During the period of moratorium the banks cannot change the classification of the loan installment

Abhinav Mishra| Kirit P. Mehta School of Law| 17th June 2020

Case Name: Anant Raj Ltd. v. YES Bank Ltd.

Introduction

The petitioner had filed a petition seeking direction for the respondents (YES Bank) to stop them from classifying the account of the petitioner as a Non-Performing asset (NPA). The Bench contains Mr. Justice Sanjeev Sachdeva.

Facts

• As per petitioner he had availed bank loan facility during the  period of 2010-15 from the respondent bank and thereafter bank extended further loan facilities to the petitioner vide sanction letters.
• As per petitioner it had availed a loan of Rs. 1570 crores out which it had paid about Rs.1056 crores apart from the interest.
• The petitioner contends that due to the COVID-19 pandemic the economic condition of real estate industry was adversely affected. The petitioner has been regularly servicing loan till 31/12/2019. It is stated that the instalment for repayment which fell due on 1/1/2020, which is the subject matter of the present petition is because of these adverse economic conditions.
• As per respondent in terms of the Income Recognition and Asset Classification Guidelines(IRAC Guidelines) of the RBI if an instalment is due by a period of 30 days it is classified as Special Mention Account 1 (SMA-1), SMA-2 if its 60 days due and if its 90 days due it is classified as a NPA.
• Further the respondent contended that since that the instalment was not paid till 31/02/2020, the account of the petitioner was liable to be classified as NPA.
• The counsel on behalf of petitioner argued that in view of the pandemic the RBI has issued several guidelines to give benefit to the borrowers to ease the financial crisis.
• The respondent however argued that the guidelines applied to instalment that fell due on 01/03/2020 and that the petitioner was already in default as on that date. The counsel referred to the clarification issued by letter dated 31/03/2020 by RBI to Indian banks association that default before 1^st March cannot be said to be the result of economic fall due to pandemic.

Holding

The court was of the view that the classification of the account as an NPA on 31/02/2020 could not have been done by the respondent and accordingly the court restored the status quo ante  and the classification of SMA-2 as it stood on 1/03/2020 was restored. The court taking the statement by the counsel for the petitioner held that it will pay on 25/04/2020, the instalment due on 01/01/2020 and listed the matter before the Roster Bench on 04/05/2020.

Brief Analysis

The court while restoring the status quo ante as on 01/03/2020 reasoned that the change in classification as mentioned in the Regulatory package shows that RBI has stipulated that that the account which has been classified as SMA-2 cannot be further classification as an NPA in the moratorium period and thus the classification before the moratorium period would have to be maintained.

Conclusion

The court recognizing the intention behind the RBI guidelines, which was to ease the financial burden on the borrowers in the time of a pandemic, held that during the period of moratorium the banks cannot change the classification of the loan installment.