In wake of the Covid 19 pandemic, on May 26, 2020 the Supreme Court had sought response from the Central and Reserve Bank of India (RBI) in a plea regarding the levy of interest on loan amounts during the stipulated moratorium period.
RBI issued a circular on March 27, 2020 asking financial institutions to allow customers a moratorium payment of all kind of instalments, be it EMIs or credit cards or outstanding term loans that falls between March 1, 2020 and May 31, 2020. This was a mitigating move in order to provide respite to the borrowers. The period of moratorium was extended to August 31, 2020.
Gajendra Sharma a person is aggrieved by the charging of interest on his loan, moved the apex court arguing that the objective of the circular would be rendered futile if interest is levied, and the purpose of imposition of moratorium during lockdown was to alleviate the problems faced by common people and a multiplied effect will show up in increased EMIs at a later stage, and also the same is defeated on account of subsistence of interest, which he averred to as antithetical to Article 21 of the Constitution. Therefore, the interest should not be charged during the moratorium period.
The plea enunciates the outright “capriciousness” and arbitrariness” of the RBI notification as it imposes a burden on borrowers like the Petitioner, thereby violating the principles of natural justices, upon which the law stands.
A Bench comprising of Justice Ashok Bhushan, SK Kaul and MR Shah had granted one week’s time to the centre and RBI to respond to the plea of a borrower who was aggrieved by RBI’s March 27 Notification in as much as it allows interest on loan to be charged during the moratorium period.
Earlier on May 8, when the matter previously came up for hearing, the Supreme Court had allowed the Solicitor General Tushar Mehta time to seek instructions from RBI and the Centre on the issue.-
The Reserve Bank of India (RBI) filed its counter affidavit stating that a waiving off interest on term loan repayments during moratorium would not be prudent as it would hit the health of banks & risk their financial stability.
The RBI has stated that if the six month moratorium period on loan repayments is declared interest free then the losses incurred will be Rs. 2,01,000 crore, amounting to close to 1 per cent of the national GDP.
The following extract of the counter Affidavit filed by the RBI for quick reference:
“Since the moratorium period has been permitted for six months, the total interest income thus foregone will be about Rs. 2,01,000 crore. This amount is close to 1 per cent of the national GDP. And this is only for the banking system, without counting the NBFC’s and all India financial institutions. If the banks are required to forego the above amount, there would be huge consequences for the stability of the banking system”.
The petitioner has stated that, the borrowers Right to life and Right to livelihood at risk due to the imposition of the Lockdown.
To this the RBI stated, “It is well settled that the fundamental right to life includes all the components of rright to life. However, the subject matter before this court holds greater importance qua the economy of the country. It is emphatically denied that the circular issued by the answering Respondent (RBI) interfere in any manner with the employment or livelihood of any citizen of this country. ”
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