The Delhi High Court has restored status quo ante with regard to the asset classification of Anant Raj Ltd by YES Bank as on March 1, 2020, making the Delhi-based real estate and infrastructure developer eligible for some relief under the regulatory package for loans announced by the Reserve Bank of India on March 27, 2020.

This judgment has significant implications for borrowers as well as banks vis-a-vis the RBI’s Covid-19 regulatory package announced on March 27.

Based on this judgment, borrowers, whose accounts were under stress but were downgraded to the non-performing asset (NPA) category post announcement of the regulatory package, too may demand restoration of status quo of their asset classification.

Petitioner Anant Raj was in the special mention account (SMA)-2 category when the regulatory package was announced and respondent YES Bank classified it as NPA on March 31, 2020.

SMA-2 category account is a stressed account where the principal or interest payments or any other amounts are wholly or partly overdue between 61-90 days.

The court asked the petitioner to pay on or before April 25, 2020, the instalment which fell due on January 1, along with interest accrued thereon till the date of the payment irrespective of the lockdown position.

“It is clarified that the payment would be without prejudice to the rights and contentions of the parties,” the judgment said. It ordered listing of the case before the concerned Roster Bench on May 04, 2020.

The RBI’s package to mitigate the burden of debt servicing brought about by disruptions on account of the Covid-19 pandemic entails rescheduling of payments with respect to term loans and working capital facilities for three months beginning March 1, and easing of working capital financing, among others.

The petitioner said the instalment for repayment, which fell due on January 1, 2020, could not be paid by it because of adverse economic conditions brought about by the effects of Covid-19.

The respondent said since the instalment was not paid till March 31, the account of the petitioner, which passed through the three SMA stages, was liable to be classified as NPA.

However, Anant Raj’s counsel submitted that the RBI’s March 27 Covid-19 regulatory package provides for rescheduling of the payments ― term loans and working capital facilities.

The counsel observed that the restriction on change in classification as mentioned in the regulatory package shows that RBI has stipulated that the account which has been classified as SMA-2 cannot further be classified as NPA in case the instalment is not paid during the moratorium period ― between March 1 and May 5 ― and status quo of the classification as SMA-2 shall have to be maintained.

The petitioner pointed to a stipulation in the package which says: “Since the moratorium/ deferment/ recalculation of the “drawing power‟ is being provided specifically to enable the borrowers to tide over the economic fallout from Covid-19, the same will not be treated as concession or change in terms and conditions of loan agreements due to financial difficulty of the borrower under...the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019.

“Consequently, such a measure, by itself, shall not result in asset classification downgrade.”

Further, the asset classification of term loans which are granted relief under the package will be determined on the basis of revised due dates and the revised repayment schedule.

Similarly, in case of working capital facilities where relief is provided, the SMA and the out-of-order status will be evaluated considering the application of accumulated interest immediately after the completion of the deferment period as well as the revised terms.

The petitioner also emphasised that rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Companies (CICs) by the lending institutions.

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