Justices Ashok Bhushan, Sanjay Kishan Kaul, MR Shah
Justices Ashok Bhushan, Sanjay Kishan Kaul, MR Shah
Litigation News

"On one hand granting moratorium, and then interest..It's more detrimental" SC; Finance Ministry, RBI to file joint response before June 12

Shruti Mahajan

The Supreme Court today granted time to the Union Finance Ministry and the Reserve Bank of India (RBI) to file a joint response on the issue of the RBI circular allowing banks to charge interest on term loan repayment during the COVID-19 moratorium period. (Gajendra Sharma vs UOI)

On May 26, the RBI had been asked by the Supreme Court to respond on the plea questioning levying of interest on loans during the moratorium period.

In its counter-affidavit filed yesterday, the RBI made its position clear that it would not be appropriate to go for a forced waiver of interest by banks as the same would affect the financial health of the banks and jeopardize the interests of depositors.

Today, the Bench of Justices Ashok Bhushan, Sanjay Kishan Kaul, and MR Shah at the outset took objection to the counter affidavit being published in the media before reaching the Court. This, the petitioner's counsel Rajiv Dutta suggested, was a way of sensationalizing the issue.

Advocate on record Ramesh Babu appearing for the RBI too objected to the reply being in public domain. He said,

"The court must issue notice to media house to see who leaked this"

Justice Bhushan, however, proceeded with the hearing stating that the instance should not be repeated. The Judge continued and pointed out that there are two aspects involved in the matter - one regarding charging of interest during the moratorium, and another of charging interest on this interest itself.

Justice Shah observed,

"On the one hand granting moratorium, and then interest... It's more detrimental."
Justice Shah

Senior Advocate Dutta argued that the "cat is out of the bag", with the RBI's response speaking in favour of the banks' profitability. He questioned if rest of the citizenry should "go down under" if the banks are the ones looking to make an earning.

"So only the Banks earn and the rest of the country goes down under?"
Rajiv Dutta

While Solicitior General Tushar Mehta sought time to file a combined reply of the Finance Ministry and the RBI, the petitioner sought time to file a rejoinder to RBI's affidavit. The Court is now scheduled to hear the case next on June 12.

Mr. Tushar Mehta, learned Solicitor General submits that although counter affidavit has been filed on behalf of the Reserve Bank of India yet he shall obtain necessary instructions from the Finance Ministry as well as the higher officials of the Reserve Bank of India, for which he prays for a week’s time.
Supreme Court recorded in its order

Petitioner Gajendra Sharma, personally aggrieved by the charging of interest by the banks, had moved the Supreme Court claiming that the objective of the circular would be rendered futile if interest is levied, considering the fact that it would result in increased EMIs accruing at a later stage. Therefore, interest ought not be charged for this period, it was prayed in the petition moved before the Supreme Court.

The petitioner submitted that the circular is against the principles of natural justice, given that on the one hand, all means of livelihood stand suspended on account of the COVID-19 lockdown, and on the other, interest is being charged for the moratorium period which would lead to an increased bill for monthly payment of EMIs. The plea states,

"The aforesaid notification qua payment of interest violates the principle of natural justice as the Government on one hand ceased the working of the individuals and on other hand asking to pay the loan interest during moratorium."

On the other hand, the RBI, in its counter has said that it cannot force waiver of interest as the institution is entrusted with the responsibility of ensuring prudent functioning of the banks. An order of this nature would impact the viable operations and functioning of banks, it claimed.

"[I]t (RBI) does not consider it prudent or appropriate to go for a forced waiver of interest, risking the financial viability of the banks it is mandated to regulate, and putting the interests of the depositors in jeopardy."
RBI says in its reply

The matter will be heard next on June 12.

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.

On May 22, the RBI announced the extension of the three-month moratorium period till August 31, thereby making it a six month moratorium. Consequently, the interest on the term loan would be accrued for six months, should a borrower avail the benefit of moratorium.

Read Order:

Gajendra Sharma vs UOI - 04.06.2020.pdf
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