Accounts not declared NPAs as on August 31 should not be declared NPAs till further orders: Supreme Court passes interim order
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Accounts not declared NPAs as on August 31 should not be declared NPAs till further orders: Supreme Court passes interim order

A three Judge Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah today said that the accounts that were not declared as NPAs till August 31 must be protected and should not declared as NPAs till further orders.

Shruti Mahajan

The Supreme Court today granted interim relief for borrowers, directing banks not to declare any loan accounts as Non-Performing Assets (NPAs) until further orders.

A three Judge Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah today said that the accounts that were not declared as NPAs till August 31 must be protected and should not declared as NPAs till further orders.

"the accounts which were not declared NPA till 31.08.2020 shall not be declared NPA till further orders."
Supreme Court

The Court's order came during the hearing of a batch of petitions that challenged the interest component of the Reserve Bank of India's (RBI) circular that provided for loan moratorium amid the COVID-19 pandemic.

While the question for consideration before the Court was limited to interest on interest being charged, the Court was also considering the aspect of role of the National Disaster Management Authority under the Disaster Management Act to provide relief as regards loan repayment in disaster situations.

Observing that the borrowers need to be protected, the Court passed the interim order today.

The specific question of accounts being rendered NPAs after the moratorium period has expired came before the Court yesterday. Various petitioners had raised a grievance that with the moratorium pushing the limit for repayment of instalments, there was an apprehension that the accounts would be declared NPAs as on September 1. As such, the moratorium limit also needed to be extended, it was prayed.

Solicitor General Tushar Mehta, representing the Union Finance Ministry and the RBI, told the Court that the RBI has issued a circular on August 6 which deals with stressed accounts due to the COVID-19 pandemic and provides for a resolution plan and restructuring of loans for the accounts that are eligible.

A large portion of the hearing was also dedicated to highlight the different types of borrowers and lenders and the different kinds of impact faced by different sectors and borrowers due to the COVID-19 pandemic. It was argued by Mehta that a one-size-fits-all solution cannot be granted owing to the difference in difficulties faced by different persons.

As regards declaration of NPAs, Mehta, along with Senior Counsel Harish Salve, representing the Indian Banks' Association (IBA) said that the moratorium is not a default period. Moratorium was granted initially for a period of three months and stood extended till August 31 subsequently. The default period will, however, begin after the moratorium period has ended, and accounts would not automatically be declared NPAs on September 1, it was submitted.

With many parties yet to make their submissions, the Court has adjourned the hearing in the case to September 10 at 10.30 AM. In the meanwhile, the interim order offers some respite to borrowers.

Read Order:

Gajendra Sharma vs UOI - 03.09.2020.pdf
Preview

After being pulled up by the Court, the Centre filed its affidavit in the matter, opposing a waiver of interest on interest during the moratorium period. The Centre also told the Court in its affidavit that with the RBI's new circular dated August 6 on the restructuring of loans and the various relief packages and measures announced by the Centre, the grievances of the petitioners in the instant case have been adequately answered.

In June this year, the Court had asked the Centre and the RBI to review the move to charge interest on loan repayment during the moratorium period introduced in light of the COVID-19 pandemic. The IBA was also asked to look into the possibility of evolving new guidelines to address the issue.

The Court had been considering the question of charging interest on those who avail the benefit of the moratorium allowed by the RBI for deferred payment of term loans.

The Court had restricted the scope of the issue involved in the case and had said that it was not asking for a complete interest waiver, but waiver of interest accrued on the interest amount. It thus asked if banks can handle this limited burden.

In view of the COVID-19 pandemic, the RBI had issued a circular on March 27 allowing banks to grant a moratorium to borrowers on payment of instalments for a period of three months, which was later extended to six months. The RBI also made it clear that interest accruing on these loans for this period would be payable.

The part of the circular regarding charging of interest was challenged by some petitioners, who claimed that their monthly EMI payment will stand increased as a result.

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