NEW DELHI: In a huge relief to both big and small borrowers, the Supreme Court on Tuesday ruled that waiver of interest on interest would apply to loans of all amounts in the six-month moratorium period from March 1 to August 31 last year during the Covid-19 pandemic and said the Centre’s decision to put a Rs 2 crore cap on loan amount for the relief lacked rationale and logic.
A bench of Justices Ashok Bhushan, R S Reddy and M R Shah said, “Once the payment of instalment is deferred as per March 27, 2020 circular, non-payment of the instalment during the moratorium period cannot be said to be wilful and therefore there is no justification to charge interest on interest/compound interest/penal interest for the period during the moratorium.”
Writing the 148-page judgment for the bench, Justice Shah said, “Therefore, we are of the opinion that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded and adjusted/given credit in the next instalment of the loan account.”
Except for this hit, the Centre’s other decisions to provide relief to people, industry and corporate houses during the pandemic period won wholesome praise from the SC, which said, “It appears, whatever best can be offered has been offered for the different fields and to the common people as well as those persons who are affected due to Covid19 pandemic.”
The bench examined and rejected a batch of petitions filed by industries and borrowers seeking various financial relief, including extension of moratorium period and complete waiver of interest during the moratorium period.
However, the bench said the issue of waiver of interest on interest during the six-month moratorium period when the government had offered deferment of payment of equalised monthly instalments towards repayment of loans stood on a different footing. The government had waived interest on interest for deferred EMIs for loans up to Rs 2 crore taken by MSMEs, educational loans, auto and housing loans, personal loans and credit card dues.
Justice Shah said, “There is no justification shown to restrict the relief of not charging interest on interest with respect to loans up to Rs 2 crore only and that too restricted to the aforesaid categories. What is the basis to restrict it to Rs 2 crore is not forthcoming. Therefore, as such, there is no rationale to restrict such relief with respect to loans up to Rs 2 crore only.”
The Centre’s October 23, 2020 decision to grant waiver of interest on interest was qualified with the rider that the cumulative loans taken by an individual or industry must be below Rs 2 crore. Justice Shah explained the fallacy of the scheme through an example. “If the borrower has been sanctioned a loan of Rs 5 crore and has availed of the same, even though he might have repaid substantially, bringing down the principal amount to less than Rs 2 crore as on February 29, 2020 but because of the sanction of the loan amount of more than Rs 2 crore, he will be ineligible,” he said.
“It also further provides that the outstanding amount should not exceed Rs 2 crore and for this purpose, aggregate of all facilities with the lending institution will be reckoned. Therefore, if a borrower, for example MSME category, has availed and has outstanding business loan of Rs 1.99 crore and also has dues of its credit card of Rs 1.1 lakh, thereby making the aggregate to Rs 2.1 crore, it stands ineligible. Therefore, the aforesaid conditions would be arbitrary and discriminatory,” he added.
The SC noted various schemes announced by the government during the pandemic to provide relief to several sectors of the economy and said the best possible was done by the government despite the resource crunch due to low generation of GST.
“The Centre has announced ‘Garib Kalyan package’ for Rs 2 lakh crore, involving free foodgrain, pulses, gas cylinders and cash payment to women, poor senior citizens and farmers; ‘Aatmanirbhar package’ for various sectors like power, real estate, MSME. It also promulgated Emergency Credit-Linked Guarantee Scheme of Rs 3 lakh crore providing additional credit at lower rate of interest, with 100% government guarantee and no fresh collateral. The scheme has been extended with higher financial limits to 27 Covid-19 impacted sectors including restaurant and hotel sectors. The Centre has also granted Rs 20,000 crores subordinate debt with partial credit guarantee for over 2 lakh stressed MSME units including from hospitality sector,” it said.