No compound interest on all loans during moratorium: SC

The court also rejected the plea for extension of the moratorium period

In a relief to big borrowers, the Supreme Court on Tuesday declared that no compound or penal interest could be charged on any loans, including those above Rs 2 crore, during the six-months moratorium period, announced due to the Covid-19 pandemic, last year.

A bench of Justices Ashok Bhushan, R Subhash Reddy and M B Shah, however, rejected a plea for a complete waiver of interest, and extension of the moratorium period beyond August 31, 2020, saying financial health of lending institutions and interest of bank depositors have to be protected. The court also refused to tell the Union government to provide sector-wise relief for different industries, and businesses over and above the different packages.

Justice Shah, who authored the judgement, said economic policy and fiscal regulatory measures are a field where judges should encroach upon very warily as they are not experts in these matters. "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," the bench said.

The court also allowed RBI and banks to declare bad loans as it lifted its interim stay earlier granted on declaring the accounts of borrowers on default as non-performing assets. It also did not agree to a contention that there was no national plan under the National Disaster Management Act.

Read | SC rules against extension of loan moratorium

The court, however, termed as "arbitrary and discriminatory" the decision to restrict the relief of not charging interest on interest with respect to the loans up to Rs 2crore only and that too in categories such as MSMEs, education, housing, consumer durables, credit cards and auto loans etc.

"Once the payment of an instalment is deferred as per circular dated 27.03.2020, non­-payment of the installation during the moratorium period cannot be said to be willful and therefore there is no justification to charge the interest on interest," the bench said.

The court ordered for a refund of such amount, even though the Union government maintained any waiver of interest on all the category of loans and advances would mean forgoing an estimated over Rs 6 lakh crore.

The court passed the directions in its 148-page judgement on a batch of petitions including by various industry bodies, such as the Association of Power Producers, various chapters of Confederation of Real Estate Developers Association of India and Shopping Centres Association of India etc for relief in repayment of loans.

With regard to the plea for a further relief package for different sectors, the court said the government has to decide its own priorities.

It said the pandemic affected the entire country while the government was required to take various measures in different fields like public health, employment, providing food and shelter to the common people, migrants, transportation of migrants etc. "Even the government suffered due to lockdown, and even lost the revenue in the form of GST. Still, the government seems to have come out with various reliefs or packages. The government has its own financial constraints," it said.