HC tells RBI to ensure banks implement EMI moratorium rule

The Karnataka High Court on Friday directed the Reserve Bank of India (RBI) to monitor the implementation of moratorium scheme on the repayment of loans.

Directing two banks to reverse the EMI already deducted in the case of a company, Justice Suraj Govindaraj held that RBI cannot leave it to the discretion of the banks whether or not to accept the request by the customers on the moratorium scheme.

The company had challenged the refusal of the banks to extend the scheme. The petitioner Velankani Information Systems Limited had availed of term loan from three different banks totalling up to Rs 475 crore. The petitioner owns an Information Technology Park and a 5-star Hotel and there was no default in the repayment.

As a measure to ease financial stress caused due to Covid-19 situation, the RBI on March 23, 2020 had permitted banks to grant a moratorium of three months on payment of all term loan installments falling due between March 1, 2020 and May 31, 2020. In May, the scheme was extended by another three months.

The petitioner company had filed an application with the banks seeking the benefits of the scheme. However, the banks refused to offer the scheme.

During the hearing, the RBI submitted that it was left to the lending agencies the manner in which they want to extend the scheme. It further contended that though RBI has issued a policy, it was for the banks to implement it. The banks contended that the scheme was not applicable to a structured loan, one which was offered to the petitioner.

The bench held the view that it was indeed the responsibility of the RBI to monitor the scheme. “It is the obligation and duty of the RBI to regulate the financial institutions, its business as also the credit system of the country, by exercising the powers vested with it,’’ the bench ordered.

Further, the court clarified that it was left to the customer to choose the moratorium scheme. “Once such a choice is made and an application was submitted, the rest of the process is automatic…Once the banks have in the public domain on their respective websites expressed their solidarity with all their customers and stated that all the customers are eligible for grant of a moratorium, in accordance with RBI guidelines, it is not permissible for such banks to nitpick and later on, refuse the grant of a
moratorium.’’