Supreme Court gives big decision on EMI monitorium during lockdown

The Supreme Court on Tuesday directed that no compounding or punitive interest will be charged from the borrowers for the six-month loan moratorium, and if any amount has already been taken, it will be credited back or adjusted. The loan installment was announced last year in the wake of the Corona virus pandemic.

The apex court refused to interfere in the decision of the central government and the Reserve Bank of India (RBI) not to extend the loan installment moratorium beyond 31 August 2020, saying it was a policy decision. A bench headed by Justice Ashok Bhushan said that the apex court cannot conduct a judicial review of the Centre’s fiscal policy decision unless it is malicious and arbitrary.

The apex court said that it cannot interfere with the government’s decision to set priorities in relation to providing relief during a pandemic affecting the entire country. The bench said this in its decision on the petitions filed by various industry organizations in the real estate and power sectors. In view of the pandemic in these petitions, the Lan Moratorium and other relief measures were sought to be increased.

Loan Moratorium: Central government will increase spending due to Supreme Court verdict

The RBI issued a circular on 27 March last year permitting the postponement of the loan installments to be repaid between March 1, 2020 and May 31, 2020 in the wake of lockdown induced due to the pandemic. Later, the postponement was extended to 31 August last year. The apex court said in its judgment that various steps taken by the government cannot be said that the Center and RBI did not consider giving relief to the borrowers.

The bench said that complete exemption of interest is not possible as it would have huge financial implications. The apex court reserved its verdict on the petition on 17 December last year. In the last hearing, the Center had told the court that in the wake of the Covid-19 pandemic, the benefit of waiver of interest is given to all sections as part of the exempted scheme by the Reserve Bank to postpone payment of loan installments for six months.

The Center said that if the banks have to bear this burden then they will have to lose a large part of their total net assets, so that most of the lending bank institutions will be in a disadvantageous position and this will only create a crisis on their existence. On behalf, Solicitor General Tushar Mehta said that due to this, interest waiver was not thought of and only provision was made to postpone the installment.