RBI circulars on loan repayment not applicable to bonds: Bombay HC
A two-member HC bench, comprising Justices RD Dhanuka and VG Bisht, last Monday (July 13) said a perusal of the circulars indicated that it applied to all commercial banks, all primary (urban) co-operative banks, state co-operative banks, district central co-operative banks, all India financial institutions, all non-banking financial companies and also term loans and working capital facilities provided by those entities.Updated: Jul 16, 2020 11:25 IST
The Bombay high court (HC) has held that the circulars issued by the Reserve Bank of India (RBI) following the coronavirus disease (Covid-19) outbreak in the country regarding deferment in repayment of loan instalments during nationwide lockdown restrictions are not applicable to mutual funds and debentures.
A two-member HC bench, comprising Justices RD Dhanuka and VG Bisht, last Monday (July 13) said a perusal of the circulars indicated that it applied to all commercial banks, all primary (urban) co-operative banks, state co-operative banks, district central co-operative banks, all India financial institutions, all non-banking financial companies and also term loans and working capital facilities provided by those entities.
“The two circulars would not apply in case of mutual funds and debentures,” said the bench while dismissing a petition filed by Zee Learn Limited, an Essel Group company.
Zee Learn had moved the HC seeking a three-month moratorium on payment of non-convertible debentures (NCDs) due to the UTI Mutual Fund after the government allows schools to reopen that are currently holding online classes because of the raging viral outbreak.
The Essel Group company said that in March 2015 it had made a private placement of 650 unlisted redeemable NCDs of Rs. 10 lakh each with 10.40% XIRR (extended internal rate of return) payable at the time of maturity and can be redeemed on July 8.
Under the agreement, Zee Learn said it had made various payments to UTI Asset Management Company Limited, but defaulted in the payment of instalments amounting to Rs. 44 crore since March owing to the pandemic.
The Essel Group company moved the HC seeking an extension of the redemption date after UTI Asset Management Company had issued a demand notice on June 4.
Zee Learn cited the two RBI circulars, issued on March 27 and May 23, which had instructed banks to defer loan repayment instalments during nationwide lockdown restrictions, which were enforced from March 25 to contain the viral outbreak and gradually eased from June 4 from non-Covid-19 hotspots.
It was argued on behalf of Zee Learn that though it regularly paid instalments, it defaulted in making the repayment because of the unforeseen pandemic that is wreaking havoc with the economy.
The petitioner pleaded that it was not in a position to recover school fees from students since March and, as a result, was unable to make the payments and discharge the obligation under the Debenture Deed.
It also argued that though the RBI did not mention mutual funds, the underlying principle would be equally applicable to the petitioner company.
Zee Learn would also be entitled to moratorium contemplated under the RBI circulars, the plea stated.
UTI Asset Management Company opposed the plea citing that Zee Learn had defaulted not just during the pandemic but since June 4, 2019, and if any relief was granted to the company it would affect 21,000 small investors, who would be required to be paid for the debentures held by them.
UTI Asset Management Company also pointed out that the RBI circulars were infructuous to the case.
The court accepted the UTI Asset Management Company’s argument. It said the reliance placed by Zee Learn on the two RBI circulars for the purpose of availing the benefit was misplaced. “None of these (RBI) circulars would apply to the facts of this case,” said the bench and dismissed Zee Learn’s petition.