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SC asks Centre to clarify stand on interest waiver for moratorium period

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The Supreme Court (SC) on Wednesday directed the Centre to clarify its stand on waiver of interest on interest for deferred loan repayments during the moratorium period amid the coronavirus pandemic. The SC took note of the Union government’s inaction on the subject and asked it to clarify its stand within a week.

The apex court also remarked that the Centre was “hiding behind the RBI” and has not made its stand clear. The SC said the Union government has enough powers under the Disaster Management Act.

The court granted time to the Centre after solicitor general Tushar Mehta sought the same. Upon the RBI remark, Mehta said: “My Lordships may not say that. We are working in coordination with RBI.”

The court’s direction came in response to petition filed by Agra resident Gajendra Sharma. He has sought a direction to declare the portion of the RBI’s March 27 notification as ‘ultra vires’ to the extent it charges interest on the loan amount during the moratorium period. He has said interest creates hardships, creates hindrance and obstruction in ‘right to life’ guaranteed by Article 21 of the Constitution of India.

The RBI had earlier informed the court that there cannot be an interest waiver during moratorium on term loan repayment as such a move will put the financial health and stability of banks at risk.

Situation created because of lockdown, says SC

The bench headed by Justice Ashok Bhushan also said, “This happened because you locked down the entire country. You have to tell us your stand on the Disaster Management Act and whether Interest on Interest will be accounted for.” The remark came after the Centre said the move would hit businesses and banks.

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The bench also consisted of Justices R Subhash Reddy and Justice MR Shah.  It asked the solicitor general to clarify stand on the Disaster Management Act. It also sought a reply on whether additional interest on existing interest could be accrued.

Mehta contended that there cannot be a common solution for all the problems.

Petitioner seeks extension

Senior advocate Kapil Sibal appeared for the petitioner. He informed the bench that the loan moratorium’s deadline would end on August 31 and sought its extension.

“I am only saying that till these pleas are decided, the extension should not end,” Sibal said.

Next hearing on September 1

The apex court has now posted the matter for hearing on September 1. The top court had earlier said there was “no merit in charging interest on interest” for deferred loan payment installments during the moratorium period. The moratorium on loan repayments was announced in the wake of the COVID-19 pandemic in the country.

SC had also sought Centre’s reply on June 4

On June 4, the top court had sought the Finance Ministry’s reply on the waiver of interest on loans during the moratorium period after the RBI said it would not be prudent to go for a forced waiver of interest risking financial viability of the banks.

The top court had said there were two aspects under consideration in this matter. Firstly, no interest payment on loans during the moratorium period and secondly, no interest to be charged on interest.

It said these were challenging times. The court said on one hand, moratorium was granted, and on the other, interest was charged on loans.

 

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