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The Karnataka High Court yesterday held that the Reserve Bank of India (RBI) is required to monitor the implementation of its March 27 circular granting a loan moratorium to borrowers in the face of the COVID-19 pandemic.
The Court directed three private banks to extend the benefit of the moratorium on loan repayment to a borrower in line with the RBI’s circular, and directed RBI itself to ensure that the circular is implemented.
The order was passed by the Single Judge Bench of Justice Suraj Govindaraj.
The Court was faced with a number of questions to be answered in this matter.
Whether a writ of mandamus can be issued against private banks to implement RBI’s March 27 circular?
The Court noted that the aim of issuing the circular was to ease the burden on the public, and it can be said that the circular was issued in the public interest. Therefore, it would attract a public law element.
“The said circular having been issued to protect and preserve the economy of the country on account of COVID-19 pandemic. The issuance of the circular is in public interest, interest of the economy and the country. The enforcement thereof would also come within the purview of enforcing a public duty.”
Karnataka High Court
Therefore, a writ of mandamus in such a case would be maintainable, the Court concluded.
Whether the March 27 circular was mandatory, directory, or discretionary?
Whether the grant of moratorium is at the discretion of the bank or as a corollary would it be a right to be exercised by the borrower?
In answering this question, the Court examined the circular’s phraseology and the details pertaining to the FAQs published by the three banks on their websites. The banks had declared on their websites that all borrowers were eligible to avail the moratorium.
The Court thus said,
"…the banks cannot take one stand in the public domain and a contradictory stand while implementing what they have stated in the public domain.”
It is the discretion of the borrower to avail the benefit of the loan moratorium, the Court said. It added that while the RBI’s circular gives discretion to the banks to grant the moratorium,
“it is mandatory for the Banks to ensure the continuity of viable businesses, in that, the non-grant of moratorium should not result in adversely affecting the survival and continuity of a viable business.”
The Court added that borrowers may seek the moratorium as a matter of right if they could establish that the growth and continuity of their business would be affected.
The contention of the banks that since the loan was structured, the borrower did not need to avail the moratorium, was rejected. The Court held that since the RBI circular does not specifically address the question of whether it would be applicable to structured loans, the ambit would have to be considered to be extended for structured loans also.
The Court was also faced with the question whether one bank can deny a moratorium request when other Banks in the consortium are agreeable to the same. It was held that the banks, keeping in mind the viability of a business, cannot refuse to grant moratorium when other banks are willing to extend the benefit.
As regards the responsibility of the RBI in ensuring implementation of the circular, the Court said that its contention that the dispute is between the borrower and the lender banks cannot be accepted.
The Court therefore directed the RBI to enforce the recovery package as put forth in its March 27 circular.
The communications sent by HDFC Bank to the petitioner in the instant case rejecting the moratorium request have been quashed by the Court. All three banks have been directed to grant moratorium as requested by the borrower, subject to the petitioner making payment of interest.
The moratorium is directed to be granted for the entire period as stipulated by the RBI’s circular and the money recovered by the respondent banks towards loan instalments are directed to be returned to the petitioner.
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