Market regulator Sebi has told the Supreme Court that forcing banks to grant moratorium on all loan transactions and financial instruments, including commercial papers, bonds, non-convertible debentures, etc, “would lead the entire economy to a standstill and bring chaos, disorder and havoc.”

“(Given the) exposure of mutual fund industry towards real estate sector/NBFCs and housing finance companies (HFCs), if these industries delay in making payments for the due amount of non-convertible debentures/commercial papers etc, it will have adverse effect on the MF industry as MF will not be able to honour the redemption requests of the unit holders,” the market regulator said, while strongly opposing the Confederation of Real Estate Developers Association of India’s petition seeking instruction to lenders to grant moratorium of loan repayment to real estate companies under RBI’s loan moratorium package.

According to Sebi, “unit holders/investors of MF industry are individual investors as well as institution investors. Thus, the delay in making payments for the due amount of (non-convertible debentures/commercial papers) will have a cascading effect on investors as well as institutions.”

A Bench led by Justice L Nageswara Rao had asked the RBI and the finance ministry to clarify whether it is mandatory for banks to grant moratorium on instalments of term loans for all NBFC or the banks have discretion to grant such benefit.

The reply was sought on a petition filed by the Haryana chapter of Confederation of Real Estate Developers Association of India, which is the top body of private real estate developers, seeking six month freeze on repayment of any commercial paper, bonds or non-convertible debentures.

Besides interest waiver for the six-month moratorium period, Credai also seeks for the RBI March 27 moratorium to be made mandatory, not discretionary, for all banks, NBFCs and HFCs.

Terming the Credai’s petition as “frivolous, misconceived, non-maintainable” and liable to be dismissed, Sebi said the petition “appears to be proxy litigation”.

It highlights how all the authorities including RBI, Income Tax authorities, IRDAI, etc. have taken targeted steps to ease the pressure on NBFCs and other institutions while the government has announced a stimulus package of Rs 20 lakh crore aimed at reviving the stalled economy.

The finance minister also announced a total package of about Rs 75,000 crore for NBFCs and HFCs besides a partial credit guarantee scheme for Rs 45,000 crore under which the first 20% loss will be borne by the government which will be the guarantor, Sebi told the apex court.

Additionally, for the benefit of the real estate industry, the ministry of housing and urban affairs has also issued an advisory to the state governments to invoke the force majeure clause under Section 6 of RERA Act to enable the extension of timelines for completion of projects, among other things.