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The onset of Covid-19 has set in motion a series of events which is bound to test India’s debtor-creditor relationship. Over the years, Indian courts have upheld the bargain struck by debtors and creditors and not allowed excusal of performance on grounds of force majeure or frustration. India’s new bankruptcy code (the “IBC”) played a critical role in re-balancing terms in favour of creditors. Indian courts in recent orders have granted relief to debtors in certain circumstances given the outbreak of Covid-19.  In Rural Fairprice Wholesale Limited v IDBI Trusteeship Services Limited, the Bombay High Court on 3 April 2020 granted temporary relief from pledge invocation. In Anant Raj v Yes Bank Limited, the Delhi High Court on 6 April 2020 granted temporary relief from being classified as a non-performing asset (“NPA”). It is very important for debtors and creditors to understand these decisions as they consider their rights and remedies.

There is no doubt that Covid-19 is an unprecedented disaster and the people of India (including corporate India) need protection. However, the focus here is not to comment on the merits of this debate or to comment on the merits of these cases, but to understand them in light of the law as it stands today, and to help you can think ahead.


In Rural Fairprice Wholesale Limited v IDBI Trusteeship Services Limited, the Bombay High Court initially held that the notice of redemption and notice of pledge invocation were illegal and improper and stayed any pledge invocation action. The debtor had argued that the margin cover fall (which triggered an Event of Default) had arisen on account of stock market fall due to Covid-19. Subsequently, on 3 April 2020, the Court fixed the inadvertent errors in its early order and restrained the IDBI trustee from taking enforcement action on the notices but left out the bit on the notices being bad in law.

Does this bring force majeure/frustration into lending transactions?

While the judgment is unique from a legal perspective, it would be a stretch to say that it introduces force majeure or the concept of frustration into lending transactions in India in general[1]. It is an interim order till the next date of hearing. Now that the Court has granted this relief (and some might say, opened this pandoras box), a lot will depend on what the Court does next.

Is there anything in the orders that protects the debenture holders?

If the stock markets, God forbid, fall further, whether due to the lockdown or supply chain disruption, will the Court then consider any protection for debenture holders? For eg, in such a case will the court permit invocation of the share pledges and sale or require the debtor to post additional collateral? In general, courts are not wedded to their interim reliefs and can pivot once they hear matters completely.

Interestingly, in this case the next date of hearing has been set for May 2020. That seems to be a long time for the risk of realization to be transferred to creditors, which is the precise reason to have cov-heavy debt documents with early warning triggers.

Courts are meant to be hearing “urgent cases”. Does this mean commercial matters are being heard?

The order itself does not make any reference as to how this qualifies as an urgent matter. In the larger public interest, courts should be clarifying which matters they are hearing as urgent and why. This will prevent a “race to the courthouse” during these unprecedented times.

However, it would appear that the Court considered the matter urgent for the serious implications the pledge invocation would have had on the group, especially since the group is also significantly involved in distribution of essential supplies.

If appealed, what could happen?

Of course, it is difficult to anticipate. But two previous orders from High Courts granting Covid-19 relief were appealed to the Supreme Court by the Central Government and were stayed by the Supreme Court. But those are clearly distinguishable from the present facts:

(i)        Each of these orders, issued within one day of each other and before the nationwide lockdown, were sweeping wide in import.

(ii)       The Allahabad High Court directed the U.P. Government machinery to not take any recovery action, conduct any auctions, conduct any demolitions or dispossess anyone of property till 6 April 2020.

(iii)     The Kerala High Court directed the Kerala Government machinery not to take any enforcement action on certain tax dues till 6 April 2020.

(iv)     No surprise that these were stayed by the Supreme Court. The Supreme Court was also influenced by the statement made by the Central Government that it would make its own rules to alleviate hardship caused by Covid-19.

(v)      Since then the Central Government has released relief measures and none of them bar enforcement action for a situation like this (i.e. margin cover fall).


In the case of Anant Raj v Yes Bank Limited, the Delhi High Court on 6 April 2020 allowed an urgent hearing to be held via video conference and stayed Yes Bank from declaring Anant Raj loans as  NPAs. As you read ahead the following facts are important to bear in mind:



Pre 1 Jan 2020

Debtor states that all dues paid

On 1 Jan 2020

There is a payment default. Debtor states that this was because of Covid-19 distress in the real estate sector

On 1 Feb 2020

Account classified SMA-1

On 1 March 2020

Account classified SMA 2

On 27 March 2020

RBI announces its Covid-19 relief package

On 31 March 2020

Debtor ought to have been declared NPA (Ex the RBI relief). Debtor moved Court to get relief from NPA classification

On 1 April 2020

Finance Ministry released FAQs on the Covid-19 Package

On 6 April 2020

Delhi High Court grants relief to debtor

This is the first case that interprets the RBI’s Covid-19 Regulatory Package dated 27 March 2020 (“RBI Circular”) together with the RBI press release on the same date and the FAQs issued by the Ministry of Finance on 1 April 2020 on this (“Covid-19 Package”). And, it raises several important discussion points.

Is the Covid-19 Package binding or elective?

The RBI press release and the RBI Circular make it quite clear that this is an election given to financial institutions[2]. It goes on to clarify that if a financial institution elects to extend such a moratorium then it will not result in a downgrade in the asset classification of the loan as would have otherwise been the case.

However, the Delhi High Court interprets these paragraphs of the RBI Circular as if to say that no asset classification downgrade is permitted. It is unclear on what basis the Court came to this conclusion. Possibly because the Court order also records that “It is an admitted position of the Respondent [Yes Bank] that the Statement on Development and Regulatory Policies issued by RBI on 27th March 2020 along with the Regulatory Package issued on 27th March 2020 is applicable to the Respondent.” Yes, it is applicable, but at its election.

In recent press reports[3] there has been a suggestion that the Covid-19 Package is binding on banks to implement. But that does not appear to be borne out from the RBI Circular.

Is the Covid-19 Package available (whether elective or not) for all classes of borrowers?

The FAQs state that it “is available to all such accounts, which are standard assets as on 1st March 2020”. The Court order mentions that the debtor was classified as SMA-2 on 1 March 2020. It was SMA-1 on 29 February 2020.

Therefore, while there are differing views in the market that such a relief should be extended to a broader base of debtors, strictly as per the FAQ, the Covid-19 Package is not available to a non-standard account such as was the case before the Court. 

How does one demonstrate that it is impacted by Covid 19?

One of the FAQs states that the RBI “has announced certain regulatory measures to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses.”

In this case, the debtor states that it was current with its payments till 31 December 2019. It then states that it was impacted by Covid-19. There is little discussion in the Court order on how it was impacted by Covid-19. In other countries where Covid-19 reliefs are being granted, governments have retained supervisory powers to determine whether this was a genuine case of Covid-19 relief. The RBI has done so similarly in the Covid-19 Package. It would, therefore, be prudent for all concerned to have facts at hand to show impact of Covid-19.

How do the facts of the default fit within the parameters of the Covid-19 Package?

On the face of it, the RBI Circular and the FAQs spell out that the moratorium relief under the Covid-19 Package is applicable “on payments of all instalments falling due between March 1, 2020 and May 31, 2020” (emphasis supplied). “Falling due” is generally understood to mean when the debt originally becomes payable. The Court order does record that the “instalment for repayment ……. fell due on 01.01.2020”. Therefore, the Court does appear to have broadened the scope of the Covid-19 Package by its interpretation.

What is the likely impact?

This Court order is a prima facie view of the Court and is, therefore, interim in nature. The final view of the Court will be interesting to see.

Nevertheless, in these very uncertain times, debtors will try take cover under this Court order arguing that it has wider import and is not restricted to just the case parties. In some instances, it may even benefit creditors as they may need not downgrade asset classifications and provision further. This will also have an impact on loans that may come on to the bloc for sale to asset reconstruction companies. It is hoped that the RBI clarify its position on this circular in short order.

In more general terms, at least in so far as interim reliefs are concerned, it shows that Indian courts are receptive to corporate India’s needs in these trying times. However, from a long term perspective, it would be ideal if the RBI and Government clarify what kind of reliefs ought to be provided (even to non-standard assets), else the delicate creditor-borrower reset that the IBC achieved will become open to case specific interpretation by Indian courts.

-       Ashwin Bishnoi (Partner, Corporate/Restructuring), Sanjeev Kapoor (Partner, Disputes) and Anushka Sharda (Partner, Disputes)

For any queries please contact: editors@khaitanco.com

[1] Force majeure is not a principle of Indian law and must be incorporated in a contract. It is interpreted strictly by Indian courts. It is also highly unusual for a lending transaction document to include a force majeure clause to excuse performance by the debtor. For a general distinction between force majeure and frustration, please refer to our earlier Ergo.

[2] Please refer to our earlier Ergo which specifies that not all financial institutions are covered by this RBI package. For eg, since the RBI does not exercise jurisdiction over Foreign Portfolio Investors and Alternative Investment Vehicles (such as mutual funds), this Covid-19 Package does not apply to such persons.

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