Mylath Sandeep And Ors vs Reserve Bank Of India And Ors

The 1st petitioner in both these writ petitions is carrying on business in sanitary tiles and allied goods. The 2nd petitioner is wife of the 1st petitioner. The business conducted by the 1st petitioner under the name and style M/s.Nandhanam Sanitaries is a Micro, Small and Medium Enterprise. The petitioners have availed a mortgage loan of ₹4,50,00,000/- from respondents 3 and 4 in the year 2016.

In the light of the Covid-19 pandemic and its devastating impact on business and economy, the Government of India floated Ext.P3 Emergency Credit Line Guarantee Scheme in the year 2020. The petitioners state that they are eligible for a pre-approved sanction limit of up to 20% of loan outstanding as on 29.02.2020, under the Scheme. The petitioners applied for the benefit of Ext.P3 ECLG Scheme. However, respondents 3 and 4 did not extend eligible financial assistance to the petitioners. Hence, the petitioners have filed this writ petition seeking to declare that they are entitled to the benefit conferred under the ECLG Scheme and respondents 3 and 4 are bound to provide financial assistance to the extend covered by the Scheme.

Respondents 3 and 4 issued Ext.P10 communication to the 1st petitioner stating that the additional loans proposed to be provided by them are governed by the operational guidelines on the ECLGS issued by the National Credit Guarantee Trust Company Limited and the terms and conditions may be modified, varied or supplemented by respondents 3 and 4 from time to time in view of any changes to the Scheme by NCGTC and respondents 3 and 4 shall not be held liable for the same. The said communication is under challenge in W.P.(C) No.1615/2021.

The learned counsel for the petitioners argued that by not considering the application of the petitioners for financial assistance under Ext.P3 Scheme, respondents 3 and 4 failed to discharge their obligation. The petitioners have the eligibility for grant of benefits under Ext.P3. Respondents 3 and 4 have no right to deny the benefit to the petitioners.

The learned counsel for the petitioners further argued that the benefit under Ext.P3 is a mandatory one and money lending institutions cannot shirk from the responsibility of granting the benefit under the Scheme, especially to MSME borrowers like the petitioners. Respondents 3 and 4 are bound to assess the income streams of the petitioners and extended benefits.

Respondents 3 and 4 filed a statement and contested the writ petition. Respondents 3 and 4 stated that they have formulated a criteria for selection of eligible borrowers covered under the ECLG Scheme, as per Ext.R3(a). As per their criteria, in locations where operation of a Company is closed, the borrowers are not eligible for the Scheme. The petitioners have already closed the operation in Kerala in April, 2019.

The learned Standing Counsel for respondents 3 and 4 pointed out that the petitioners were consistent defaulters since the year 2018 and respondents 3 and 4 have issued Ext.P5 notice to the petitioners recalling the loan amount. Respondents 3 and 4 are bound to consider the repaying track record of the borrowers while considering applications under ECLGS. It is the discretion of respondents 3 and 4.

I have heard the learned counsel for the petitioners and learned Standing Counsel for respondents 3 and 4.

The statement filed by respondents 3 and 4 indicates that during the financial year 2018-'19 onwards, the loan account of the 1st petitioner showed default in payment of the monthly instalments as per the terms of the agreement. Respondents 3 and 4 would state that the cheques given for the repayment of the monthly instalments were continuously bounced from 2018 onwards and the repayment track record of the 1st petitioner is worsening.

Ext.P5 would show that on 26.03.2020, respondents 3 and 4 had recalled the loan amount of ₹3,81,41,862.62 from the 1st petitioner due to consistent default. Thereafter, the 1st petitioner made Ext.P7 request for benefit under ECLGS. Ext.P7 request made by the 1st petitioner, inter alia, states as follows:-

"As a part of the over all poor economic scenario and the Covid-19 pandemic, the turnover and cash flow has terribly go down and we are taking all possible measures to recover from this situation. In order to ensure mutual benefit, I would like to request you to grant us the facility of ECLG Scheme and the fund so obtained can be diverted to the repayment of the EMI. This will enable us to make the repayment of the EMI and once the scenario becomes normal, everything can be regularised also."

Therefore, it is evident that the 1st petitioner had applied for financial assistance under the Scheme not towards working capital but to divert the funds for remittance of EMIs which are already in arrears.

In the afore circumstances, this Court is of the considered opinion that the respondents were justified in not entertaining the application of the petitioners for financial assistance under the ECLG Scheme.

The writ petitions are therefore dismissed.