The Supreme Court on Thursday protected those accounts from being declared as Non-performing Assets (NPAs) which were not classified as NPAs on August 31 till case is disposed off.
A bench of Justices Ashok Bhushan, R. Subhash Reddy & MR Shah was hearing plea(s) seeking extension of the Covid19 induced loan moratorium & waiver of accruing interest. While adjourning the case for a week, the court granted protection to petitioners to the extent of not being declared as NPA's till the case is disposed off. The case will now be heard on Thursday, September 10.
The court also stated that it was of the primary view that certain directives have to come from the RBI. "What you do, that is for you to decide. Some things have to decided by the GOI or by the RBI. Everything cannot be left to the banks" - Supreme Court
Today, Solicitor General Tushar Mehta apprised the bench of the reasons for keeping the interests accrued on term loans alive. He said that it was done in order to protect the banking sector which was the backbone of the economy. Mehta highlighted that the methodology adopted was for reduction of immediate pressure of payment of instalments, resurrect all sectors & restructure stressed assets.
At this juncture, Justice Bhushan stated that All measures were on record already by RBI, however, Union had not taken any measures under Disaster Management Act. "We will not examine under 32 whether measures suitable. Question is did the Union operate within the legal framework of DMA? Did the NDMA?" he asked.
SG said that the DMA stipulated that the Govt. "may" do it. "So far, the NDMA deems it appropriate for the RBI to play a supervisory role. This is not cast in stone," he argued.
The law officer then said that all banks were fully empowered to resolve the covid19 related stresses and customise concessions for borrowers with respect of altering rate of interest as well, tenure of loan, with or without moratorium for two years & even for waiving penal charges. "Modalities & intricacies will have to be dealt with by the banks. This will be sector-wise. Expert committee does not come in way of individual borrowers," he said.
Further to this, SG said that an Expert Committee shall be coming up with sector specific guidelines on September 6. While elaborating on the COVID19 scheme introduced by RBI vide Circular of August 6, SG said that the scheme shall only apply to those who have been affected due to covid19.
"The person who was in default in 2019 can reach out for other schemes but they would not be able to avail the covid19 related scheme. They may go to other schemes. You may be a 2019 defaulter - a relief which you may avail separately," Mehta said.
On the issue of whether the directives will come from the Government and whether everything will be left to banks alone, SG said that he shall now take instructions. Bench also asked him as to what mitigating schemes were being put in for those people who may not have defaulted on February 1 but their situation worsened due to covid19.
To this Senior Advocate Harish Salve replied, "The person who was in default in 2019 can reach out for other schemes but they would not be able to avail the covid19 related scheme. They may go to other schemes. You may be a 2019 defaulter - a relief which you may avail separately".
The case will be taken up for further consideration next week,
Yesterday, various stakeholders and affected parties made submissions before the top court in the plea(s) concerning waiver of interest on term loans during the covid19 induced moratorium period
Advocates Shivani Khanwilkar, Saloni Shah, Manhar Singh Saini and Samit Shukla (DSK Legal) also appeared for Petitioner(s) on behalf of 1400 members of real estate developer's association of Maharashtra.
The bench was hearing a plea filed by an Agra resident Gajendra Sharma, who has sought a direction to declare the portion of the RBI's March 27 notification "as ultra vires to the extent it charges interest on the loan amount during the moratorium period, which create hardship to the petitioner being borrower and creates hindrance and obstruction in 'right to life' guaranteed by Article 21 of the Constitution of India".Earlier, the Supreme Court had said there was "no merit in charging interest on interest" for deferred loan payment instalments during the moratorium period announced in wake of the COVID-19 pandemic & that once moratorium is fixed, it should serve the desired purposes and the government should consider interfering in the matter as it could not leave everything to banks.
The petitioner has sought a direction to the government and the RBI to provide relief in repayment of loan by not charging interest during moratorium period.
On June 4, the top court had sought the Finance Ministry's reply on waiver of interest on loans during the moratorium period after the RBI said it would not be prudent to go for a forced waiver of interest risking financial viability of the banks.
The apex court had said there are two aspects under consideration in this matter - no interest payment on loans during the moratorium period and no interest to be charged on interest.
It had observed that these are challenging times and it is a serious issue as on the one hand, moratorium is granted and on other hand, interest is charged on loans.
On May 26, the top court had asked the Centre and the RBI to respond to the plea challenging levy of interest on loans during the moratorium period.
The RBI in its reply has told the court that it is taking all possible measures to provide relief with regard to debt repayments on account of the fallout of COVID-19 but it does not consider it prudent to go for a forced waiver of interest, risking the financial viability of the banks it is mandated to regulate, and putting the interests of the depositors in jeopardy .
The RBI said the March 27 circular announcing moratorium was later modified on April 17 and May 23 by which the moratorium period was extended by another three months that is from June 1 to August 31, 2020 on payment of all instalments in respect of term loans (including agricultural term loans, retail and crop loans).
"It is submitted that regulatory dispensations permitted by the Reserve Bank of India vide the aforesaid circulars dated March 27, 2020 which subsequently stood modified on April 17, 2020 and May 23, 2020 were with the objective of mitigating the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. Therefore, the regulatory package is, in its essence, in the nature of a moratorium/deferment and cannot be construed to be a waiver,"s
The RBI had said that in order to ameliorate difficulties faced by borrowers in repaying accumulated interest for the moratorium period, on May 23 it had announced that in respect of working capital facilities, lending institutions may, at their discretion, convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (FITL) which shall be repayable not later than March 31, 2021.