Loan Moratorium & Interest Waiver] “Highest Level Expert Committee Convening Meetings & Will Take Holistic Decision In Two Weeks”: Centre Tells SC, Interim Order To Continue

[Loan Moratorium & Interest Waiver] “Highest Level Expert Committee Convening Meetings & Will Take Holistic Decision In Two Weeks”: Centre Tells SC, Interim Order To Continue

The Centre informed Supreme Court on Thursday that an Expert Committee at the highest level had been constituted in order to take a decision on the issue of moratorium extension, interest during moratorium, interest on interest and other related issues.

Solicitor General Tushar Mehta sought two weeks time in order to place on record a comprehensive affidavit in this regard before a bench of Justices Ashok Bhushan, R. Subhash Reddy & MR Shah .

Court granted the Solicitor General two weeks to place on record the requisite affidavit detailing and observed that interim orders shall continue till the next date.

“…..In view of the aforesaid, we are inclined to grant two weeks to file appropriate affidavit. We make it clear that we shall consider different prayers made by petitioners on the next date”

Further to this, Court noted directed that all decisions taken by the RBI, GOI or the banks should be placed before the Court for consideration.

Bench was hearing plea(s) seeking extension of the Covid19 induced loan moratorium & waiver of accruing interest.

When the hearing began, SG sought deferment of the hearing for two weeks. This led to submissions on behalf of various stakeholders, sectors & individual borrowers, whereby they insisted on issuance of interim orders for protection.

Though the bench was inclined to pass interim orders initially, with respect of charging of interest on interest on loans during moratorium, it did not do so and listed the matter for further consideration on September 28.

Senior Advocate CA Sundaram submitted that banks had now started debiting stating that there is no moratorium. “They say although we will not declare you NPA, your liabilities have started”. 6 months interest being debited,” he added.

Senior Advocates Kapil Sibal & Rajiv Dutta expressed concerns of the Real Estate Sector and the individual borrowers respectively and batted for interim orders.

Dutta: Important to remember that people are suffering. Imperative to make a statement for the Centre on non-charging of interest on interest.

Sibal: (in context of Real Estate industry): Downgrading taking place and RBI has been protecting the downgrading.

Senior Advocate Harish Salve made submissions on behalf of IBA and urged the court to not pass interim orders. Solicitor General Tushar Mehta also pointed out that the arguments were being made in an adversarial context and that this would prejudice not only various sectors but could have devastating consequences.

Next, the bench enquired Salve about the charging of penal interest on loans during moratorium. Salve replied by stating that there was no default interest which was being accrued and that only compound interest was. “The entire banking structure works on compound interest and that is what is being done,” he said.

Sibal refuted this and said that contracts operate in normal situations and that this was no normal condition.

In light of the aforementioned, case stood adjourned.

The Supreme Court on September 3 protected those accounts from being declared as Non-performing Assets (NPAs) which were not classified as NPAs on August 31 till case is disposed off.


The bench was hearing a plea filed by an Agra resident Gajendra Sharma, who 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, which create hardship to the petitioner being borrower and creates hindrance and obstruction in ‘right to life’ guaranteed by Article 21 of the Constitution of India”.Earlier, the Supreme Court had said there was “no merit in charging interest on interest” for deferred loan payment instalments during the moratorium period announced in wake of the COVID-19 pandemic & that once moratorium is fixed, it should serve the desired purposes and the government should consider interfering in the matter as it could not leave everything to banks.

The petitioner has sought a direction to the government and the RBI to provide relief in repayment of loan by not charging interest during moratorium period.

On June 4, the top court had sought the Finance Ministry’s reply on 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 apex court had said there are two aspects under consideration in this matter – no interest payment on loans during the moratorium period and no interest to be charged on interest.

It had observed that these are challenging times and it is a serious issue as on the one hand, moratorium is granted and on other hand, interest is charged on loans.

On May 26, the top court had asked the Centre and the RBI to respond to the plea challenging levy of interest on loans during the moratorium period.

The RBI in its reply has told the court that it is taking all possible measures to provide relief with regard to debt repayments on account of the fallout of COVID-19 but it does not consider it prudent to go for a forced waiver of interest, risking the financial viability of the banks it is mandated to regulate, and putting the interests of the depositors in jeopardy .

The RBI said the March 27 circular announcing moratorium was later modified on April 17 and May 23 by which the moratorium period was extended by another three months that is from June 1 to August 31, 2020 on payment of all instalments in respect of term loans (including agricultural term loans, retail and crop loans).

“It is submitted that regulatory dispensations permitted by the Reserve Bank of India vide the aforesaid circulars dated March 27, 2020 which subsequently stood modified on April 17, 2020 and May 23, 2020 were with the objective of mitigating the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. Therefore, the regulatory package is, in its essence, in the nature of a moratorium/deferment and cannot be construed to be a waiver,”s

The RBI had said that in order to ameliorate difficulties faced by borrowers in repaying accumulated interest for the moratorium period, on May 23 it had announced that in respect of working capital facilities, lending institutions may, at their discretion, convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (FITL) which shall be repayable not later than March 31, 2021.

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