Covid-19 Impact: Delhi High Court Restrains Punjab & Sind Bank From Declaring Education Society’s Account As An NPA  

The Delhi High Court restrained Punjab & Sind Bank from declaring an educational society’s account as a non-performing asset after it defaulted on loan repayment due before March 31.

Shakuntala Educational & Welfare Society, a Delhi-based charitable body, moved the court seeking that it should not be declared as an NPA under the moratorium provided by the Reserve Bank of India from April to June to help companies tide over disruption during the Covid-19 pandemic.

The society had obtained six term loans from the bank and repaid four. It was regularly repaying dues for the remaining two till March. The society was, however, not able to make payments on time as it was unable to collect fees from students because of a directive by the Uttar Pradesh government.

Noting that a “grave and irreparable damage” would be caused to the society, a single-judge bench of Justice Rekha Palli, who heard the matter through video conferencing, granted a conditional stay. That is subject to payment of instalments within a week after Uttar Pradesh withdraws its directive.

The high court will decide if the moratorium is applicable to the society after considering the RBI’s view on May 5.

Courts in India have been granting relief to beleaguered companies hit hard by the outbreak of Covid-19 and the resultant lockdown imposed by the central government. The Delhi High Court recently restrained Yes Bank Ltd. from declaring Anant Raj Ltd. as an NPA . Similarly, the Bombay High Court provided relief to two real estate companies by restraining ICICI Bank on similar grounds.

It also restrained debenture trustees from selling shares of Future Retail Ltd. and MEP Infrastructure Developers Ltd. after the stocks tumbled tracking the worst selloff in Indian equities in more than a decade.

What The Society Argued

Saket Sikri, counsel for the society, sought relief on the following grounds:

• The society is a charitable body and it defaulted on instalments due to a directive issued by the UP government, which prohibited educational institutes from collecting or demanding fees from students.
• It was entitled to relief under the RBI’s March 27 circular on loan moratorium.
• Punjab & Sind Bank cannot declare the society’s account as an NPA merely due to a failure to repay instalments due before March 31 in light of the RBI’s circular.

Bank’s Counter

Suruchi Aggarwal, counsel for Punjab & Sind Bank, opposed relief arguing:

• RBI’s moratorium applies only for instalments becoming payable post March 1. The society cannot be granted any protection as it defaulted prior to this date as the loans had become due on Dec. 31.
• RBI’s circular on moratorium cannot override the central bank’s regulatory policy, which does not make any provision for deferment of NPAs due to the Covid-19 outbreak.