The bench noted that the entire petition was based on reliance placed on moratoriums related circulars issued by RBI on March 27 and May 23.
The Bombay High Court has held that the Reserve Bank of India (RBI) circulars issued on March 27 granting a moratorium on payment of instalments of term loan for three months and the May 23 circular subsequently extending moratorium on loan repayments would not apply to mutual funds and debentures.
A moratorium period is a time during the loan term when the borrower is not required to make any repayment.
A Division Bench of Justices R D Dhanuka and V G Bisht passed the order through videoconferencing on July 13, after hearing a writ plea filed by Zee Learn seeking a three-month moratorium of non-convertible debentures (NCDs) due to the UTI Mutual Fund after the government allows schools to reopen, subject to balance debenture amount continuing to bear interest at 10. 4 % per annum until the extended date.
The bench noted that the entire petition was based on reliance placed on moratoriums related circulars issued by RBI on March 27 and May 23.
“A perusal of the said circular clearly indicates that it applies to all Commercial Banks, all Primary (Urban) Co-operative Banks, States Co-operative Banks, District Central Cooperative Banks, All India Financial Institutions, All Non-Banking Financial Companies and also deals with terms loans and working capital facilities provided by those entities.”
It added, “It is clearly beyond reasonable doubt that those two circulars would not apply in case of mutual funds and debentures.”
The Zee Learn, an Essel Group Company, through senior counsels Aspi Chinoy and Janak Dwarkadas, said it had made a private placement of 650 unlisted redeemable NCDs of Rs 10 lakh each for cash at par aggregating to Rs 65 lakh in March, 2015 with 10.40% XIRR (extended internal rate of return) payable at the time of maturity and can be redeemed on July 8.
Zee Learn further said that, as per agreement, it had made various payments to UTI Asset Management Company Ltd, however, in view of Covid-19 pandemic situation from March, this year it had defaulted in making payments of certain instalments to the tune of Rs 44 crore despite demands raised by the respondent.
It said it was not in a position to recover school fees from students since March and, therefore, it was unable to make payments to discharge the obligation under the Debenture deed. In view of this, the Essel Group Company sought an extension of the redemption date in view of the demand notice issued by UTI Asset Management on June 4.
To support its argument, Zee Learn referred to RBI circulars issued on March 27 and May 23, which asked banks to grant moratorium and defer payment of term loan instalments and argued that the principles behind these circulars should be extended to the petitioner Zee Learn so as to make it entitled to the moratorium.
However, UTI Asset Management Company, through senior counsel Darius Khambata, opposed the plea and said petitioner Zee Learn had defaulted even before the pandemic since June last year. Khambata said it had to make payment to 21,000 small investors and relief granted to Zee Learn would affect them. The petitioner is liable to face consequences for the default committed and need to make an arrangement for the due balance amount, UTI Asset Management said.
It also argued that RBI circulars were not applicable in the present case and sought to dismiss the plea.
After hearing submissions, the bench led by Justice Dhanuka accepted claims made by UTI the Asset Management and said the RBI circulars are not applicable to mutual funds and debentures.