In a major relief to borrowers, the Supreme Court Tuesday directed that no compound or penal interest be charged for the six-month moratorium announced last year amid the COVID-19 pandemic and the amount already recovered is to be refunded or adjusted in the next instalment of loan account.
While refusing to extend the period of moratorium, the apex court said there is "no justification" to charge interest on interest or compound interest for the period during the moratorium once the payment of instalment is deferred by last year's March 27 notification.
The Reserve Bank of India (RBI) had on March 27, 2020 issued the circular allowing lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1 and May 31 of last year due to the pandemic. The moratorium was extended by three months till August 31.
The top court delivered the verdict on a batch of petitions seeking reliefs, including extension of loan moratorium, complete waiver of interest or interest on interest during the moratorium period and sector wise relief packages. "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," a bench headed by Justice Ashok Bhushan said in its 148-page judgement.
The bench, also comprising Justices R S Reddy and M R Shah, noted that by a notification dated March 27 last year the government has provided deferment of instalments due and payable during the moratorium period. "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 willful and therefore there is no justification to charge the interest on interest/compound interest/penal interest for the period during the moratorium," the bench said.
"Interim relief granted earlier not to declare the accounts of respective borrowers as NPA stands vacated," it said. The bench, which referred to previous verdicts delivered by the top court, noted that what is best in national economy and in what manner and to what extent the financial reliefs or packages be formulated, offered and implemented is ultimately to be decided by the government and the 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," it said. "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," the bench said.
The bench also noted in its verdict that the Centre had come out with a policy decision subsequently by which it was decided not to charge interest on interest on loans up to Rs 2 crores and this relief was restricted to following categories -- MSME (Micro, Small & Medium Enterprises), Education, Housing, Consumer durable, Credit card, Automobile, Personal and Consumption.
"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 forthcoming," it said. The bench said as such, there is no rational to restrict such relief with respect to loans up to Rs 2 crores only.
"Therefore, if a borrower, for example, MSME category has availed and has outstanding of business loan of Rs 1.99 crores and also has dues of its credit card of Rs 1.10 lakhs, thereby making the aggregate to Rs 2.10 crores, it stands ineligible. Therefore, the aforesaid conditions would be arbitrary and discriminatory," it noted.
The top court said that correctness of reasons which prompted the government in decision 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.
"The policy decision must be left to the government as it alone can adopt which policy should be adopted after considering of the points from different angles. In assessing the propriety of the decision of the government the court cannot interfere even if a second view is possible from that of the government," it said.
"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," the bench noted.
"Economic and fiscal regulatory measures are a field where judges should encroach upon very warily as judges are not experts in these matters," the bench said. It did not accept the submissions of one of the petitioners that there is no national plan drawn up for disaster management due to COVID-19 pandemic and that the NDMA has failed to perform its duty.