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RBI loan moratorium circular: Supreme Court issues notice to Centre, RBI on plea seeking relief policy for real estate developers

Shruti Mahajan

Supreme Court on Friday issued notice on a plea filed by the Maharashtra wing of an association for real estate developers, CREDAI, seeking direction for the Centre and RBI to formulate a relief package for its members in the form of interest waiver. (CREDAI MCHI vs Union of India)

The Bench of Justices Ashok Bhushan and V Ramasubramanian issued notice to the Centre and the Reserve Bank of India (RBI) on Friday on CREDAI MCHI’s plea which also seeks a declaration that the RBI’s circular as regards moratorium on payment on loan installments shall be mandatory in nature.

The plea also seeks for the moratorium policy allowed by the RBI to be mandatorily implemented by all lending institutions including banks/financial institutions/NBFCs and the benefit to be extended to all the loan accounts without any discretion.

The association has alternatively also prayed for the Court to read down RBI’s loan moratorium policy to be made mandatory and applicable to all lending institutions including NBFCs.

The petitioner association has submitted before the Court that the real estate industry is going through a tough time in light of the prevalent conditions due to the pandemic and its effect on the economy. The industry depends heavily on the debt financing and the debts raised from lending institutions are serviced through installments received from purchasers. These installments are directly dependent on the progress of construction which, at the given time is slow.

The lockdown that was imposed due to COVID-19 pandemic brought the industry to a standstill, the plea states and adds that on account of the mandatory direction from the Centre to pay all salaries and wages to employees, the real estate developers struggled immensely to make ends meet.

However, the Centre has failed in assuaging the members of the association and the industry as a whole given that despite a provision under the Disaster Management Act for relief in loan repayments, the government did not deliver on the same. The RBI’s circulars only contemplated discretion with the Banks to allow for a moratorium on repayment of installments.

The circular itself also did not help the industry due to the interest component which proved to be a substantial burden on the rest estate developers and there was as such no effective relief provided, the petition seeks to submit.

“...purported reliefs is only illusory and grants no affective reliefs at all. Even the discretion conferred on lending institutions to grant a moratorium is exercised in a discriminatory manner at the whims of the lending institutions. In any case, in the absence of any waiver of interest, the moratorium is hardly of any help.”

the petition states

Due to the difficulties faced, the association has thus prayed for a direction for the Respondents, that is the State and the RBI, to evolve an effective relief package saying that if the authorities do not come to the aide of the industry, its survival will be in a huge risk. The petition adds,

“If, adequate relief is not granted as set out hereinafter all stake holders would be completely prejudiced and the consequence will be an effect not just on the real estate developers but to the country, its citizens and economy as a whole.”

The Court, while agreeing to hear the plea and issuing notice on the same, also tagged it with the petition challenging the interest component of the RBI’s circular in the case of Gajendra Sharma vs Union of India.

The petitioner association was represented by Senior Counsel Kapil Sibal along with Advocate Kunal Vajani. The petition was filed through DSK Legal and is drawn by Advocates Samit Shukla, Manhar Singh Saini, and Saloni Shah.

In the previous hearing in the Gajendra Sharma case, the Court had directed the Centre and RBI to review the situation as regards moratorium and levying of interest on the accrued interest and had asked the Indian Banking Association (IBA) to consider coming up with guidelines on the issue.

On the issue of the interest component, the RBI had earlier made its position clear and placed an affidavit before the Court stating that it would not be appropriate to go for forced waiver of interest keeping in view the financial health of banks as well as the interest of the depositors.

In a separate petition related to the circular, an association of real estate developers, CREDAI HR, had also moved the Supreme Court seeking clarification on whether the circular also brought under its scope Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs).

Filing a response on this plea, the Securities Exchange Board of India (SEBI) had questioned the locus of the association to bat for relief for the NBFCs and HFCs, terming the petition a "proxy litigation".

Read Order:

CREDAI MCHI vs UOI - 19.06.2020.pdf
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