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.
On the last date, a bench of Justices Ashok Bhushan, R. Subhash Reddy & MR Shah 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.
Today, the hearing began with Senior Advocate Rajiv Dutta appeared for the Petitioner(s) submitted that charging of "interest on interest" is prima facie void in light of ongoing pandemic situation.
"We thought we are secure when they waived our EMI's but they ended up charging us with compound interest - a kind of double whammy on us," he said.
Dutta added that as the lockdown was imposed viz. the Disaster Management Act, 2005, section 13 stipulates power upon the concerned authority to grant relief to citizens. He then drew corollaries between how the Governments of USA & UK were helping out citizens but in India, the people were being penalised.
Senior Advocate CA Sundaram (for CREDAI Maharashtra & Association of Power Producers) appeared for the Real Estates Association of India. He submitted that banks cannot have sole discretion to work out the financial nitty gritty's.
"Everything is left without guidelines, to the individual banks. The whole aim is for all of us to survive. Thats all I can appeal to your lordships", he added.
Next Senior Advocate KV Vishwanathan (Power Producers Association) said that the levy of interest for the period of moratorium and should be proportionate to what banks have to pay to depositors and charges basis the doctrine of proportionality. "Power is the most stressed sector and this is an extraordinary situation" he said.
Vishwanathan further submitted that RBI had not paid any heed to proportionality and was merely indulging in "eye-wash".
"RBI Circular an attempt to hoodwink borrowers and top court," he said.
Senior Advocate Ranjit Kumar appearing for Shopping Centre's Association took the bench through the hardships faced by shop's during the pandemic. "We were totally closed. We are shopping centres. We were asked to pay our employees, we kept on paying them. Footfalls in shopping centres next to zero," he submitted. Next, he highlighted provisions of the Disaster Management Act including sections 13, 16 & 18. He is justified how statute provides for action to mitigate the effects of a "Disaster", which in this case, he says, is the ongoing pandemic.
Senior Advocate Ravindra Shrivastava said that he shall adopt Senior Advocate Rajiv Dutta's submissions while supplementing his own. He contended that actually it was the National Disaster Management Authority and the Central Government which was required to pan put a framework to tackle this issue. "No one (GOI & NDMA) worked within the framework of the Disaster Management Act. It is the jurisdiction of the GOI to formulate a framework. Right authority is the central govt, this is a policy issue" he added.
At this juncture, the court noted that, "the question is not whether the government has this right under the Disaster Management Act (DMA). The government has authority. The real question is whether the government has exercised this right under the DMA or not"
Senior Advocate Sanjay Hegde for Jewellers Association said that he seeks Extension of moratorium for a reasonable time and the effects of which can be used as a relief by borrowers. "I am obliged to repay my debts, time granted is on the basis of an overwhelming disaster" he added.
Senior Advocate Kapil Sibal urged the bench to extend the moratorium.
"Obligations under section 13 must be discharged and the NDMA must come up with a comprehensive plan. At the moment, I am only praying for an extension of #moratorium for 3 months & waiver of interest on interest," he said.
Solicitor General Tushar Mehta made submissions on behalf of the Centre & RBI. He said that first thrust by RBI was to reduce the pressure of repayment of loan. "Holistically, what eventually transpired post-COVID period was then, revival of sectors so economy starts moving. Third was reconstruction of stressed assets," Mehta said.
"We cannot look at recovering the economy by ignoring the banking sector, so that they do not become financially unstable. This is indeed a difficult way forward", he added.
Advocates Ashish Virmani, Abhimanyu Bhandari, Vinayak Bhandari, Ashok Lambat & Vishal Tiwari also made submissions on behalf of various petitioner(s) and intervenors.
The arguments will continue tomorrow and Solicitor General is expected to continue.
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 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.