The Central Government told the Supreme Court on Tuesday that the moratorium period is extendable by two years.
On the last date, the court had directed the Centre to file an affidavit, clearly stipulating its take on the issue of interest payments within a week and listed the case for further consideration on September 1.
In light of this, Solicitor General Tushar Mehta told a bench of Justices Ashok Bhushan, R. Subhash Reddy & MR Shah that an affidavit had come on record. He also submitted that on the aspect of interests payable on loans during moratorium period, it has been decided that the Central Government and Bankers Association put their heads together on the issue.
Solicitor General further added that as there were many issues and different sectors were undergoing stress, thus it was imperative that stakeholders sit together and decide on the issue.
The Court stated that it had not received the affidavit filed on behalf of the union on record. The law officer thus insisted that the case be taken up a day later.
Initially, the bench seemed disinclined to adjourn the case further but after the Solicitor General prayed the for the bench to peruse the affidavit at length, the matter was adjourned to tomorrow morning at 10.30 am.
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 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".
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 installments 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," it said.
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.