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RBI loan moratorium hearing before the Supreme Court [LIVE UPDATES]

A Supreme Court Bench headed by Justice Ashok Bhushan is hearing petitions challenging the interest component of the moratorium circular.

Bar & Bench

The Supreme Court is hearing petitions challenging the Reserve Bank of India's move to charge interest on term loans during the moratorium period introduced in light of the COVID-19 pandemic.

The Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah is hearing the matter.

The Centre in its affidavit has said that the various relief measures taken by the government along with the circulars of the Reserve Bank of India (RBI) particularly the August 6 circular, adequately address the grievances regarding moratorium and interest.

Live updates of the hearing today feature on this page.

Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah assembles.

Senior Advocate Rajiv Dutta for the petitioner begins making submissions. He is taking the Court through the August 6 circular of RBI's COVID-19 regulatory framework.

Dutta explains how the interest on loan availed would continue to accrue during the moratorium and get added to the principal amount.

Dutta: The question that arises for consideration is... the public at large is going through a hell of a time I will not go into all that... They came up with a scheme to help us but this is a double whammy for us since they will charge us with compounded interest.

Dutta: By charging interest on interest, these Banks are treating this as default, this is not default on my part. Instead of giving respite the banks are encashing on this.

Dutta: Since this is not default on my part, they cannot charge me as though I'm in default.

Dutta: The whole country is gone under, all the sectors have gone under and the RBI want Banks to make profits! RBI is only a regulator and are not agents of the Bank as they are treating themselves and it seems that the Banks are hiding behind the RBI.

Dutta: This is not revenue for the Banks so they cannot say that they will incur losses.

Dutta: They want banks to make profits during COVID-19. This is unheard of.

Dutta: Now the government is saying that there cannot be a "one size fits all" solution so they want to provide restructuring... But don't penalise me! Don't penalise your citizens.

Dutta: They are trying to enrich themselves. This is very wrong.

Dutta: Government has given enough padding to the Banks during this time and period.

Dutta now takes the Court through the reply that was filed by the RBI in the case in June.

Dutta: Now the government is also backing RBI and the crux of the Centre's reply is that there cannot be a "one size fits all" approach.

Dutta is now taking the Court through Centre's affidavit which was filed yesterday.

Dutta reads from the affidavit:

"...ex post facto change in the terms and conditions of the offer of moratorium favouring those who availed of it over those who made the extra effort of repaying as per schedule would be grossly inequitable and patently unfair for those who did not avail of the benefits of moratorium initially or gave it up subsequently."
Centre's affidavit before Supreme Court

Dutta now refers to Section 13 of the Disaster Management Act which provides for "Relief in loan repayment."

13 Relief in loan repayment etc.

—The National Authority may, in cases of disasters of severe magnitude, recommend relief in repayment of loans or for grant of fresh loans to the persons affected by disaster on such concessional terms as may be appropriate.

Dutta: Power is very much there to grant us relief. The authority under the Act has written to the Finance Minister.

Dutta: Interest on interest is absolutely and prima facie wrong and they cannot charge it.

Dutta concludes his arguments.

Senior Counsel Aryama Sundaram is making his arguments now.

Sundaram: RBI has left it on the Banks to provide for haircut on the interest.

So far as the reduction of interest is concerned, let the RBI give it as a directive under the RBI act but the Banks have been given liberty to decide of there can be reduction in interest or not.

Sundaram: Banks are being asked to decide on commercial prudence based on the credential of the borrower.

(Sundaram is arguing for CREDAI - an association for real estate developers)

Sundaram: Everything is left to the Banks under the August 6 circular on resolution process. It is all open ended.

Sundaram reads from the August 6 circular of the RBI

Sundaram argues that if interest cannot be waived off, Banks may at least reduce it to level to which depositors are paid. Bench has risen for lunch.

He says, it is unfair to charge penal interest on borrowers and this may lead to increased NPAs.

Sundaram: If RBI is a regulatory body then RBI does have the power to regulate this. The interest can be turned into a term loan.

Sundaram concludes his arguments on behalf of CREDAI.

Senior Counsel KV Vishwanathan begins his submissions on behalf of CREDAI MCHI, the Maharashtra wing of the real estate developers' association.

Senior Counsel KV Vishwanathan (KVV): Union of India has recognised the COVID-19 pandemic as a force majeure situation.

KVV: This was followed by the Janta curfew and then the nationwide lockdowns.

In the meantime a notification came asking employers to pay wages to the workers.

Your Lordships had given a Judgment balancing interests of all sides in that issue.

KVV: It was at this stage, on March 27 that the RBI's circular came providing for moratorium and in May this period was extended till August 31.

KVV says that the question for consideration before the Court is on the doctrine of proportionality considering the situation has been declared a force majeure situation.

SC: Based on the proportionality argument you're making, what are the directions from Court you want?

KVV: Your Lordships may direct for the fulfillment of statutory duty

KVV refers to Section 13 of the Disaster Management Act. KVV says that the word "may" is not merely giving discretionary power but it is a power coupled with duty

KVV: The recommendations to be made must be meaningful recommendations and Your Lordships may direct them to discharge their duty under the DM Act.

(KVV is representing Association of Power Producers along with representing the CREDAI MCHI)

KVV took the Court through the August 6 circular of the RBI "Where are they addressing the issues from proportionality point. This is just rehashing of old scheme... Old wine in new bottle. This is an attempt to hoodwink the borrowers"

KVV refers to Section 7 of the RBI Act which provides for the Central Government to give directions to RBI from time to time in public interest.

KVV: The sectors I represent (Power and Real Estate) form the nerve centre of the economy.

KVV refers to the objects and aims of the RBI's March circular and says that objective of easing the burden is not achieved since the Moratorium postpones the burden, it does not ease it at all. KVV concludes his arguments.

Senior Counsel Ranjit Kumar, representing the Shopping Centres Association of India, is now making his submissions.

At the outset, Kumar refers to the latest worrying figures of Indian's falling economy.

Kumar reads out the statements made by the Governor of the RBI in May to highlight the plight of the economy.

Kumar: The moratorium period expired on August 31 so as on yesterday all those accounts have been ipso facto declared as NPAs.

It's a computer managed automated system so the accounts are NPAs now.

Kumar is taking the Court through the provisions of the Disaster Management Act.

Kumar further highlights the powers of the RBI under the RBI Act as well as Banking Regulations Act.

Justice Bhushan: Mr. Kumar, nobody is doubting the powers of the RBI. We know RBI is empowered under these statues

Kumar points out that the shopping centres and malls have not done well during the lockdown as opposed to pharma, FMCG and IT sectors that did well. He concludes his arguments by saying, "Relief should be given sector wise"

Senior Advocate Ravindra Shrivastava for one of the petitioners making submissions now.

Shrivastava says he would adopt and supplement Ranjit Kumar's arguments.

Shrivastava points at the continuing and uncertain nature of the Disaster in question which is the COVID-19 pandemic.

Shrivastava refers to Section 35 of the Disaster Management Act which gives the Central government power to take measures in case of disasters.

Justice Bhushan: The question is not whether the power is there or not. The power is there. The question is whether the power was used under the Act.

Solicitor General Tushar Mehta seeks Court's permission to be excused for a few minutes in order to attend the ceremonial farewell for Justice Arun Mishra who demits office tomorrow and is sitting as a Supreme Court Judge for the last time today.

Mehta is excused.

Shrivastava continues with his submissions.

Senior Advocate Sanjay Hegde makes submissions on behalf of Coimbatore Jewellery Manufacturers Association (CJMA).

Bench has risen for lunch.

Bench assembles.

Senior Counsel Kapil Sibal for one of the petitioners making his submissions.

Sibal: It's not one person but an entire body that has to act for disaster management when a disaster occurs.

SG Tushar Mehta intervenes just to point out that Sibal's argument can also be heard in another Courtroom.

Mehta: You may have another computer or system connected to another Courtroom.

Sibal: Thank you for pointing it out. This is a disaster I have to manage.

(All laugh)

Sibal: The recommendations of the National Disaster Management Authority (NDMA) were sought for the first time on August 28.

Sibal: Decisions under section 13 in the context of the Act will have an overriding effect.

That is the extent of the power of the NDMA and what we see here is the absolute absence of exercise of this power.

Sibal: Yesterday the government released data of how the Pandemic has affected different sectors. The construction sector has had a negative 50% growth.

Sibal now explains the August 6 circular of the RBI.

Sibal: The pandemic happened in March and from March to August the situation has been out of control.

Sibal continues: They have set up an Expert committee for the assessment of big accounts. The decisions (under August 6 circular) have been left completely on the Banks and this is arbitrary.

Sibal states figures to highlight the deteriorating condition of the Construction industry especially during the pandemic.

(Sibal is representing the Mumbai chapter of an association of the construction companies)

Sibal says that as on before the pandemic in March, 57% of the insolvency cases resulted in insolvency.

Sibal: The August 6 circular makes only some accounts eligible to be given benefit of the resolution plan.

The resolution plan has to be approved by 70% of the lenders.

The accounts need to continue to remain "standard" for this benefit.

Sibal: Our submission is we want the extension of the moratorium. Expert committee must come up with a sector wise plan and place it before Your Lordships and place the application of mind before Your Lordships.

Sibal: In this context I want a complete waiver of interest, no question of interest on interest, we want a complete waiver of interest.

Sibal: We should not go under before the relief is granted to us because in that event it will be very difficult to revive the industry.

Sibal: If the NDMA does not perform its functions and the statutory duties, we will be badly affected.

(Sibal concludes)

Advocate Vinayak Bhandari makes submissions now, says that the Banks may levy interest but to a limited extent.

Bhandari says while it is said that relief cannot be a one size fits all approach, the pandemic was of the very nature of one size fits all

Bhandari: The ship is sinking and it is not fair to consider who should be rescued.

Advocate Manoj George (for tourism industry association): The disaster is beyond coping capacity of the industry.

Advocate Ashish Virmani (for textile mills association): There is no reason why MSMEs should be excluded.

The date of moratorium period has expired but the considerations of the committee still continue.

Our prayer is that status quo as on August 31 should be maintained

Intervenors making their brief submissions.

Court had said that intervenors may be allowed to circulate their notes.

Senior Counsel V Giri requests to make his arguments on behalf of RBI immediately after Solicitor General Tushar Mehta.

Bench inquires if Mehta is appearing for RBI also.

Mehta informs that there are multiple cases in this batch and as such more than one Counsel for RBI

SG Mehta begins making his submissions.

Mehta: We are not in an adversarial litigation here. Your Lordships are here, we are all here, to find a solution for the crisis.

Mehta (continuing): There were some options available for reviving the economy. One was to write off interest. Second was a more holistic option in which the first step would be to ease the burden of repayment of loans.

Mehta: Next priority was the revival of sectors so that economy gets moving, restructuring of stressed assets and then the operations of banking sectors

Mehta: We have a variety of banks dealing with a variety of loans and borrowers and then we have a variety of borrowers also. Individual borrowers can also be categorised in different kinds.

Mehta: Majority of the economy runs on not large corporates but on smaller businesses.

Mehta says that different sectors of the economy have been affected differently during the COVID-19 and lockdown

The Bench is having a discussion with the Counsel on the hearing and the estimated time that will be required.

The arguments will be continued tomorrow at 2 PM.

SG Mehta will make his submissions tomorrow followed by Senior Counsel V Giri (also for RBI).

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