Ergo

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The Petitioner had availed LCs as non-refund based working capital from Yes Bank for payment to its vendors / contractors. The Petitioner had already renegotiated with some of its vendors / contractors to postpone encashment of some LCs, while negotiations with other vendors were ongoing.

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During this time, the Petitioner sought a moratorium / extension on making payment due under LCs from Yes Bank in line with the Reserve Bank of India circulars dated 27 March 2020 and 17 April 2020 (RBI Circulars). Yes Bank refused and instead imposed ancillary interest for non-payment of dues upon development of the LCs.

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The Petitioner is a viable profit making entity with no dues / arrears to financial institutions. The COVID-19 lockdown had resulted in destruction of the Petitioner’s business, particularly due to complete halt of the supply chain.

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By way of the RBI Circulars certain relaxations could be granted to debtors including no downward classification of loan accounts, moratorium of 3 months on payment of term loan instalments, and deferment of interest recovery in case of certain working capital facilities. The RBI Circular would apply to the Petitioner.

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The Petitioner placed reliance on orders of the Delhi High Court in: (i) M/s Halliburton Offshore Services Inc v. Vedanta Limited (O.M.P. (I) (COMM) and I.A. 3697/2020), which granted an ad-interim injunction against invocation of bank guarantee due the existence of ‘special equities’; (ii) Eastman Auto & Power Ltd v. Reserve Bank of India & Anr (W.P.(C) 2997/2020 and CM APPL. 10397 - 103997/2020), in which certain banks were restrained from taking coercive steps against the debtor based on a reading of the RBI Circulars; and (iii) Anant Raj Limited v. Yes Bank Limited (Writ Petition (c) Urgent No. 5/2020), which clarified the intent and operation of the RBI Circular dated 27 March 2020.

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The Petitioner also relied on the Bombay High Court order in Tanscon Skycity & Ors v. ICICI Bank & Ors (Writ Petition LD-VC No. 28 of 2020), in which the period of lockdown was excluded from calculation of loan account aging.

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The Court noted that the RBI Circulars only mentioned cash credit / overdraft working capital facilities and did not specifically cover LCs.

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The COVID-19 pandemic and resultant lockdown was a ‘force majeure’ and parties were ‘frustrated in performing their obligations under the contract’. Notably, the terms ‘force majeure’ and ‘frustrated’ appear to be used in a general sense rather than a strictly legal context.

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The Court also took note of the Bombay High Court and Delhi High Court orders, in which relief was granted to parties in view of the existing difficulties and basis the RBI Circulars.

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Given the above circumstances, the Court held that the matter needed further examination and prima facie the Petitioner was entitled to interim relief. The Court accordingly restrained Yes Bank from debiting the Petitioner’s account for amounts due under the LCs for 90 days and taking other coercive steps including imposition of ancillary interest.

(1)

one, in which courts have taken a considerate view by excusing performance of contractual obligations and injuncting coercive action against defaulting parties on account of COVID-19. This approach is prevalent where arguments around the RBI Circulars have been raised; and

(2)

another, in which courts have refused injunctions / relief and required party performance. This approach is taken where there are specific facts which show that a party could have performed its obligations despite COVID-19 and/or the default is not entirely linked to COVID-19.