The Supreme Court on Tuesday said any amount collected during the moratorium period by banks as interest on interest or compound interest, should either be refunded or adjusted against the next EMIs payable by the borrowers. It rejected the plea by the trader’s associations to extend the period of the loan moratorium and allow sector-specific reliefs. The top court also dismissed petitions seeking a complete waiver of interest during the moratorium period of March 2020, when a lockdown was imposed given the Covid-19 pandemic, till August that year.
A bench comprising Justices D. Y. Chandrachud, M. R. Shah and Sanjiv Khanna pronounced the verdict. The top court said it could not understand the rationale behind waiving interest on interest on loans up to Rs 2 crore, and why this limit has been set by the government, has not been explained. Stating that judges are experts on financial matters, the apex court said it would not get into the affairs of trades and commerce.
"Not for us to decide if the public policy could have been better", noted the top court. However, the apex court also rejected the petitioners' prayer seeking an extension of the 6-month loan moratorium period granted by the RBI in the backdrop of the Covid-19 pandemic. The court’s ruling came on a bunch of pleas by corporate bodies, business associations, and individuals demanding an extension of the moratorium beyond August 2020.
The top court stressed that the government cannot be directed to ask banks to waive off interest on loans during the period of lockdown.
The bench pronounced the verdict in the case of Small Scale Industrial Manufacturers Association vs Union of India.
"Economic and fiscal policies are not amenable to judicial review and merely because a sector is not satisfied with a policy decision...", observed the top court. The judgment in the matter was reserved on December 17, 2020.
The petitions filed were opposed by the Centre and RBI, while Solicitor General Tushar Mehta, appearing for the Centre, and senior advocate V Giri representing RBI contended that compound interest on loans of up to ₹2 crores was waived keeping in mind fiscal limitations and viability of banks.
Relating to the waiver of compound interest, the SC said that it found no reason behind the government’s decision to reject interest for the six categories, clarifying that any penal interest charged by banks for non-payment of loan during moratorium shall be refundable.
The covid-19 pandemic has affected the government and yet the Centre and the RBI came up with schemes and packages to reduce pressure on businesses, adding that grant of any further relief would have far-reaching consequences on the economy.
The Supreme Court observed that decisions relating to economic policy matters should be left with the government and that courts should not intervene even if a second view is possible.
The petitioners included big borrowers like power producers, real estate developers, textile mill owners, knitwear association, jewellery manufacturing association, contract carriage operators, hotel and restaurant associations of states, financial technical institutions, and shopping centre associations who had obtained loans up to or above ₹1,500 crores.