In a major relief to big borrowers, the Supreme Court on Tuesday ruled that no penal or compound interest would be charged on any loans, including those above Rs 2 crore, during the six month moratorium announced by the government against the backdrop of the Covid-19 pandemic.
A bench comprising Justices Ashok Bhushan, R. Subhash Reddy and M.R. Shah said: “It is directed that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium and any amount already recovered under the same head, namely, interest on interest/penal interest/compound interest, shall be refunded to the concerned borrowers and to be given credit/adjusted in the next instalment of the loan account.”
The bench, however, declined to entertain a plea seeking complete waiver of interest, and also extending the moratorium beyond August 31, 2020, holding that it is essential to protect the financial health of the lending institutions and the interest of bank depositors.
The top court also emphasised that matters of economic policy ought to be left to the government, as it declined to direct the Centre to provide sector-wise relief for various industries, and businesses over and above the different packages.
“Courts are not to interfere with economic policy which is the function of experts. It is not the function of the courts to sit in judgment over matters of economic policy and it must necessarily be left to the expert bodies,” it said in its 148-page judgment.
“Even the government also suffered due to lockdown, and also even lost the revenue in the form of GST. Still, the government seems to have come out with various reliefs or packages. Government has its own financial constraints,” it said.
It also vacated the interim relief granted earlier not to declare the accounts of respective borrowers as NPAs.
The top court also termed the government’s decision to restrict the relief of not charging interest on interest on loans up to Rs 2 crore only, as arbitrary and discriminatory. It noted that for example, if the borrower has been sanctioned a loan of Rs 5 crore and has availed of the same, even though he might have repaid substantially bringing down the principal amount of less than Rs 2 crore as on February 29, 2020, but because of the sanction of the loan amount of more than Rs 2 crore, he will be ineligible.
“What is the basis to restrict it to Rs 2 crore are not forthcoming. Therefore, as such, there is no rationale to restrict such relief with respect to loans up to Rs 2 crore only,” it noted.
The bench also questioned restricting the relief to eight categories: MSME loans, education loans, housing loans, consumer durables, credit card dues, auto loans, personal loans and consumption loans.
“If a borrower, for example, of MSME category has availed and has outstanding of business loan of Rs 1.99 crore and also has dues of its credit card of Rs 1.10 lakh, thereby making the aggregate to Rs 2.10 crore, it stands ineligible. Therefore, the aforesaid conditions would be arbitrary and discriminatory,” it said.
The bench also did not accept the contention that there was no national plan under the National Disaster Management Act. “Once the payment of instalment is deferred as per circular dated March 27, 2020, non-payment of the instalment during the moratorium period cannot be said to be wilful and therefore, there is no justification to charge the interest on interest,” it added.
The top verdict came on a clutch of pleas including by various industry bodies, such as the Association of Power Producers, various chapters of Confederation of Real Estate Developers Association of India and the Shopping Centres Association of India etc. They all sought relief in repayment of loans.
