Can’t charge interest on interest during loan moratorium: Supreme Court

IN A relief for borrowers, the Supreme Court Tuesday directed the government not to charge any interest on the interest linked to loan repayments for all categories that came under the six-month moratorium put in place last year due to the Covid pandemic — and that the amounts already collected for this purpose be refunded or adjusted in the next instalment.

A Bench of Justices Ashok Bhushan, R Subhash Reddy and M R Shah, however, rejected pleas for extension of the moratorium period, total waiver of interest for the period and sector-wise relief, saying these are matters of government policy.

The apex court also vacated its earlier interim order asking banks not to declare as Non Performing Assets (NPAs) accounts that had not been declared so as on August 31, 2020.

“…we are of the opinion that there shall not be any charge of interest on interest/ compound interest/ penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/ compound interest/ penal interest for the period during the moratorium, the same shall be refunded and to be adjusted/ given credit in the next instalment of the loan account,” the bench said in its order.

During the hearing, the Centre had told the court that it had decided not to charge interest on interest for loans upto Rs 2 crore for eight categories. However, the court said “there is no justification shown to restrict the relief…with respect to the loans up to Rs 2 crore only and that too restricted” to the eight “categories”.

The bench said that “the basis to restrict it to Rs 2 crore” is “not forthcoming”. “Therefore, as such, there is no rationale to restrict such relief with respect to loans up to Rs 2 crore only,” it said.

Rejecting the pleas on other relief, the court said they “are all in the realm of the policy decisions”. “… not only that, if such reliefs are granted, it would seriously affect the banking sectors and it would have far reaching financial implications on the economy of the country,” it said.

Explaining the limits to judicial review of Government policies, the bench said “economic and fiscal regulatory measures are a field where Judges should encroach upon very warily as Judges are not experts in these matters”.

It said that “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 advice of the experts”.

The bench said: “The correctness of the reasons which prompted the Government decision in taking one course of action instead of another is not a matter of concern in judicial review and the court is not the appropriate forum for such investigation.”

“Even the government also suffered due to lockdown, due to unprecedented Covid-19 pandemic, and also even lost the revenue in the form of GST. Still, the Government seems to have come out with various reliefs/ packages. Government has its own financial constraints. Therefore, as such, no writ of mandamus can be issued directing the Government/ RBI to announce/ declare particular relief packages and/ or to declare a particular policy…”, it said.

The bench pointed out that banks have to pay interest to crores of small depositors and pensioners even during the moratorium and there may also be many welfare fund schemes that survive solely on such interest.

It said that banks will also have to incur administrative expenses and “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”.

On sector-specific reliefs, the court said the K V Kamath committee had recommended measures that have been substantially accepted by the RBI. Therefore, it cannot be said that the Central Government and the RBI “have not done anything” or “not offered any relief whatsoever”, the bench said.