The Central Government has taken recourse of laws which provides the Central Government as well the State Government on the statutory basis for acting against the Pandemic situation prevailing in our Country via The Epidemic Diseases Act, 1897 (EDA) and the Disaster Management Act, 2005 (DMA).
The outbreak of COVID-19 cursed the prevailing system in India. Therefore, to regulate the banking system smoothly the Ministry of Finance under its power issued a debt moratorium; a legal authorization to debtors to postpone payment was issued by the RBI under the guidance of The Finance Ministry of India, to lessen the burden of the debt. RBI (vide circulars dated 27.3. 2020 and 23.5. 2020) has permitted lending institutions to grant a moratorium on payment of all installments, including interest, of term loans.
FACTS OF THE CASE:
In the case of Mr. Sharma, a 53-Year old optician, who owns a small shop in Agra, was not in a position to pay his EMIs because his earnings have become zilch due to the lockdown restrictions. In spite of the order of RBI and the finance ministry the ICIC bank was charging an interest on the home loan taken by Mr. Sharma. Therefore, being aggrieved by the said act of the bank the Petitioner Mr. Sharma has taken a plea under Art 32 of the Indian Constitution. Thereby, specifically citing the RBI’s March 27 and May 22 notifications announcing a moratorium on loan repayments while permitting banks to levy interest.
He brought a complaint challenging the loan relief plan, along with other borrowers, he sought a direction to proclaim a portion of the RBI`s March 27 notification as ultra vires to the extent it charged 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’ which is guaranteed by Article 21 of the Constitution of India”. The Petitioner has also demanded a waiver to the government and the Reserve Bank of India (RBI) to relief in repayment of loan by not charging interest during the moratorium period.
Another issue, viewed by the borrowers, is that they must pay additional interest on their skipped repayments during the moratorium, which they call “interest-on-interest, According to Mr. Sharma the six-month reprieve, which ended on Aug. 31, increased his debt load because of the extra interest as he is also paying monthly installments on a business loan, for which he did not seek a moratorium. Mr. Sharma saw no customers for months, though he had to keep paying his monthly recurring costs.
On June 4, the apex 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 force’s waiver of interest risking financial viability of the banks.
The two aspects in this matter which are under consideration ,according to the Supreme Court of India -no interest payment on loans during the moratorium period and no interest to be charged on interest. And 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.
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 installments 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 waivers’
The petitioner took loan from the bank to establish the business and agreed to repay the same with interest in installments prescribed by the bank .However due to platonic situation the income of the petitioner was nil. RBI as instructed by the government issued 2 notifications in the interest of borrowers regarding waiver of interest.
But, the of inability to replay does not permit the petitioner to challenge the same, in the peculiar circumstances when the bank has issued the notification for waiver of interest , There was a facility and an extended date to follow the waiver of interest in the interregnum period.
The notification issues is to help the borrower and facility to him to undertake repayment, the policy decision knows no challenge for it has the statutory force and the rules governing the banking industry
In., 2015(2) SCC 796 the Supreme court observed “ interference with policy decision and issue of mandamus to frame policy in a particular manner are beyond the powers of court. They operate in different fields “
The also Court said that there was “no merit in charging interest on interest” for deferred loan payment installments 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 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.
The Ministry of Finance issued a notification in connivance with the RBI and instructed that the 3 months moratorium should be granted, authorize the debtors to postpone the payment and not to add any additional interest, so as to ‘pause’ the process of the loan re-payments.
In the case of Gajendra Sharma Vs Union of India, The Respondent bank did not allow him to gain the advantage of moratorium, therefore, being aggrieved, the petitioner challenged the said act of non-compliance of the Government Norms issued under the notification passed by the RBI dated 27.03.2020 under Art.32 of the Constitution of India, seeking remedy for the home loan he had taken from the bank. That due the situation of the pandemic and the temporary closure of the shops by the local governments, his earnings were nil.
Since, the Banks too are stumbling due the pandemic; they are also worried about the judicial setback. Centre and the RBI told the apex court that moratorium period on repayment of loans during the COVID-19 pandemic is extendable by two years and several steps have been taken to help the stressed sectors. And also told that the waiver of interest on deferred EMIs during the moratorium period would be against the basic canons of finance and unfair to those who repaid loans as per schedule.
The Government has exercised the power vested in to simplify the process of banking and also by looking at the prevailing situation the borrowers were also not in the position to re-pay the loans. Therefore, such a Notification was issued just to balance the situation between the bank and the borrowers. Since, the Bank is running on the Public money it cannot be directly set to losses. But, also looking to the situation and the situation of closure the certain relaxation is very much necessary to the borrowers also. Therefore, during such situation taking any adverse steps to recover the amount from the borrower will definitely infringe the notification issued by the RBI and various other acts and rules applicable during the period of Pandemic.
The Banks’s interest would be safeguarded by the property mortgaged to it by the borrowers. That during the period of loan the bank can wait for some time until the situation gets normal. Therefore, the banks must not take any adverse action against such borrowers.
The Statutory policy decision reflected from RBI’s notification certainly binds all the banks Therefore, acting contrary to it, in as much as violation notification issue under epidemic act, is certainly prejudicial and discrimination with similar placed borrower hence, act is required to be deprecated by the judicial pronouncement by The Supreme Court of India, to maintain the dignity and sanctity of statutory notification in parity to all similar placed borrowers.