BRIEF OF THE CASE:

WRIT PETITION (C) NO. 476 OF 2020

Small Scale Industrial Manufactures Association (Regd.) …Petitioner

Versus

Union of India and others …Respondents

BACKGROUND OF THE CASE

The Reserve Bank of India, popularly known as RBI, the apex governmental
body that controls all the banking and financial institutions of the country
had issued a circular that allowed a three month loan moratorium on loan
amount receivables from March 1 st 2020 to May 31st 2020 in lieu of the
covid-19 pandemic. The loan moratorium period was given a further
extension of three months, that is, till 31 st of August, 2020 due to financial
adversities faced by the citizens of our country.

The circular was issued by the RBI on 27 th of March, 2020, granting

moratorium on loan amounts from March 1 st 2020 to May 31st 2020 with
further extension till August 31st 2020.

A petition was filed in the apex court that challenges the circular issued by
the RBI on loan moratorium. The plea was filed because the banks and
other financial institutions had charged interest on interest of the EMIs for
which the loan borrowers ha availed the moratorium as per the circular of
RBI issued on 27.03.2020 during the COVID-19 pandemic.

The petitioner was not satisfied with the RBI’s circular issued on
27.03.2020. The petitioner prayed before the hon’ble Supreme Court that
RBI’s measures and policies are not satisfactory and cannot grant relief to
the financial strains caused due to the pandemic. The main relief that the
petitioner seeks in his petition is that the interest charged by the banks on
the EMIs during the moratorium period that is 01.03.2020 till 31.08.2020
shall be completely waived off as charging of interest on the loan amounts
below two crore rupees for all types of borrowers during this pandemic is in
opposition to the interest of the public at large. The petition further pleaded
in his petition that the RBI’s circular which was further extended by a
notification dated 23.05.2020 shall be further extended till 31 st of December
2020.

The Supreme Court’s Verdict

The Judgment has been passed by the Supreme Court in this matter on
23.03.2021.

1. The Apex Court has observed that the complete waiver of the interest
is not possible and the court cannot direct it. The court substantiated
this by saying that complete waive off of the interest will adversely
affect the depositors and will put a financial strain on the depositors.
2. It also said though any amount that has been collected as compound
interest on the loan amount for which moratorium was availed shall
be re-adjusted in the next installment of the borrower’s loan account
or shall be refunded accordingly.
3. The Court cannot put the entire burden on the banks as it will
adversely affect the net worth of these financial institutions and their
working.
4. The court also stated that no further extension of moratorium period
shall be granted to the borrowers.