Exclude lockdown period while computing 90 days for NPA: Bombay HC

In a major relief to a Mumbai-based construction company, the Bombay High Court said the period of the lockdown is to be excluded while computing 90 days for the declaration of non-performing assets (NPAs).

The decision of the High Court came on a petition by Transcon Iconica, which took a loan from ICICI Bank, and twice failed to make payments - January 15 and February 15 - and this has not been paid until now.

According to the Reserve Bank of India (RBI) circulars and notifications, if payment is not made and the accounts are not regularised within 90 days of the date of default, then the borrower’s account gets classified as NPAs. But before the completion of this period, the lockdown was announced. The RBI also announced the moratorium on loan payments, which would start from March 1 to May 31.

The single Judge Bench headed by Justice G.S. Patel observed that the period of the moratorium during which there is a lockdown will not be reckoned by ICICI Bank for the purposes of computation of the 90-day NPA declaration period.

“As currently advised, therefore, the period of March 1 until May 31 during which there is a lockdown will stand excluded from the 90-day NPA declaration computation until – and this is the condition – the lockdown is lifted”, said the High Court.

The court also observed that irrespective of the continuance of the moratorium until May 31, if the lockdown is lifted at an earlier date, then this protection available to the petitioners will cease on the date of lifting of the lockdown, and the computing and reckoning of the remainder of the 90-day period will start from that earlier lifting of the lockdown-ending date.

The High Court also clarified that this order will not serve as a precedent for any other case in regard to any other borrower who is in default or any other bank. Each of these cases will have to be assessed on their own merits, it said.

After the RBI issued a circular giving liberty to all banks to allow a moratorium of three months on payment of instalments outstanding as on March 1, the construction company moved the court seeking moratorium period to be “excluded even for the computation of any balance days of the NPA-declaration 90-day period.”

Justice Patel clarified this order is not a backward extension of the moratorium to January 2020. “The moratorium period of 1st March 2020 to 31st May 2020 does not per se give the petitioners any additional benefits in regard to the prior defaults, i.e. those that occurred before 1st March 2020. Thus, the relief to the petitioners is co-terminus with the lockdown period, not the declared end of the moratorium. This is the only way to harmonise the present requirements of both sides,” observed the court.

ICICI bank, through its counsel Virag Tulzapurkar, had however questioned the maintainability of the petition.