Summary
In the COVID-19 loan-moratorium litigation, the Supreme Court declined a total interest waiver, extension of the moratorium or restructuring-invocation deadline, and court-mandated additional or sector-specific relief packages. These involved economic policy and competing fiscal interests. It nevertheless prohibited interest on interest, compound interest and penal interest for the March–August 2020 moratorium for all borrowers, rejecting the unexplained ₹2 crore and category restrictions. Amounts already recovered under those heads had to be refunded through credit or adjustment in the next instalment. The interim protection against NPA classification was vacated.
Issues
- What judicial review applied to the Government’s and RBI’s pandemic financial-relief policies.
- Whether borrowers could demand total interest waiver, extended timelines or additional sector-specific packages.
- Whether the NDMA had failed to discharge its disaster-management responsibilities.
- Whether relief from interest on interest could be confined by loan size and borrower category.
Provisions considered
- Articles 14 and 32, Constitution of IndiaEconomic-policy legality remained reviewable, but mere dissatisfaction with the quantum or design of relief did not justify judicial substitution; unexplained restrictions on compound-interest relief were discriminatory. (¶¶ 14-27, 31-32)
- Sections 6, 35 and 36, Disaster Management Act, 2005Disaster-management responsibilities were distributed among the Authority, governments and ministries; the ministries’ functions did not all vest in the NDMA. (¶ 28-30.3)
- Section 13, as considered in the judgment, Disaster Management Act, 2005The provision used “may” and empowered recommendations concerning loan relief. The packages and NDMA’s recommendations on record defeated the allegation of complete failure of duty. (¶ 30-30.3)
Held
- Courts review the legality of economic policy, rather than choosing the policy they consider wiser or more beneficial. Intervention remains possible for illegality, arbitrariness, discrimination or mala fides, but the Court could not design financial packages merely because borrowers sought more relief. (¶¶ 14-22, 26-27)
- A total interest waiver would affect the banks’ continuing obligations to depositors and have substantial economic consequences. The decision to defer payments rather than waive ordinary interest did not warrant interference. The Court also declined to extend the moratorium or the 31 December 2020 invocation deadline and to mandate further or sector-specific packages. (¶¶ 23-27, 32)
- Leaving individual restructuring decisions with lenders was justified by differences in their customers and circumstances. The Kamath Committee recommendations, substantially accepted by RBI, had considered sectoral differences; individual financial viability required specialist assessment. (¶ 24-25)
- The existing National Plan could encompass future disasters and need not be recreated for each event. The Act distributed responsibilities among authorities and ministries rather than transferring all functions to the NDMA. Given relief measures and the NDMA’s recommendations to RBI, the alleged failure under Section 13 was not established. (¶ 28-30.3)
- No justification supported restricting relief from interest on interest to specified categories and loans within ₹2 crore. Non-payment of instalments deferred under the moratorium was not wilful default. No interest on interest, compound interest or penal interest could be charged for that moratorium period from any borrower; recoveries under those heads must be refunded by credit or adjustment in the next instalment. Ordinary interest was not waived. (¶ 31-32)
- The earlier interim protection against declaring the respective accounts NPAs was vacated. Writ Petition 955 of 2020 was separately disposed of on RBI counsel’s statement that the 27 March 2020 circular applied compulsorily to banks, NBFCs, housing finance companies and other financial institutions. (¶ 32)
Result
Petitions partly allowed only to prohibit and refund or adjust interest on interest, compound interest and penal interest for the moratorium period. Other specified reliefs declined; interim NPA protection vacated. WP 955/2020 disposed of on RBI’s statement. No costs.