Rkm Worldwide vs. Hbd Financial Services Limited

Facts

The petitioner, RKM Worldwide, a sole proprietorship dealing in export of sport goods, obtained a loan of Rs. 3,76,99,983/- from HDB Financial Services Ltd. (respondent) on September 4, 2017, secured by a residential property. The loan was to be repaid in 180 equated monthly installments. The petitioner claims to have paid regularly until August 2019 but defaulted on payments for September, October, and November 2019 due to a global economic slowdown and the introduction of GST. The loan account was classified as Non-Performing Asset (NPA) on December 4, 2019. The respondent issued notices under Section 13(2) and 13(4) of the SARFAESI Act, 2002, demanding repayment of outstanding dues, including pre-payment charges. The petitioner filed objections, which were rejected. A writ petition (CWP-10123-2020) was filed, and an interim order was granted on the condition of depositing Rs. 19 lakhs. The parties were directed to attempt a settlement, but the petitioner's settlement proposal was rejected by the respondent on August 27, 2020. The petitioner then filed a Securitisation Application (SA-51-2020) before the Debt Recovery Tribunal (DRT), which was also rejected. The respondent initiated proceedings under Section 14 of the SARFAESI Act. The petitioner filed the present writ petition challenging the Section 14 application, the rejection of the settlement proposal, and previous notices and orders.

Held

The Court held that the petitioner's loan account was classified as an NPA on December 4, 2019, which was prior to the COVID-19 pandemic's threshold date of February 28, 2020. Therefore, the petitioner could not claim the benefit of the regulatory package introduced by the RBI for the COVID-19 pandemic. The Court noted the petitioner's consistent failure to make substantial payments after August 2019 for over two years, despite being directed to deposit significant amounts by the Court. The petitioner also failed to avail the appellate remedy before the Debt Recovery Appellate Tribunal after the DRT rejected their application. The Court found no illegality or unreasonableness in the respondent's actions in proceeding to recover dues under the SARFAESI Act, 2002, given the petitioner's payment track record and the respondent's justifications for rejecting the settlement proposal. The Court concluded that the petitioner had not demonstrated any wrongful denial of relief under RBI guidelines for loan rescheduling or moratorium. Consequently, the writ petition was dismissed.

Key Issues

1. Whether the respondent was justified in invoking proceedings under the SARFAESI Act, 2002, given the petitioner's financial difficulties and request for loan restructuring and moratorium, particularly in light of the COVID-19 pandemic? Petitioner's contentions: The petitioner argued that the loan account should be restructured or rescheduled, and a moratorium should be granted, especially considering the economic slowdown and the COVID-19 pandemic. They relied on RBI guidelines for MSMEs and sought to benefit from the regulatory package introduced due to the pandemic. The petitioner also claimed to have made substantial payments and attempted to clear overdue amounts. Respondent's contentions: The respondent contended that the petitioner's loan account was classified as NPA on December 4, 2019, much before the COVID-19 pandemic threshold date of February 28, 2020, thus the pandemic relief package was not applicable. They argued that the petitioner failed to maintain financial discipline, did not challenge the DRT order, and did not comply with court orders for deposits. The respondent asserted that once an account is classified as NPA, it cannot be regularized by merely paying overdue amounts as per RBI guidelines, and substantial payments over a period are required. They also stated that the interest and charges were levied as per the loan agreement.