RBI Reserve Bank of India
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RBI's circular on loan moratorium challenged (again) before Supreme Court over interest component

Shruti Mahajan

A petition has been filed before the Supreme Court challenging the March 27 Reserve Bank of India (RBI) circular pertaining to loan moratorium which allows for levying of interest during the moratorium period.

This petition filed by the Maharashtra Chambers of Housing Industry (MCHI) has challenged the RBI's decision to allow lender banks to charge interest on term loans while allowing grant of a moratorium on their repayment during the COVID-19 period.

The MCHI is an association set up for protecting the interests of real estate developers, who have loans running into hundreds of crores.

Highlighting the concerns of the real estate industry, the petitioner organisation states that accrual of interest on the loan amount would increase the monthly bills. Accrual of interest during the moratorium period would also place a substantial monetary burden on these developers, the plea states.

"[W]hen all the means of livelihood has been curtailed by the Government of India by imposition of complete lockdown pan India, due to worldwide outbreak of Covid-19 pandemic and the members of Petitioner No. 1, has no way to continue his work and earn livelihood, imposition of interest during the moratorium will defeat the purpose of permitting moratorium on loans."
Petition filed in Supreme Court

The impact is likely to be so adverse as to cause members of the petitioner organisation to wind up businesses, and would add to the unemployment cycle, the petition states. Therefore, it is prayed that the circular be quashed.

Earlier, the Supreme Court had issued notice in a plea filed by an individual affected by the charging of interest during the moratorium period.

On March 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.

In this fresh petition filed on June 1, the circular is alleged to be in violation of Articles 14, 19(1)(g), and 21 of the Constitution of India.

Additionally, the petition seeks relief in the nature of moratorium without charging of interest. A direction to that effect is sought by the petitioner.

The petitioner is represented by Advocates Chirag Shah and Utsav Trivedi and the petition is filed through Advocate Abhinay.

In a separate plea by CREDAI, the Supreme Court had sought a response from the RBI on the question raised by the association regarding applicability of the circular to NBFCs.

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