Case/ Judgment Summary (SC on Moratorium)
Details of case:
WRIT PETITION (CIVIL) No. 825 of 2020
Gajendra Sharma vs Union of India & Anr.
Writ Petition was filed in Supreme Court of India under Article 32 of the Constitution praying for directions declaring the notification dated 27.03.2020 issued by RBI as ultra vires to the extent it charges interest on the loan amount during the moratorium period.
As the learned senior counsel Mr. Rajiv Dutta (appearing for the petitioner) expressed his satisfaction on the measures taken by the GoI vide its circular dated 23.10.2020, the Apex Court disposed of the writ petition with directions to the respondents “to ensure that all steps be taken to implement the decision dated 23.10.2020 of the Government of India, Ministry of Finance so that benefit as contemplated by the GoI percolates to those for whom the financial benefits have been envisaged and extended.”
The impugned statement/ notification dated 27.03.2020 issued by RBI for rescheduling of payments – Term Loans and Working Capital facilities inter alia states that:
(i) Rescheduling of payments – Term Loans and Working Capital Facilities
(ii) In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (“lending institutions”) are permitted to grant a moratorium of three months on payment of all installments falling due between 1st March 2020 and 31st May 2020. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.”
The petitioner’s case is that imposition of interest of interest during the moratorium period vide notification (above-mentioned) is ultra vires and shall defeat the purpose of permitting the moratorium of loans. Petitioner pleads that by subsequent notification dated 23.05.2020, due to the extension of lockdown, RBI has directed all commercial banks to extend moratorium by another three months, i.e., up till 31.08.2020 on all installments in respect of term loans. Also, petitioner pleads that notification(s) qua payment of interest violates the principles of natural justice and also causes hindrance and obstruction in right to life guaranteed under article 21 of the constitution.
Mr. Tushar Mehta (learned SG) appearing on behalf of the UoI while referring to the affidavit dated 23.10.2020, stated that “Central government has decided/ directed for granting various reliefs for covid-19 pandemic for benefit of waiver of interest upto Rs.2 crores in eight categories and the MoF has issued directions dated 23.10.2020 on the subject.” It was also submitted that “in consonance with the directions dated 23.10.2020, various lending institutions have released ex-gratia amount of an aggregate exceeding Rs.4,300 crores in over 13.12 crore accounts of the borrowers covered under the scheme.”
Further, Mr. V Giri (learned senior counsel) appearing on behalf of the RBI submitted that “RBi have issued circular dated 26.10.2020 to all commercial banks, all primary institutions and all non-banking financial companies and advised to be guided by the scheme announced by the GoI dated 23.10.2020.”
The order dated 23.10.2020 issued by MoF GoI is reproduced hereinunder:
Scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts (01.03.2020 – 31.08.2020)
1. Name of the scheme
This scheme shall be called “scheme for grant of ex-gratia payment of between compound interest and simple interestfor six months to borrowers in specified loan accounts”.
2. Object of the scheme
In view of the unprecedented and extreme COVID-19 situation, the object of the scheme is to provide ex-gratia payment of difference between compound interest and simple interest by ways of relief for the period from 1st March 2020 to 31st August 2020 to borrowers in specified loan accounts. Such payment does not constitute a contractual, legal or equitable liability of the Central Government and is only an ex-gratia payment to the following designated class of borrowers in view of the COVID-19 pandemic.
3. Applicability of the scheme
This scheme shall apply to all lending institutions, which must be either a banking company, or a public sector bank, or a co-operativebank, or a regional rural bank, or an All India Financial Institution, or a NBFC or a Housing Finance Company registered with RBI or a National Housing Bank as the case may be.
4. Eligibility criteria under the scheme
(1) Borrowers in the following segment/ classes of loans, who have loan accounts having sanctioned limits and outstanding amount of not exceeding Rs. 2 crores as on 29.02.2020, shall be eligible under the scheme:
(i) MSME loans
(ii) Education loans
(iii) Housing loans
(iv) Consumer durable loans
(v) Credit card dues
(vi) Automobile loans
(vii) Personal loans to professionals
(viii) Consumption loans
Any borrower whose aggregate of all facilities with lending institutions is more than Rs. 2 crores will not be eligible for ex-gratia payment under this scheme.”
Furthermore, GoI vide its affidavit submitted dated 17.11.2020 have also submitted that “Restructuring/resolution of eligible accounts are being undertaken by lending institutions on case-by-case basis. Resolution plans in respect of eligible personal, MSME and corporate loans are to be invoked by 31.12.2020, and time is available to the account holders for such invocation”.
That in accordance with the satisfaction expressed by the learned counsel appearing on behalf of petitioner to the measures taken by the GoI redressing the grievances of the petitioner (borrower), the Apex Court disposed of the above-captioned writ petition accordingly.