RBI Supreme Court
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RBI loan moratorium circular: Supreme Court gives Centre and RBI two weeks' time to submit plan on sector-wise loan restructuring

The interim order passed in the earlier hearing on non-declaration of loan accounts as Non-Performing Assets (NPAs) shall continue till further orders, the Court said.

Shruti Mahajan

The Supreme Court today asked the Government of India and the Reserve Bank of India (RBI) to take concrete decisions on the issue of sector-wise loan restructuring within two weeks.

A three-Judge Bench of Justices Ashok Bhushan, R Subhsash Reddy and MR Shah took up the case for hearing today.

Today, the Court was told by Solicitor General Tushar Mehta that various aspects of the issue were being considered by the Union Finance Ministry and the RBI in consultation with the banks. However, a period of two weeks more was required for the affidavit to be filed.

The Court asked the Centre to come up with concrete decisions on the issues.

Senior Counsel Kapil Sibal, appearing for real estate associations, highlighted before the Court that despite the Court's interim order, there was credit downgrading taking place.

On the other hand, Senior Advocate Rajiv Dutta pointed out that a concrete declaration on the specific issue of interest on interest has to be made. Dutta said that while the decision of loan restructuring was a welcome one, it should have been done earlier. Dutta, who was representing the petitioner in the case, also said that the individual borrowers continue to suffer.

It was contended by Senior Advocate Aryama Sundaram that with the moratorium period ending on August 31, banks had begun debiting interest amount.

It was urged before the Court that borrowers need to be protected from coercive action.

Senior Advocate Mukul Rohatgi for State Bank of India and Senior Advocate Harish Salve for Indian Banks' Association (IBA) also sought time to file replies in light of these new issues raised and prayers made on downgrading, among others.

The Court therefore, adjourned the hearing till September 28 while granting time to all the concerned parties to make their positions clear.

SG Tushar Mehta along with Senior Counsel V Giri, who also appeared for RBI, assured the Court that a holistic view of the subject would be taken and that all sectors would be considered. Mehta and Giri assured the Court of placing on record the decisions that the government and RBI take in this regard.

The interim order passed in the earlier hearing on non-declaration of loan accounts as Non-Performing Assets (NPAs) shall continue till further orders, the Court said.

The Court also specified that it will also consider all the other prayers made by the petitioners on the next date of hearing.

Read Order:

Gajendra Sharma vs UOI - 10.09.2020.pdf
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On September 3, the Supreme Court had granted interim relief in the form of a direction to not declare any loan accounts as NPAs till August 31. This order, the Court had said, would be in effect till further orders.

This, after a number of parties raised grievance before the Court that with the sanctioned outer limit of the moratorium period provided in RBI's circulars ending on August 31, their accounts would automatically be declared as NPAs.

The Centre, RBI, and IBA submitted before the Court that this apprehension will not come true, since declaration of NPAs takes place after a 90 day default period which begins at the end of the moratorium period.

Taking this submission on record, the Court directed that loan accounts that were not declared as NPAs till August 31 shall not be declared as such.

The Supreme Court has been hearing a batch of petitions which challenged the interest component of the RBI's circulars that provided for moratorium on term loan repayment. Over the course of the hearings, the scope of the litigation before the Court narrowed down to the question pertaining to levying of interest on interest accrued, as well as the Centre's duty under the Disaster Management Act to provide for relief in loan repayment when the Act has been invoked.

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.

Earlier this month, 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.

With respect to Centre's duty under the DM Act, 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.

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