“Don’t hide behind RBI; take your own stand”: SC lashes out at Centre on Loan Moratorium issue

The Supreme Court on August 25 said that the Central government is “hiding behind the RBI” on the issue pertaining to interest on term loans during the COVID-19 moratorium period.

According to the Supreme Court, the Centre should take its own stand on whether waiver should be granted to those who have availed loans from banks and other financial institutions.

The matter was heard by a Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah.

“You make your stand clear. You cannot not say anything. It is your responsibility to take steps under the Disaster Management Act. You have enough powers to decide the issue of waiver. You cannot just depend on the RBI,” the bench headed by Justice Ashok Bhushan observed.

However, Solicitor General Tushar Mehta sought to assure the Court that the Centre is working in coordination with the Reserve Bank of India (RBI).

The Apex Court reiterated that the Government is not filing any reply to make its stand clear but is rather only citing the RBI's reply. The bench has given the Centre one week to file its affidavit and take a categorical stand in the matter.

The Court observed that people are suffering as the country is reeling under a pandemic and, during this time, the position of the authorities cannot be that of focussing on business alone. The Court also stated that the Centre ought to submit its reply on two important aspects which are –

• question of Disaster Management Act; and
• the waiver of interest on interest.

During the last hearing in the case, the Court had asked the Centre and the RBI to review the move to charge interest on loan repayment during the moratorium period introduced in light of the COVID-19 pandemic. The Court also asked the Indian Banks Association (IBA) to look into the possibility of evolving new guidelines to address the issue.

The Court had been considering the question of charging interest on those who avail the benefit of moratorium allowed by the RBI for deferred payment of term loans.

Solicitor General Tushar Mehta had told the Court that the difficulty in interest waiver arises from the fact that people who have taken loans include those who have taken small-time loans, as well as those who have borrowed amounts ranging in hundreds of crores.

Acording to Senior Advocate Harish Salve who is representing the IBA said that deferment is merely pushing of payment of installments. Salve termed the plea for interest waiver to be “premature” in nature. He argued that if all sectors are in distress, then the government should provide funding.

Subsequently, the Court further confined the scope of the issue and said that the Court did not seek a complete interest waiver, but waiver of interest accrued on the interest amount. It thus asked if banks can handle this limited burden.

This question from the Bench had come after it was informed by Senior Counsel Mukul Rohatgi that 90% of the borrowers had not even availed this benefit, since it was known that the benefit of moratorium was “not free”.