Bombay High Court
Bombay High Court
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Beyond reasonable doubt that RBI circulars on loan moratorium are not applicable to mutual funds and debentures: Bombay High Court

The Bombay High Court held that the circulars issued by the Reserve Bank of India (RBI) providing for moratorium on repayment of term loans are not applicable to parties bound by a Debenture Deed.

Shruti Mahajan

The Bombay High Court earlier this week held that the circulars issued by the Reserve Bank of India (RBI) providing for moratorium on repayment of term loans are not applicable to mutual funds and debentures (Zee Learn Ltd v. UTI Asset Management Co Ltd).

The Division Bench of Justices RD Dhanuka and VG Bisht said that it is clear from the terms of the RBI circulars that the moratorium is allowed to be granted by lending institutions to borrowers in cases of term loans only. Noting that the provision of moratorium is discretionary, the Court said that a direction mandating such grant of moratorium has not been passed by the RBI.

Therefore, the principles behind allowing such an arrangement are specific to the institutions and their borrowers specified in the circulars and would not extend to those who have defaulted in making payments in case of Debenture Deeds. The order reads,

“A perusal of the said circular clearly indicates that it applies to all Commercial Banks, all Primary (Urban) Co-operative Banks, States Co-operative Banks, District Central Cooperative Banks, All India Financial Institutions, All Non-Banking Financial Companies and also deals with terms loans and working capital facilities provided by those entities. It is clearly beyond reasonable doubt that those two circulars would not apply in case of mutual funds and debentures.”

The petitioner in the instant case had moved the Bombay High Court seeking benefit of the RBI circulars on moratorium period. The petitioner had made a private placement of a certain number of unlisted, redeemable, and non-convertible debentures back in March 2015. The redemption date of the same was July 8 of this year.

The respondent body is a public sector undertaking which falls under the meaning of "public financial institution" under Section 2(72) of the Companies Act. Therefore, it would also fall under the ambit of the meaning of “State” under Article 12 of the Constitution of India and the matter would be amenable to writ jurisdiction, the petitioner had claimed.

Having made these submissions, the petitioner claimed that the principles behind the RBI circulars on moratorium should therefore be extended to the petitioner. It was also claimed that it was only since March of this year that the petitioner has defaulted in paying installments due to the COVID-19 pandemic.

The respondent, on the other hand, argued that the petitioner is a private party who entered into an agreement with a Sole Trustee. Further, one. of the respondents is merely an agent of this Trustee, and as such, the matter suffers on the grounds of maintainability.

On merits, the respondent argued that the default in payment began back in 2019, and was not related to the COVID-19 pandemic. Moreover, the applicability of the RBI circulars only applies to those parties that it is addressed to.

The Court agreed that the writ jurisdiction of the Court could not be invoked in the instant matter.

"In our view even if respondent No.1A falls within the definition prescribed under Section 2 (72) of the Companies Act, merely on that ground the respondent No.1A cannot be subjected to the writ jurisdiction of this Court under Article 226 of the Constitution of India. In our view, Writ Petition itself is not maintainable on that ground."

Nevertheless, since the submissions on merits had been made, the Court proceeded to adjudicate on merits.

It held that the petition made no case for the interference of the Court and was devoid of merit, considering that it is “clearly beyond reasonable doubt” that the RBI circulars do not apply to debentures and mutual funds.

“In our view the reliance placed by the petitioner on those two circulars for the purpose of availing benefits under those two circulars is misplaced. None of these circulars would apply to the facts of this case. The concession provided under those two circulars cannot be availed by the petitioner.”
Bombay High Court

With these observations, the Court disposed of the matter.

The petitioner was represented by Senior Counsel Aspi Chinoy, along with Senior Counsel Janak Dwarkadas, and Advocates Rohan Dakshini, Namrata Shah, S Laskari, Ashna Contractor, and Bhavin Shah, instructed by Rashmikant and Partners.

The respondents were represented by Senior Counsel Darius Khambata along with Advocates Pheroze Mehta, Vividh Tandon, Shanksen Gupta, Manini Bharati, Chhavi Jain, and Uttara Srinivasan, instructed by Trilegal.

Read Order:

Zee Learn Ltd. vs UTI Asset Management.pdf
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