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Parthas Textiles v. Hdb Financial Services Ltd.

Kerala HC27 Nov 2020WP(C)/25105/2020

Case brief

AI extract

What is this about?

Writ petition filed by Parthas Textiles against HDB Financial Services, National Credit Guarantee Trustee Company, and RBI. The court directed the 1st respondent to consider the application for ECLGS benefits and evaluate the request for Covid-19 resolution framework.

What did the court decide?

Directed the 1st respondent to consider the petitioner's application for ECLGS extension and the claim for the resolution framework for Covid-19 stress.

Parthas Textiles Vs Hdb Financial Services Ltd. — Service and Employment | Kerala HC (2020)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE N.NAGARESH

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FRIDAY,THE 27TH DAY OF NOVEMBER 2020/6TH AGRAHAYANA,1942 WP(C).No.25105 OF 2020(K)

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PETITIONER:

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PARTHAS TEXTILES, P.B.NO.1774, M.G.ROAD, JOSE JUNCTION, ERNAKULAM-682 016, REP. BY ITS MANAGING PARTNER, PRAVEEN RAJ REJENDRAN

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BY ADV. SRI.C.AJITH KUMAR

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RESPONDENT:

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1 HDB FINANCIAL SERVICES LTD., 2ND FLOOR, KALLUMKAL BUILDING, COLONY STOP, VAZHAKKALA, THRIKKAKARA (P.O.), KAKKANAD, KOCHI-682 021, REPRESENTED BY ITS MANAGER.

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2 NATIONAL CREDIT GURANATEE TRUSTEE COMPANY LTD.,SWAVALAMBAN BHAVAN, C-11, G-BLOCK, BANDRA-KURLA COMPLEX, BANDRA EAST, MUMBAI-400 051, REPRESENTED BY ITS COMPANY SECRETARY

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3 THE RESERVE BANK OF INDIA 21ST FLOOR, CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH ROAD, MUMBAI-400 001, REPRESENTED BY ITS CHIEF GENERAL MANAGER

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R1 BY ADV. SRI.P.PAULOCHAN ANTONY R3 BY SRI. P.VIJAYAKUMAR, ASGI

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27.11.2020 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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J U D G M E N T

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Dated this the 27^th day of November, 2020

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Aggrieved by the non-consideration of Ext.P4 application for sanction of financial assistance under Ext.P1 Emergency Credit Line Guarantee Scheme, envisaged by the 2^nd respondent, the petitioner is before this Court.

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The petitioner states that the 2^nd respondent has formulated the Emergency Credit Line Guarantee Scheme (ECLGS) to provide 100% guarantee coverage for the Guarantee Emergency Credit Line to eligible borrowers, in the form of a pre-approved sanction limit of up to 20% of loan outstanding, as on 29.02.2020, to eligible borrowers. The petitioner states that the petitioner is squarely covered under Ext.P1 Scheme and fulfills various parameters contained

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therein. The petitioner is eligible and entitled for the benefit under the Scheme.

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The petitioner therefore submitted Ext.P7 application to the 1^st respondent seeking financial assistance under the ECLGS. However, the petitioner's application is not being considered. The petitioner has a further case that as per Exts.P3 and P4 Circulars, the 3^rd respondent-RBI announced a resolution frame work for Covid-19 related stress with intend to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers, providing a window under the prudential frame work, to enable the lenders to implement a resolution plan, in respect of eligible corporate exposures, without change in ownership. The two years moratorium extended for Covid-19 related stress was also not provided to the petitioner by the 1^st respondent, in violation of Exts.P3 and P4.

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Under the circumstances, the petitioner seeks to direct the 1^st respondent to extend ECLGS to the petitioner

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by providing a pre-approved loan up to the loan outstanding

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as on 29.02.2020 and disburse the loan amount to the petitioner forthwith. The petitioner further seeks to command the 1^st respondent to extend a resolution frame work for Covid-19 related stress and for implementation of a resolution plan, by providing two years moratorium for the financial facilities enjoyed by the petitioner, in the light of Exts.P3 and P4 Circulars.

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The 1^st respondent resisted the writ petition filing a statement. The 1^st respondent stated that the functioning and financial flow of the petitioner is in a bad condition on outbreak of the pandemic. The petitioner now limited its functioning of the textile business only on two floors with limited staff. The petitioner has already availed the benefit of moratorium towards repayment of EMIs. Further, to the information of the 1^st respondent, the petitioner has already received around ₹4.78 Crores under the ECLGS from various banks and other financial institutions.

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The learned Standing Counsel for the 1^st respondent argued that the ₹4.78 Crores financial assistance

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already received by the petitioner under the ECLGS, is enough for running the business of the petitioner. There are technical issues also in processing the application of the petitioner. The 1^st respondent has noted certain issues with the demarcation and exact floor area of the property mortgaged by the petitioner. Identification of the property of the petitioner, both of the landed property and of the building, is difficult. This aspect was communicated to the petitioner. Therefore, as a prudent banker, the 1^st respondent is unable to extend benefit under the ECLGS to the petitioner.

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Heard learned counsel for the petitioner and learned Standing Counsel appearing for the 1^st respondent.

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Ext.P1 ECLGS has been framed to provide 100% guarantee coverage for the Guaranteed Emergency Credit Line, which shall be a pre-approved sanction limit of up to 20% of loan outstanding as on 29.02.2020. Under the Scheme, the eligible borrowers are to be extended additional working capital term loan facility from all member lending institutions.

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As per Ext.P1 Scheme, all borrower accounts pertaining to business enterprises/MSMEs/loans to individuals for business purposes with combined outstanding loans across all Member Lending Institutions (MLIs) of up to ₹50 Crores as on 29.02.2020, and annual turnover of up to ₹250 Crores for the financial year 2019-20 are eligible for the Scheme. It is not in dispute that the petitioner's turnover is around ₹30 Crores and the combined outstanding loans of the petitioner is ₹44.63 Crores. Therefore, going by the eligibility criteria under Ext.P1, the petitioner is eligible to apply for the benefit of ECLGS.

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The 1^st respondent has refused to entertain the application of the petitioner on the ground that the financial condition of the petitioner is poor. It may be noted that the Scheme has been launched in the wake of Covid-19 pandemic which has inflicted crushing blow to trades and industries. The Scheme itself is intended to improve the financial condition of the eligible business units.

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It is surprising to note that in Ext.P5

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communication of the Customer Support Officer of the 1^st respondent, it has been stated that as per the assessment of the 1^st respondent, the petitioner has adequate liquidity to service petitioner's instalments. The stand taken by the 1^st respondent in the statement filed before this Court, is therefore unacceptable. The 1^st respondent itself has assessed that the petitioner has adequate liquidity. At the same time, the statement of the 1^st respondent proceeds to state that the financial condition of the petitioner is poor. Assuming that the petitioner's financial condition is poor, then it is all the more necessary that the petitioner's application should be considered for financial assistance under the ECLGS.

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Yet another argument made by the Standing Counsel against extending the benefit of Ext.P1 to the petitioner is that the petitioner has availed the benefit of moratorium already. In this regard, Clause 8 of Ext.P1 is relevant. The said Clause provides that in case a borrower

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has existing limits with multiple lenders, GECL may be availed either through one lender or multiple lenders depending upon the agreement between the borrower and the MLI. Therefore, it cannot be said that availing the benefit of moratorium would be a bar to avail the benefit under Ext.P1.

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As regards the difficulty expressed by the 1^st respondent in the matter of identification of mortgaged property of the petitioner, it has to be noted that it was based on the mortgage of that property, that the 1^st respondent has sanctioned financial assistance in the year 2017. Moreover, Clause 11 of Ext.P1 mandates that no additional collateral shall be asked for additional funding under GECL. Therefore, the said reason extended by the 1^st respondent for declining to entertain the application of the petitioner, is unsustainable. The petitioner is therefore entitled to get reliefs in this writ petition.

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Accordingly, the 1^st respondent is directed to consider the application of the petitioner for extension of

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ECLGS under Ext.P1 and take a decision on the application in the light of the observations made hereinabove, expeditiously. The 1^st respondent shall also consider the claim of the petitioner for resolution frame work for Covid-19 related stress and for implementation of a resolution plan, in accordance with law and in accordance with the Rules and Scheme, if any, made by the 3^rd respondent in that behalf.

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Writ petition is disposed of as above.

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Sd/- N. NAGARESH, JUDGE

aks/27.11.2020

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APPENDIX

PETITIONER'S EXHIBITS:

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EXHIBIT P1 TRUE COPY OF THE EMERGENCY CREDIT LINE GUARANTEE SCHEME (ECLGS)-MODIFICATION IN OPERATIONAL GUIDELINES DATED 4/8/2020 OF THE 2ND RESPONDENT

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EXHIBIT P2 TRUE COPY OF THE FREQUENTLY ASKED QUESTIONS ON EXT.P1 UPLOADED IN THE WEBSITE OF THE 2ND RESPONDENT EXHIBIT P3 TRUE COPY OF THE CIRCULAR NO.RBI/202021/16 DATED 6/8/2020 OF THE 3RD RESPONDENT EXHIBIT P4 TRUE COPY OF THE CIRCULAR NO.RBI-202021/34 DATED 7/9/2020 OF THE 3RD RESPONDENT EXHIBIT P5 TRUE COPY OF THE E-MAIL DATED 21/9/2020 SENT BY 1ST RESPONDENT TO THE PETITIONER EXHIBIT P6 TRUE COPY OF THE E-MAIL DATED 22/9/2020 SENT BY THE PETITIONER TO THE 1ST RESPONDENT EXHIBIT P7 TRUE COPY OF THE LETTER DATED 12/10/2020 ISSUED BY PETITIONER TO THE 1ST RESPONDENT EXHIBIT P8 TRUE COPY OF THE LETTER DATED 31/10/2020 ISSUED BY THE 2ND RESPONDENT

Parthas Textiles v. Hdb Financial Services Ltd.

Case brief

What is this about?

What did the court decide?

Parthas Textiles v. Hdb Financial Services Ltd.

Case brief

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