SC refuses to interfere with the Centre regarding extension of Loan Moratorium Period

Aryan Grover

A batch of pleas filed by various trade associations, ranging from real estate to power sectors, seeking extension of the loan moratorium period and other reliefs provided in lieu of the COVID-19 pandemic has been heard by a bench, headed by Justice Ashok Bhushan.

The Supreme Court has refused to interfere with the Centre’s and Reserve Bank of India’s decision to not extend the loan moratorium period beyond the prescribed six months, terming it as the government’s “policy decision”.
In the ruling, it was also said that the top court cannot do a judicial review of the Central Government’s policy decision, unless it is taken in bad faith or is arbitrary.

No compound or penal interest shall be charged from the borrowers for the six-month loan moratorium period, and if any has been charged already, it shall be refunded, credited, or adjusted, but the moratorium period won’t be extended.

The court stated, “Interest on Interest is in the nature of penal interest. No justification has been given to charge penal interest during the lockdown period. Amount recovered in the form of interest on interest will be refunded.”

The Centre had earlier contended that if the top court considers waiving interest for all loans and advances to all classes of borrowers, the amount that would have to be foregone as a result would exceed Rs. 6 lakh crores. A burden this large would necessarily wipe out a major part of their net worth, which will make them unreliable for lending operations and pose threat to their very survival.

This loan moratorium period had been granted by RBI’s issue of a circular, which initially granted relief for a period of three months, but was later extended to six months.