SC Directs Centre to File Affidavit in Case of Interest During Moratorium

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The Supreme Court received a petition. The petition sought a direction for the government and RBI for not charging the interest on loans. A relief is requested from paying the interest charged during the moratorium period.

Facts of the Case

Gajendra Sharma, an Agra resident, filed the petition. The petition stated that interest charged on the loan during the moratorium period directly creates a hardship for any borrower. It also created hindrance and obstruction for the enforcement of the right to life guaranteed by Article 21 of the Constitution of India.

The portion of RBI’s 27th March 2020, notification is sought to be declared as ultra vires. On 26th May 2020, the Centre and the RBI were directed to file their reply on the plea by the Supreme Court.

The RBI in its reply stated that, “It is taking all possible measures to provide relief concerning debt repayments on account of the fallout of COVID-19 but it does not consider it prudent 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 “.

Further, it was submitted that, “It is submitted that regulatory dispensations permitted by the Reserve Bank of India vide the aforesaid circulars dated March 27, 2020, which subsequently stood modified on April 17, 2020, and May 23, 202intending to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. Therefore, the regulatory package is, in its like of a moratorium/deferment and cannot be construed to be a waiver.”

The RBI stated that the Forced waiver of interest would not be wise while risking banks’ financial capability. The Supreme Court after this on 4th June asked the Finance Ministry to file a reply on the waiver of interest during the moratorium period. The Supreme Court considered two outlooks which are-

  • No interest payment on loans during the moratorium periods.
  • No interest to be charged on interest.

The court observed that moratorium was granted as a relief in difficult times and on the other hand interest is charged. The interest charged is defeating the purpose of the moratorium in the first place.

Submissions

The petitioner highlighted the fact that the affidavits of the centre are not turned in to date. Additional to this the Centre has sought multiple adjournments for the same. 

“Right from the beginning, RBI has been saying it will take these issues into account – figures from the govt. as to how many people have taken the Loans have been sought for but these aspects have not come in. I, on the other hand, am only on the aspect of EMI’s”. – Petitioner stated.

It was submitted by the Solicitor General that on 6th August RBI took a decision that banks will decide the issue on a sectorial basis. This was stated as an answer for not filing the affidavit.

Court’s Observation

The matter was heard by the Justices Ashok Bhushan, R. Subhash Reddy, and MR Shah. The bench stated that the centre is not coming out with a clear stand and is “hiding behind the RBI”. It also stated that it was as good as “shelving the issue”.

The Supreme Court observed:

“no merit in charging interest on interest for deferred loan payment installments during the moratorium period announced in wake of the COVID-19 pandemic & that once the moratorium is fixed, it should serve the desired purposes and the government should consider interfering in the matter as it could not leave everything to banks”.

Court’s Decision

The Supreme Court directed the Centre to file an affidavit within one week. The case is listed for further consideration on 1st September.


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