No compound, penal interest for moratorium period: SC

New Delhi, March 23

The Supreme Court today directed that no compound or penal interest be charged from borrowers for the six-month loan moratorium period announced by the RBI last year in view of the Covid-19 pandemic. The amount already charged should be refunded or adjusted, it added. “It is directed that there shall not be any charge of interest on interest/compound interest/ penal interest for the period during the moratorium and any amount already recovered under the same head, namely, interest on interest/penal interest/compound interest shall be refunded to the borrowers concerned and to be given credit/adjusted in the next instalment of the loan account,” a Bench headed by Justice Ashok Bhushan said.

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Word of caution

Judges should “very warily” encroach upon the field of economic and fiscal regulatory measures as they are not experts in these matters, the Supreme Court said.

The government had earlier allowed this benefit in case of loans up to Rs 2 crore only. But the Bench said there’s no rationale to restrict such a relief on the basis of loan amount.

The court, however, refused to extend the loan moratorium beyond August 31, 2020, saying it’s a policy decision. Courts cannot do judicial review of the government’s financial policy decisions unless it’s mala fide and arbitrary.

It also allowed banks to declare the accounts of borrowers not paying EMIs on their loans as NPA.

The Bench said this in its verdict on a batch of pleas filed by various trade associations seeking extension of the loan moratorium period and other reliefs in view of the pandemic.

The order would be applicable to all banks, non-banking financial institutions, housing finance companies and other financial institutions compulsorily and mandatorily, it said. — TNS