Reserve Bank of India (RBI)
Reserve Bank of India (RBI)
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Supreme Court pulls up Centre for "hiding behind RBI", asks for categorical reply on interest waiver during loan moratorium period

At a time when the country is reeling under a pandemic and people are suffering, the position of the authorities cannot be that of focussing on business alone, the Court observed.

Shruti Mahajan

The Supreme Court today pulled up the Central government for not having made its stand clear in the issue pertaining to interest on term loans during the COVID-19 moratorium period.

The matter was heard by a Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah.

The Bench today pulled up the Centre for "hiding behind the RBI" instead of making its own stand clear.

This, after Senior Advocate Rajiv Dutta, appearing for the petitioners, pointed it out. He said that while the Centre was yet to file an affidavit in the matter, State Bank of India (SBI) and Reserve Bank of India (RBI) had filed theirs. However, neither of these affidavits dealt with the issue pertaining to the Centre's powers under the Disaster Management Act.

However, Solicitor General Tushar Mehta sought to assure the Court that the Centre is working in coordination with the RBI.

"There cannot be a solution which is one-size fits all", he said.

At a time when the country is reeling under a pandemic and people are suffering, the position of the authorities cannot be that of focussing on business alone, the Court observed. Justice Shah said,

"...this is not the time to think about business only."

Senior Advocate Kapil Sibal, appearing for an intervenor, informed the Court that the moratorium period ends on August 31. Seeking an extension of this period, he said,

"I am only saying that till these pleas are decided, the extension should not end."

The Centre then sought the Centre's reply on two aspects - those related to the Disaster Management Act and the waiver of interest on interest. SG Mehta said that the Centre's reply would be filed within a week.

The matter will be next heard on September 1.

Read Order:

Gajendra Sharma vs UOI - 26.08.2020.pdf
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During the last hearing in the case, 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 Indian Banks Association (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 moratorium allowed by the RBI for deferred payment of term loans.

SG Tushar Mehta had told the Court that the difficulty in interest waiver arises from the fact that people who have taken loans include those who have taken small-time loans, as well as those who have borrowed amounts ranging in hundreds of crores.

The benefit allowed through RBI's circular is that only of a moratorium on payment of installments, but the interest on this deferred payment would be compounded, SG had explained to the Court. He also highlighted the duty of the banks towards paying of interest to their customers.

However, the Court had questioned the need to charge interest during these difficult times. Justice Sanjay Kishan Kaul, who was earlier part of the Bench had observed,

"You are giving them a favour by deferring the payment. It is an irony that thousands of crores have been defaulted on NPA accounts but you have to charge interest here. We are aware of the problems if interest is not charged, but a pandemic is not a normal situation."
Justice Sanjay Kishan Kaul

Supplementing Mehta's submissions, Senior Advocate Harish Salve, representing the IBA, said that deferment is merely pushing of payment of installments. The banks are still obligated to pay compounded interests to their depositors for which an arrangement would have to be made during this moratorium period, Salve added.

Salve termed this plea for interest waiver "premature" in nature, and said that "we are still in a tunnel". The Senior Counsel argued that if all sectors are in distress, then the government may have to provide funding. He went on to underscore that while some companies are not doing well, there are others that are doing very good business, citing the example of streaming platform Netflix.

Subsequently, the Court further restricted the scope of the issue and said that the Court is 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.

This question from the Bench had come after it was informed by Senior Counsel Mukul Rohatgi that 90 per cent of the borrowers had not even availed this benefit, since it was known that the benefit of moratorium was "not free".

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 installments 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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