Today the SC directed that there should be no interest on interest or penal interest on the installments which were due during the loan moratorium period from March 1 to August 31 in 2020 on any borrower, irrespective of the loan amount. If such interest; already collected, it should either refunded to the borrower or adjusted towards the next installments.
The bench observed that there is no rationale in the Center’s policy to limit the benefit of waiver of interest on interest only to certain loan categories less than Rs 2 Crores. Last year, the Center had taken a decision to allow waiver of interest on interest in eight specified loan categories for loans up to Rs. 2 crores.
However, the Court rejected the petitioners’ prayer for the extension of the 6-month loan moratorium period granted by the RBI on account of the COVID-19 pandemic.
The limited scope of judicial review in economic policy matters
In economic policy matters; the scope of judicial review is very limited which is stated by the court. Financial policy is a field in which courts should tread warily, as judges are not experts. In what manner financial packages & reliefs are to be provided is to be decided by the Central Government with the aid & advice of expert bodies like the RBI. The court cannot interfere.
The Court held that; no writ of mandamus can be issued to direct the Central Government or the RBI to provide relief to particular sectors over & above the sectors already identified. It is not for the Court to decide what should be the nature of financial reliefs that should be granted.
A bench comprising Justices Ashok Bhushan, R Subhash Reddy, and MR Shah pronounced the verdict in the case Small Scale Industrial Manufacturers Association(Regd) v Union of India and connected matters.
Last year on December 17, the Court had reserved the Judgment after hearing petitioners, Center, RBI, and interveners’.
The government also suffered due to pandemic
An observation made by the J. MR Shah that the government also suffered due to unprecedented pandemic and lost GST revenue. The Government has its own financial concerns.
A Notification was issued by RBI on 27.03.2020 to permit banks & financial institutions to grant a moratorium of 3 months on payments of all installments of term loans falling due between March 1st 2020 & May 31st, 2020. Later this period; extended by another 3 months till August 31, 2020.
The petitioners had initially sought an extension of the moratorium up to December 31. One of the Petitioners, Adv. Vishal Tiwari, later sought an extension up to March 31, 2021, stating that the current situation demands and necessitates the same.
The Center had urged the Court to not intervene and provide further relief to borrowers under Article 32 as the Government was already “on top of it”, on November 19.
On November 28, 2020, a bench led by Justice Ashok Bhushan had directed the Center to implement the decision taken by the Center to forego interest for 8 specified categories up to Rs 2 crores.
The categories in which the Center and the RBI agreed to waive compound interest during the loan moratorium period are :
(i) MSME loans up to Rs. 2 crore
(ii) Education loans up to Rs. 2 crore
(iii) Housing loans up to Rs. 2 crore
(iv) Consumer durable loans up to Rs. 2 crore
(v) Credit card dues up to Rs. 2 crore
(vi) Automobile loans up to Rs. 2 crore
(vii) Personal loans to professionals up to Rs. 2 crore
(viii) Consumption loans up to Rs. 2 crore
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