Banks can not operate against companies refusing to make payments

Team SoOLEGAL 1 May 2020 3:13pm

Banks can not operate against companies refusing to make payments

By an interim order on Tuesday i.e. 28th April 2020, the Delhi High Court has barred banks from taking any punitive action towards a company for refusing to make payments against the loan.The bench led by Justice Navin Chawla, stated in an order that the circulars of Reserve Bank of India dated 27 March and 17 April have provided the reverse factoring facility as loans, against which bank borrowers will be covered, giving relief to Eastman Auto & Power Ltd.

Eastman Auto approached the Delhi High Court to demand a moratorium on payments that had to be made for the use of electronic bill discounting facilities by six banks — ICICI Bank Ltd., State Bank of India, IndusInd Bank Ltd., Canbank Factors Ltd., Punjab National Bank, Bank of Baroda and Union Bank of India.

The corporation told the court that it had made payments due until 31 March, but not after that on the basis of the problems caused by the Covid-19 pandemic.Eastman asked the court to continue the use of the facility for a further two months. It also told the court that four banks have already accepted to grant the applicant an expansion of the facility, but Bank of Baroda and Union Bank of India have rejected it.

These two banks argued in court that the RBI circular does not cover a moratorium relief on the use of reverse factoring facilities by companies, adding that inability to make payments would end up making Eastman Auto liable for criminal consequences under the law. The RBI sought time from the court to notify the court of its stance as to whether the circular would cover circumstances such as this.

The Court, however, stated prima facie that it could not agree with the arguments of the two banks and did point out that the intent of the RBI circulars was to provide financial relief to those parties who had availed themselves of term loans and working capital facilities.The order stated, “Restrained from taking any coercive action against the petitioner, including the petitioner's declassification, for the petitioner's failure in the Reverse Factoring Facility from these respondents”.The interim order shall remain in place until the next hearing of the case is held by the bench.

Tagged: Delhi High Court   Justice Navin Chawla   RBI   Payments   Covid-19   pandemic   Eastman Auto & Power Ltd   RBI circular  
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