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SC Defers Loan Moratorium Hearing To Oct 5, As SG Submits Matter At Advanced Stage Of Consideration At Highest Level; Interim Order To Continue

Mehal Jain
28 Sep 2020 5:48 AM GMT
SC Defers Loan Moratorium Hearing To Oct 5, As SG Submits Matter At Advanced Stage Of Consideration At Highest Level; Interim Order To Continue
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The Supreme Court on Monday adjourned to next Monday the hearing on plea(s) seeking extension of the Covid-19 induced loan moratorium & waiver of accruing interest. On the last date, the Centre had informed the top court that an Expert Committee at the highest level had been constituted in order to take a decision on the issue of moratorium extension, interest during moratorium, interest on interest and other related issues.

"I would like to start with an apology. I did not know that Your Lordships are sitting today only for this matter, or a letter would be circulated...but this matter has received very serious consideration of the central government. It is being considered at the highest level of decision-making and is at a very advanced stage...", advanced SG Tushar Mehta, seeking an adjournment of the hearing.
Justice Bhushan inquired from Senior Advocate Rajiv Dutta, appearing for individual petitioners- "If we grant 2-3 dates, would it be alright? Because if the government takes a decision, it may help"
"Please allow the intervention of the banks...It was the Government of India that issued the first circular, the moratorium, and it is the government which has to take steps in public interest...the banks are arguing as if these are normal situations...", submitted Mr. Dutta.
"It is better to wait for some time?", ventured the bench, even as the SG reiterated that it is a "complex issue" where "several economic issues are coming up".
The bench asked the SG if the affidavit will have been circulated by the next date, inclined to hear the matter on Thursday. "Certain issues are not in *my control at that level...", replied the SG.
"We can put it on Monday also. But we don't want any adjournment. Please circulate the policy decision till then so that everybody can apply their mind...serve it by mail by Thursday so that we can hear on Monday", said the bench, as Advocate Ravindra Sharma also voiced his apprehensions regarding the consequences of any delay.
"He (the SG) said the decision is being taken at the highest level...I know a lot of efforts are being made...but the interim orders must be continued...", advanced Mr. Dutta.
Allowing the interim orders to continue, the bench ordered, "The issues are under active consideration of the government of India and a decision is expected in 2-3 days. Let the matter be losted on Monday. The decision of the government shall be brought on record along with the affidavit containing the details. Let the affidavit be circulated to all appearing counsel by Thursday".
As the bench was about to rise, an advocate raised another concern regarding the harassment of the public at the hands of the banks- "Banks are regularly calling the customers and using abusive language. If Your Lordships' could restrict this...?"
"These issues cannot be dealt here...we said we won't pass any orders today", said the bench.

The Supreme Court on September 3 protected those accounts from being declared as Non-performing Assets (NPAs) which were not classified as NPAs on August 31 till case is disposed off.


The bench was hearing a plea filed by an Agra resident Gajendra Sharma, who has sought a direction to declare the portion of the RBI's March 27 notification "as ultra vires to the extent it charges interest on the loan amount during the moratorium period, which create hardship to the petitioner being borrower and creates hindrance and obstruction in 'right to life' guaranteed by Article 21 of the Constitution of India".Earlier, the Supreme Court had said there was "no merit in charging interest on interest" for deferred loan payment instalments during the moratorium period announced in wake of the COVID-19 pandemic & that once 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.

The petitioner has sought a direction to the government and the RBI to provide relief in repayment of loan by not charging interest during moratorium period.

On June 4, the top court had sought the Finance Ministry's reply on waiver of interest on loans during the moratorium period after the RBI said it would not be prudent to go for a forced waiver of interest risking financial viability of the banks.

The apex court had said there are two aspects under consideration in this matter - no interest payment on loans during the moratorium period and no interest to be charged on interest.

It had observed that these are challenging times and it is a serious issue as on the one hand, moratorium is granted and on other hand, interest is charged on loans.

On May 26, the top court had asked the Centre and the RBI to respond to the plea challenging levy of interest on loans during the moratorium period.

The RBI in its reply has told the court that it is taking all possible measures to provide relief with regard to 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 .

The RBI said the March 27 circular announcing moratorium was later modified on April 17 and May 23 by which the moratorium period was extended by another three months that is from June 1 to August 31, 2020 on payment of all instalments in respect of term loans (including agricultural term loans, retail and crop loans).

"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, 2020 were with the objective of mitigating 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 essence, in the nature of a moratorium/deferment and cannot be construed to be a waiver,"s

The RBI had said that in order to ameliorate difficulties faced by borrowers in repaying accumulated interest for the moratorium period, on May 23 it had announced that in respect of working capital facilities, lending institutions may, at their discretion, convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (FITL) which shall be repayable not later than March 31, 2021.

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