[COVID-19] Delhi HC restrains Punjab & Sindh Bank from declaring NPA; invokes RBI's March 27 Circular

With respect to a default which first occurred on December 31, 2019, the Delhi High Court has restrained Punjab and Sindh Bank from declaring the loan accounts of Shakuntla Educational & Welfare Society as a non-performing asset. (Shakuntala Welfare & Educational Society vs Punjab & Sindh Bank).The order was passed by a Single Judge Bench of Justice Rekha Palli..The Petitioner, Shakuntla Educational & Welfare Society, had moved the Court seeking a direction to Punjab & Sindh Bank to not declare its pending loan accounts as a Non-Performing Assets (NPA)..The Petitioner had also sought a direction to the Bank for grant of moratorium of three months to it in terms of the Circular issued by the Reserve Bank of India (RBI) on March 27..The Petitioner, a charitable society engaged in the business of technical and higher education, had availed six term loans from the Bank to set up the educational institutions. .The Petitioner claimed that it had been diligently making repayments towards the term loan but failed to pay the instalments payable on or before March 31, 2020..The Petitioner informed the Court that in order to ease the financial crises being faced by borrowers, RBI has provided a moratorium of three months in respect of all term loans as outstanding on March 1, 2020..In view of the Circular, the Petitioner contended that the Bank could not declare its accounts as NPA only on account of its failure to pay the March due. .It was added that since the institutes run by the Petitioner were situated in the State of Uttar Pradesh and the State Government had issued a specific directive prohibiting it from coercing the students to pay the due fees, the Petitioner was not in a position to repay the instalments as payable in March, 2020..The Petitioner thus assured the Court that it would pay the instalments within a week from the date of withdrawal of the State Government’s directive prohibiting the Petitioner from collecting fees from the students..The Bank opposed the petition as it argued the default qua instalments had already fallen due on December 31, 2019 and the March 31 deadline was with respect to the loan accounts turning into NPA..Since the instalment had become due before March 1, the moratorium envisaged by the RBI would not be applicable to defaulters like the Petitioner, it was stated. .The Bank also submitted that the Regulatory Policy rolled out by RBI did not provide for deferment of an account being classified as NPA on account of the pandemic of COVID-19..After hearing the parties, the Court observed that it was not disputed that had the Petitioner, at any time on or before March 31, 2020, made the payment qua the instalments, the Bank would not have declared the Petitioner’s accounts as NPA..The Court opined that a prima facie case had been made out for restraining the Bank from declaring the Petitioner’s accounts as NPA, when the countrywide lockdown was still continuing..It said, “Any classification of the petitioner’s accounts as NPA would certainly amount to altering the position as existing on 01.03.2020 and, therefore, grave and irreparable loss will be caused to the petitioner, in case, its accounts are declared as NPA, only on account of its failure to pay the instalments, which were admittedly payable on or before 31.03.2020.”.The Court, accordingly, directed that till the next date, the Bank stood restrained from declaring the Petitioner’s accounts as NPA..It, however, made clear that if the directive issued by the State of Uttar Pradesh prohibiting the petitioner from demanding fees from its students is withdrawn before the next date, the Petitioner would be liable to forthwith pay the instalments within one week from the date of the said withdrawal..While directing the parties to complete the pleadings in the case, the Court adjourned the matter till May 4. .Yes Bank could not have classified a firm as Non-Performing Asset for failing to pay loan instalment due to COVID-19 crisis: Delhi HC.It would be heard along with the Anant Raj Ltd case..The Petitioner was represented by Advocates Saket Sikri, Gautam Khazanchi, Aayushi Sharma..The Bank was represented by Advocate Suruchi Aggarwal..Read the order: