalore, who had procured terms loans from three different financial institutions of a total amounting to 475 crores. The business had to be closed down owing to the nation-wide lockdown.
Therefore, the said person approached the banks for availing the moratorium in pursuance of the March 27 circular of RBI which granted a moratorium on the payment of installments of term loans taken by borrowers for a period of three months. However, such a request was denied owing to the rentals which were already being received by the owner from the Technical Park.
The RBI has already clarified its stance before the High Court by reiterating that it has granted the liberty to the banks for exercising their discretion in granting moratorium, given that the banks are the best suited to assess the requirements and conditions of the lenders.
In furtherance, the bench of Justice Suraj Govindaraj of Karnataka High Court has emphasized that such a circular was issued to ease the burden on the public with an intent to protect and conserve the economy of the country which is badly hit by the COVID-19 pandemic.
Therefore, it is mandatory for the banks to ensure the continuity of the viable business and hence a refusal to grant moratorium is likely to aggravate the vows of the ailing economy. In this, the Court clarified that the borrowers may seek moratorium as a matter of right on the successful establishment that the non-grant of the moratorium would affect the survival of the business.
The Court has ultimately directed all the banks to grant moratorium to the petitioner since the non-grant in absentia of any limitations by the RBI is likely to affect the viability of such circulars. Furthermore, the RBI has also been advised to monitor the implementation of the guidance to avoid such disputes.
(This news has been written and submitted by Ms. Aarushi Kapoor during her course of internship at B&B Associates LLP. Ms. Aarushi is a third-year law student at Hidayatullah National Law University, Naya Raipur, Chhattisgarh.)