The Delhi High Court temporarily injuncted 6 PSU banks from taking any coercive action against Eastman Auto Limited vis-à-vis default(s) arising out of and/or in relation to Reverse Factoring payment obligations under Trade Receivables Discounting System (TReDS).
The Petitioner, Bank of Baroda, Bank of India, Punjab National Bank, Union Bank & SBI Global Factors Limited were thereby injuncted from taking any coercive action and mentioned “the respondent nos. 2 to 5 and 7 (respondent no. 6 has been deleted today) are restrained from taking any coercive action against the petitioner, including declassification of the petitioner, for the default committed by the petitioner in the Reverse Factoring Facility availed by the petitioner from such respondents, subject to the condition that the petitioner shall” .
Mr. Gaurav H Sethi and Mr. Keshav Sehgal have filed the plea. Arguments for Petitioner(s) were led by Advocate Manmeet Arora. The plea sought directions to the RBI to issue clarification in as much as, repayment obligations that arise out of factoring services, which are in turn availed on a platform called TReDS are concerned.
A Single Judge bench comprising Justice Navin Chawla observed that RBI notifications/circulars dated 27.03.2020 & 17.042020 enunciated financial relief to the parties who availed term loans and that it was prima facie apparent that working capital facilities and that “Factoring facilities” was to be considered “at par with loans and advances extended by the banks”
The plea contended that as the Regulatory package of RBI to ease financial stresses and to mitigate the risk of debt default, caused to business on account of the pandemic by granting moratorium period (3 months) to all kinds of loans and working capital facilities availed by the borrowers between March 1st & May 31st 2020, the petitioner-company could not have been de-classified.
“the Respondent Nos. 2 to 7, in utter disregard to COVID – 19 Regulatory Package issued repayment notices to the Petitioner for default in payment obligations under TReDS and any such act by the Respondent Nos. 2 to 7, will have major financial implications in the form of initiation of insolvency proceedings or reduced credibility for re-payment of debts of the Petitioner”
Three operators of the TReDS platforms had also sought clarity on the issue with the finance ministry, RBI & MSME Ministry. RBI governor Shaktikanta Das on March 27 has announced a slew of measures, including a moratorium on loan repayments, to provide relief to India’s distressed borrowers.
Read the Order here: