Relief for borrowers: No compound, penal interest to be charged for loan moratorium period: SC

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In what is seen as a huge relief for millions of borrowers, the Supreme Court on March 23 held that there will be no charge of interest on interest by lending institutions during the loan moratorium period, March 1, 2020 to August 31, 2020 announced by Reserve Bank of India in view of the Covid pandemic.

A three judge bench of Justices Ashok Bhushan, MR Shah and Sanjiv Khanna held that “there shall be no charge of interest on interest during the moratorium period from any borrowers and whatever amount has been recovered by the way of interest on interest shall be refunded and adjusted in the next instalment of the loan account.”

The judgment comes on a bunch of petitions which were filed in the Supreme Court last year seeking waiver of interest on interest waiver during the moratorium period, extension of moratorium period and providing sector wise relief package.

On March 27 last year, RBI had issued a circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling between March 1, 2020, and May 31,2020, due to the pandemic. Later, the period of the moratorium was extended till August 31 last year.

The apex court also refused to interfere with the Centre’s and RBI’s decision to not extend the loan moratorium beyond August 31 last year, saying it is a policy decision.

“Extension of moratorium period is in the realm of policy decision and courts cannot go into it..and such matters are best left to the Government and the RBI to decide,” the court said.

Various trade associations, including those from real estate and power sectors, had sought extension of the loan moratorium period and other reliefs in view of the pandemic.

Dismissing a demand for total waiver of interest during the moratorium period, the court held that it will have financial implications on the economy and on the banking system and interference of the court is not called for.

Reading the verdict for the three-judge bench, Justice MR Shah said the court cannot do a judicial review of the Centre’s financial policy decision.

“It is neither within the domain of the courts nor the scope of judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. Not are the courts inclined to strike down a policy because a different policy would have been fairer or more scientific or more logical. Wisdom and advisability of mnemonic policy are ordinarily not amenable to judicial review,” the court asserted.