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In its affidavit filed before the Supreme Court, the Securities and Exchange Board of India (SEBI) has said that the petition filed by CREDAI seeking relief for NBFCs under the RBI circular on moratorium, appears to be a "proxy litigation". (CREDAI HR vs Union of India)
CREDAI, in its petition, has sought a clarification if RBI's circular of March 2020, which allowed for banks to grant a moratorium on payment of term loans, also applied to NBFCs.
In May, a three-Judge Bench of the Supreme Court had sought replies from Reserve Bank of India (RBI) and SEBI along with the Centre on a plea filed by the Confederation of Real Estate Developers' Associations of India (CREDAI) which sought, among other things, clarification as regards the scope of the RBI's circular of March 2020, which allowed for banks to grant a moratorium on payment of term loans.
SEBI, in this regard, has filed its counter affidavit before the Supreme Court which, at the outset questions the locus of CREDAI to seek relief for the NBFCs. It says, this appears to be proxy litigation.
The petitioner body is an association established for the benefit of real estate developers and instead of raising the grievances and issues of its own members, CREDAI is "abusing the process of this Court" under Article 32 by raising the concerns and issues related to NBFCs and Housing Finance Company (HFCs), the affidavit says.
The SEBI has submitted in its affidavit that CREDAI raises no issue regarding the current obligations of the real estate developers and the industry towards mutual funds while the association seeks to raise issues on behalf of NBFCs and HFCs and on this ground alone, this plea should be dismissed by the Apex Court.
SEBI addresses the issues raised by CREDAI, nevertheless, to submit that the ongoing pandemic and the lockdown that was imposed have affected all the industries, not the real estate industry alone. Therefore, all loans and contractual transactions cannot be placed under moratorium as a result.
SEBI says that if the entire chain of financial rights and obligations are placed in suspension for the period of lockdown, "it would lead the entire economy to a standstill and would bring chaos, disorder and havoc."
The RBI as well as the Government of India through the Ministry of Finance have declared various schemes and taken steps in an attempt to meet with the situation in the country as regards the stalled economy and financial health of various industries.
Additionally, for the benefit of the real estate industry, the Ministry of Housing and Urban Affairs has also issued an advisory to the State governments to invoke the Force Majeure clause under Section 6 of RERA Act to enable the extension of timelines for completion of projects, among other things.
The affidavit also goes on to list all the steps taken by various arms of the government to help the real estate industry to counter CREDAI's averment as regards financial obstacles faced by its members during the lockdown.
It highlights that the RBI has taken targetted steps to ease the pressure on NBFCs and other institutions while the government has announced a stimulus package that is aimed at reviving the stalled economy.
SEBI says CREDAI's plea is "merely based on surmises, conjectures and hypothetical situation and is too general in nature." Terming the plea as frivolous and misconceived, SEBI says that the CREDAI's petition is not maintainable and is liable to be dismissed.
SEBI's counter-affidavit is drawn by Advocates OP Faizi and Ashish Aggarwal and filed by Advocate Shashi Kiran.
CREDAI, in its plea, while seeking clarification on the scope and nature of RBI's circular, had also sought to know whether the grant of moratorium was discretionary or binding in nature. Further, CREDAI's plea also submits that:
CREDAI's petition will be heard by the Supreme Court on June 12 along with other matters challenging the interest component of the RBI's circular claiming that the interest during the moratorium period shall not be imposed.
In this regard, the RBI has informed the Supreme Court of its position that it would not be appropriate to waive interest keeping in view the necessity of maintaining financial health of Banks and the interests of the depositors.