Supreme Court seeks reply from Centre, RBI on CREDAI's plea for clarification on RBI circular on moratorium
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Supreme Court seeks reply from Centre, RBI on CREDAI's plea for clarification on RBI circular on moratorium

Shruti Mahajan

The Supreme Court today issued notice and sought reply from the Centre and Reserve Bank of India (RBI) on a plea filed by an Association of Private Real estate developers seeking a clarification on the RBI's circular of March 27 as regards moratorium on term loans.

The three-Judge Bench of Justices L Nageswara Rao, Sanjay Kishan Kaul and BR Gavai was hearing 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 moratorium on payment of term loans.

The Court has sought Centre and RBI's response on the plea.

The RBI's circular of March 27 allowed the Banks to grant moratorium to borrowers for a period of three months on payment of installments.

This pertained to all the term loans disbursed by the Banks which stood outstanding as on March 1 and the same would be on a request made by the borrower. This move by the Central Bank came in light of the nation-wide lockdown imposed due to the coronavirus pandemic.

Senior Counsel Harish Salve appearing for the Association submitted that despite the RBI's circular, some Banks were refusing to grant this moratorium. Salve said that while the circular itself indicates that it is discretionary for the Banks to grant the moratorium, the RBI Governor's speech on April 7 indicated that the circular had a binding effect on the Banks. This is where the problem lies and the same needs clarification, Salve argued.

The petition filed by the CREDAI says that while some NBFCs, based on the wording of the circular, understood the same to be a binding directive on lending institutions, some others understood it to be a discretionary move for lenders.

Salve today pressed for a clarification as regards the nature and scope of the circular and whether the same has a binding effect or gives a discretion to the lending institutions.

We only want RBI to clarify whether this is binding or not and whether Banks would grant moratorium or not
Harish Salve to the Supreme Court
CREDAI's plea, while seeking clarification on whether or not the benefit of the circular will also be extended to the NBFCs, also submits that:
"(i) grant of moratorium by the lenders/banks ought not to be discretionary but must be mandatory (ii) moratorium should not carry any interest burden (iii) Loans of all firms irrespective of their source (eg: mutual funds) should be covered by the moratorium."

The RBI's circular and the steps taken by Respondents thereto are discriminatory, the plea by the Association alleges and says that the same is in violation of Articles 14 and 19 (1)(g) of the Constitution of India.

CREDAI, therefore, sought direction from the Court to direct the lending institution to provide financial relief to the members of the Association against the loans taken by them from banks and other financial institutions in terms of the moratorium.

However, in departure from the three month period stated in the circular, the petitioning association has sought for the relief to be given for six months.

Further, a direction is also sought for the RBI to make the circular of March 27 applicable for all Banks, NBFCs, Housing Finance Companies, and other financial institutions "compulsorily and mandatorily to all loan accounts without any discrimination or classification".

Another prayer made by CREDAI is for a direction to lenders to not charge interest on the loan for the period of moratorium.

Solicitor General Tushar Mehta was asked by the Court to take instructions on the plea which has now been posted for after two weeks.

The petition was filed by Advocate EC Agrawala and the Association was represented by Senior Counsel Harish Salve.

Read Order:

CREDIA HR vs UOI.pdf
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