Interest on loans: SC issues notice to Centre, RBI

The Supreme Court Tuesday asked the Centre and the RBI to respond to a plea challenging levy of interest on loans during the moratorium period, which has now been extended by another three months till August 31 due to the coronavirus pandemic.

A bench headed by Justice Ashok Bhushan, hearing the matter through video-conferencing, issued notices to the Centre and the Reserve Bank of India asking them to file their replies within a week.

The counsel appearing for the petitioner informed the bench, also comprising Justices S K Kaul and M R Shah, that earlier the moratorium period was for three months till May 31 but now it has been extended by another three months.

The counsel argued that borrowers should not be penalised like this and banks should not add interest on the loan amount during the moratorium period.

“Counsel for the Reserve Bank of India prays for and is granted a week’s time to file counter affidavit. Tushar Mehta, Solicitor General, also obtain instructions in the meantime,” the bench said in its order and posted the matter for hearing next week.

On March 27, RBI had issued a slew of measures to check financial impact of the nationwide lockdown due to COVID-19. It issued a circular giving liberty to all banks and financial institution to allow a moratorium of three months on payment of installments in respect of all term loans outstanding as on March 1, subject to the borrower making such a request.

It had said that repayment schedule for such loans as also the residual tenor would be shifted across the board by three months after the moratorium period.

Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period, the RBI had said.

Last week, RBI had extended the moratorium period by another three months to August 31.

The plea, filed by Agra resident Gajendra Sharma, has sought a direction to declare the portion of 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”.

It has also sought a direction to the government and the RBI to provide relief in re-payment of loan by not charging interest during the moratorium period.

On April 30, the apex court had directed the RBI to ensure that its circular on three-month moratorium on loan repayment between March 1 and May 31 is implemented in its letter and spirit.

The top court had told the Solicitor General, appearing for the Centre, that it appears that the benefit given by the RBI was not being extended to the borrowers.