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Defaults prior to Covid-19 Pandemic cannot be covered under RBI’s guidelines granting relief on repayment of loans: Delhi High Court

RBI guidelines for reliefs to certain debtors for defaults made on loans due to the Covid-19 Pandemic are only applicable to defaults that arose during the Covid-19 Pandemic and not before. The Delhi High Court made the Petitioner liable for defaults of the Respondent that had been made since 2018. The ratio was laid down by the Delhi High Court presided over by J. P.M. Singh in the case of Amit Khaneja & Ors. Vs. IL & FS Financial Services Ltd., [W.P.(C) 3580/2020].

The brief facts of this case are that the Petitioner took multiple loans from IL&FS Financial Services between the years 2006 and 2018. The Petitioner defaulted in repaying the debts and hence his account was declared as a Non-Performing Asset (NPA). The Respondent initiated proceedings against the Petitioner under the SARFESI Act by taking possession of the Petitioner’s assets. There were multiple proceedings under the Debt Recovery Tribunal after which the Petitioner came up with a ‘one-time settlement’ offer in which he agreed to pay Rs. 100 crores, to which the Respondents agreed and directed the Petitioner to pay off the said amount by 27th March 2020 . The Petitioner did not pay off the amount agreed by him as the ‘one-time settlement’ offer and hence in May the respondents revoked the settlement. The Petitioner challenged the revocation of the Respondent in the High Court.

The Petitioner submitted that it was due to the unforeseen circumstances that arose due to the Covid-19 Pandemic and he could not sell off his assets. Further, the RBI circular provided relief to all such debtors who defaulted on repayment of their loans. Hence, the Petitioner seeks some time to sell his assets as he is now making efforts to sell of his assets as soon as possible even if they are getting deflated prices for it.

The Delhi High Court was of the opinion that the default was made by the Petitioner in the year 2018 and he also neglected various order of the Debt Recovery Tribunal. Further, the Petitioner failed to pay off the ‘one-time settlement’ at many instances. The Court also observed that he had a chance to make the payment till November 2020, but he filed to do so, hence no relief was granted to the Petitioner. The Court with respect to the RBI Circular stated that, “The circulars of the RBI and the guidelines thereunder relate to reliefs to be granted for payments of interest and declaration of accounts as NPAs, etc., during the COVID-19 pandemic. These circulars and policy guidelines cannot lend any support to the Petitioners’ case where the defaults are prior to the outbreak of the pandemic itself. The legality of the revocation of the OTS in May 2020 cannot be tested on the benchmark of the recent RBI circulars and the policy guidelines inasmuch as these settlements are independent of the said circulars and guidelines. Moreover, the RBI circular itself makes it clear that the same is for “continuity of viable businesses” and not for accounts which are already declared as NPA, as is in the present case.”

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