Loan Moratorium Case
In the matter of Small Scale Industrial Manufactures Association v. Union of India,W.P. 476 of 2020, the bench of Supreme Court of India, comprising of Justices Ashok Bhushan, R Subhash Reddy and MR Shah Ordered for complete Waiver Of Compound Interest for all borrowers due to Covid-19 Pandemic and Moratorium declared therefore to combat the same.
Moratorium scheme during March 1 to August 31,2020, as declared by Reserve Bank of India.
It is pertinent to note that the Central Government had already agreed to absorb the cost of interest on interest for loans of up to Rs 2 crore and for borrowers of 8 sectors. This was slated to cost Rs 6,500 crore to the exchequer.
The reliefs which were sought in a collective manner were as below:
i) a complete waiver of interest or interest on interest during the moratorium period;
ii) there shall be sectorwise relief packages to be offered by the Union of India and/or the RBI and/or the Lenders;
iii) moratorium to be permitted for all accounts instead of being at the discretion of the Lenders;
iv) extension of moratorium beyond 31.08.2020;
v) whatever the relief packages are offered by the Central Government and/or the RBI and/or the Lenders are not sufficient looking to the impact due to Covid19 Pandemic and during the lockdown period due to Covid19 Pandemic;
vi) the last date for invocation of the resolution mechanism, namely, 31.12.2020 provided under the 6.8.2020 circular should be extended.
A. Narrow Scope of Judicial Review & When allowed?
The Court firstly dealt on scope and domain of judicial review that normally such issues doe not require judicial intervention to the effect
15. What is best in the national economy and in what manner and to what extent the financial reliefs/packages be formulated, offered and implemented is ultimately to be decided by the Government and RBI on the aid and advise of the experts. The same is a matter for decision exclusively within the province of the Central Government. Such matters do not ordinarily attract the power of judicial review. Merely because some class/sector may not be agreeable and/or satisfied with such packages/policy decisions, the courts, in exercise of the power of judicial review, do not ordinarily interfere with the policy decisions, unless such policy could be faulted on the ground of mala fide, arbitrariness, unfairness etc.
16. There are matters regarding which Judges and the Lawyers of the courts can hardly be expected to have much knowledge by reasons of their training and expertise. Economic and fiscal regulatory measures are a field where Judges should encroach upon very warily as Judges are not experts in these matters.
17. The correctness of the reasons which prompted the government in decision taking one course of action instead of another is not a matter of concern in judicial review……….
…….”Economic and fiscal policies are not amenable to judicial review and merely because a sector is not satisfied with a policy decision, cannot be reason for interference unless there are malafides and arbitrariness in the said policy decision”.
This observation equally goes to the root of judicial interference where there is patent illegality and Constitutional rights are hampered coupled with arbitrariness amongst certain issues, then only the Constitutional Courts exercise their jurisdiction.
18. Legality of the policy, and not the wisdom or soundness of the policy, is the subject of judicial review. The scope of judicial review of the governmental policy is now well defined. The courts do not and cannot act as an appellate authority examining the correctness, stability and appropriateness of a policy, nor are the courts advisers to the executives on matters of policy which the executives are entitled to formulate.
B. No waiver of Interest
As regards to complete waiver of Interest, the Court while dealing on welfare schemes and responsibilities of exchequer and banks held that it cannot be completely waived as under;
23. Now so far as the relief sought of waiver of interest during the moratorium period is concerned, it is required to be noted that the bankers/lenders have to pay the interest to the depositors and their liability to pay the interest on the deposits continue even during the moratorium period. There shall be administrative expenses also required to be borne by the bankers/lenders. Continue payment of interest to depositors is not only one of the most essential banking activities but it shall be a huge responsibility owed by the banks to crores and crores of small depositors, pensioners etc. surviving on the interest from their deposits. There may be several welfare funds schemes, category specific and sector specific which might be surviving and are implemented on the strength of the interest generated from their deposits. All such welfare funds would depend on the income generated from their deposits for the survival of their members. Therefore, to grant such a relief of total waiver of interest during the moratorium period would have a far reaching financial implication in the economy of the country as well as the lenders/banks…..
c. No Extension of Moratorium Period
27. The Court dealt the issue as below:
Similarly, the relief sought that the moratorium period should be extended and/or the last date for invocation of the resolution mechanism namely 31.12.2020 provided under the 06.08.2020 circular should be extended are all in the realm of policy decisions. Even otherwise, almost five months were available to eligible borrowers when circular dated 6.8.2020 was notified providing for a separate resolution mechanism for Covid19 related stressed assets. Therefore, sufficient time was given to invoke the resolution mechanism.
Therefore, the petitioners shall not be entitled to any reliefs, namely,
(i) total waiver of interest during the moratorium period;
(ii) to extend the period of moratorium;
(iii) to extend the period for invocation of the resolution mechanism, namely 31.12.2020 provided under the 6.8.2020 circular; 130
(iv) that there shall be sector wise reliefs provided by the RBI; and
(v) that the Central Government/RBI must provide for some further reliefs over and above the relief packages already offered which, as observed herein above, can be said to be in the realm of the economic policy decisions and for the reasons stated herein above and as observed herein above granting of any such reliefs would have a far reaching financial implication on the economy of the country.
It appears, whatever best can be offered has been offered for the different fields and to the common people as well as those persons who are affected due to Covid19 pandemic.
d. No Violation of Article 14 of the Constitution of India
The Court held that merely because policies does not suit certain borrowers, it cannot be held to be violative of Article 14 of Constitution of India,as under
……..Merely, since the reliefs announced by the UOI/RBI either may not be suiting the desires of the borrowers, the reliefs/policy decisions related to Covid19 cannot be said to be arbitrary and/or violative of Article 14 of the Constitution of India. It cannot be said that any of the fundamental rights guaranteed under the Constitution are infringed and/or violated. Economic decisions are required to be taken keeping the larger economic scenario in mind..”
e.No Extension in date for invocation of Resolution Mechanism
The Court gave deliberation on it and concluded that sufficient time was already extended to them and further period cannot be extended at all, as under;
“the last date for invocation of the resolution mechanism namely 31.12.2020 provided under the 06.08.2020 circular should be extended are all in the realm of policy decisions. Even otherwise, almost five months were available to eligible borrowers when circular dated 6.8.2020 was notified providing for a separate resolution mechanism for Covid19 related stressed assets. Therefore, sufficient time was given to invoke the resolution mechanism.
f. No to Sector wise Specific Relief
The Court has dealt this issue after taking cognisance of the recommendations given by Kamath Committee Report on 26 sectors and its acceptance by RBI. While concluding in a no, the Court held as below;
Even otherwise, it is required to be noted that every sector might have suffered differently and therefore it will not be possible to provide sector specific/sector-wise reliefs. The petitioners cannot pray for sector specific relief by either waiver of interest or restructuring by way of present proceedings under Article 32 of the Constitution of India and the question of such financial stress management measures requires examination and consideration of several financial parameters and its impact
g. No Interest on interest or Compound interest
The Court allowed the writs on complete waiver of Interest on interest or Compound interest and held that
There is no justification shown to restrict the relief of not charging interest on interest with respect to the loans up to Rs. 2 crores only and that too restricted to the aforesaid categories. What are the basis to restrict it to Rs. 2 crores are not 144 forthcoming. Therefore, as such, there is no rational to restrict such relief with respect to loans up to Rs. 2 crores only. Even otherwise, it is required to be noted that the scheme dated 23.10.2020 granting relief/benefit of waiver of compound interest/interest on interest contains eligibility criteria and it provides that any borrower whose aggregate of all facilities with lending institution is more than Rs. 2 crores (sanctioned limit or outstanding amount) will not be eligible for exgratia payment under the said scheme. Therefore, if the total exposure of the loan at the grant of the sanction is more than Rs. 2 crores, the borrower will be ineligible irrespective of the actual outstanding…….
It further concluded that as charging of compound interest is as good as penal interest and it should be only for defaulters and concluded as under;
31.1 Even otherwise, it is required to be noted that compound interest/interest on interest shall be chargeable on deliberate/willful default by the borrower to pay the installments due and payable. Therefore, it is in the nature of a penal interest……………
We are of the opinion that there shall be no interest on interest or compound interest or penal interest during moratorium period and any amount already recovered under those heads shall be refunded by adjusting it in the next installment of the loan amount.
h. Adjustment of already recovered amount
The Court concluded that whatever amounts which were recovered though should should be adjusted;
However, 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. All these petitions are partly allowed to the aforesaid extent only and as observed for the reliefs, the petitions are dismissed.
i. Vacation of Interim Relief
Interim relief granted earlier not to declare the accounts of respective borrowers as NPA stands were also vacated in this verdict.
The Apex Court also didn’t agree with the logic and rationale behind extending the waiver on loans upto Rs 2 Crores alone.Hence, the benefit will extend to every borrower and without any threshold limit of amount of loan.
It was also interestingly noted that none of the petitioners have specifically challenged the various circulars/policy decisions taken by the UOI/RBI. Court also felt that the UOI and/or the RBI have already addressed the issues related to the impact of Covid19 on the borrowers.
While delivering this verdict, Court also shown a concern for the Government in as much as they also have the financial concerns and hence complete waiver of interest was not accorded.
Overall, it is a welcoming decision wherein a larger portion of the society will be relieved and has also maintained a well balance between the reliefs sought and exchequers responsibility and their jurisdiction while exercising judicial powers under writ.