Delhi High Court: Sanjeev Sachdeva, J. while addressing a petition held that,
Classification of Petitioner’s account as Non-Performing Asset could not have been done.
Petitioner sought a direction to Yes Bank Ltd. (Respondent-1) not to take any coercive steps as proposed by them including declaring of petitioner’s account as Non-Performing Asset (NPA).
Issue pertinent to the case is that petitioner failed to adhere the servicing of the in terms loan conditions that was due on 01-01-2020, though the same was regularly being followed till 31-12-2019.
Reason for non-payment as stated by petitioner was the economic conditions brought due to the effects of COVID-19 Pandemic.
Respondent stated that,
in terms of the Income Recognition and Asset Classification Guidelines (IRAC Guidelines) of the Reserve Bank of India, if an instalment is overdue by a period of 30 days, the borrower’s account is classified as Special Mention Account – 1 (SMA-1) and if the instalment is overdue by 60 days, the account is classified as Special Mention Account – 2(SMA-2) and if the instalment is overdue by a period of 90 days, the account is classified as Non-performing Asset (NPA).
Further respondent contended that since the loan instalment was not paid till 31-03-2020, the account of the petitioner was liable to be classified as NPA.
He added to his contention that, an automated system in accordance to IRAC Guidelines is put into the banks which classifies the accounts systematically in event of default.
Petitioner’s counsel submits that the COVID -19 Regulatory Package issued by Reserve Bank of India on 27-03-2020, on account of COVID -19 Pandemic, provides for re- scheduling of the payments – term loans and working capital facilities.
Relief Package also deals with the classification as Special Mention Account and Non-performing Asset pursuant to the economic fallout from COVID-19.
Respondent’s counsel submits that, RBI guidelines and package will not be applicable in the petitioner’s case as, the petitioner was already in default as on 01-03-2020 and the package is applicable only to those instalments which fall due on 01-03-2020 and also only to those borrowers who were properly servicing their account till 01.02.2020 and were not in default.
A clarification was issued by Chief General Manager–in –charge Department of Regulation of the Reserve Bank of India to the Chairman, Indian Banks Association, wherein it is stated that if a borrower has been in default even before March 1, 2020, such default cannot be said to be as a result of economic fall due pandemic and benefit of moratorium can be extended to such borrower in respect of payment falling due during the period March 1, 2020 to May 31, 2020.
Bench stated that,
“If the Regulatory Package is applicable only to Standard Asset accounts, there was no necessity for the RBI to refer to Classification of an account as a Non-Performing Asset (NPA) in its Regulatory Package and RBI could have only referred to the change of classification as a SMA.”
If the interpretation given by counsel for the respondent were to be accepted, then an account which was classified as a Standard Asset as on 29-02-2020, cannot become an NPA post 01-03-2020 unless it goes through the process of SMA. Since the account cannot be classified as SMA for instalments falling due post 01-03-2020, where was the question of stipulating a moratorium for classification as a Non-Performing Asset.
Court opined that,
classification of the account of the petitioner as an NPA on 31-03-2020 could not have been done by the respondent. Accordingly, status quo ante is restored qua the classification of the account of petitioner and the account classification as it stood on 01-03-2020 shall stand restored.
Petitioner shall pay on or before 25-04-2020, the instalment which fell due as on 01-01-2020 along with interest accrued thereon till the date of the payment irrespective of the lockdown position.
Matter to be listed on 04-05-2020. [Anant Raj Ltd. v. Yes bank Ltd., WP(C) Urgent No. 05 of 2020, decided on 06-04-2020]