Judges Ashok Bhushan, R Subhash Reddy and MR Shah are hearing petitions challenging the Reserve Bank of India’s decision to charge interest on term loans during the moratorium period introduced in light of the pandemic.
The Supreme Court is hearing petitions challenging the Reserve Bank of India’s decision to charge interest on term loans during the moratorium period introduced in light of the COVID-19 pandemic.
The bench of judges Ashok Bhushan, R Subhash Reddy and Lord Shah is listening to the matter.
Yesterday the Court held a one-day hearing in which the Court heard the arguments presented by the petitioners. Today, Attorney General Tushar Mehta and RBI Senior Advisor V Giri are scheduled to make their presentations.
Live updates from today’s audience are included on this page.
The Bench is reunited and SG Tushar Mehta begins to make his introductions for the RBI.
Mehta is summarizing the arguments made by him yesterday, reiterating that the position is not contradictory.
Mehta says that the authorities must take the necessary measures to take note of the following aspects:
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Reduction of immediate pressure to pay fees
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Renaissance of all possible sectors
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Restructuring of stressed assets
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Banking sector
Mehta explains the scope of various types of borrowers and lenders and the different types of difficulties that different classes face.
Mehta: Everyone faces the impact of COVID-19, but the impact is different for each sector. The impact is also good in some sectors such as the pharmaceutical sector and the information technology sector (in reference to companies like Netflix).
Mehta is now leading the court through RBI circulars from March and May that stipulated that banks would grant a moratorium on repayment of term loans.
Mehta: The idea for Moratorium was to defer payment to ease the burden caused by COVID-19 and lockdown so that companies can manage working capital. The idea was not to give up interest.
The effort is that those who are affected by COVID-19 and face distress get the benefit and those who are in arrears cannot benefit.
Mehta now refers to the RBI governor’s statement on the lingering effect of COVID-19.
Mehta: Typically an account becomes an NPA if no payment is made for 90 days. Therefore, the moratorium period had to be excluded, first three months and then another three months after its extension.
This is in response to the argument that the accounts will become NPA on September 1 because the moratorium period ended on August 31.
Mehta (continued): Accounts do not become NPA on September 1.
Mehta: Instead of opting for the interest exemption, we have opted for the measures for the reactivation of the sectors by the Ministry of Finance in conjunction with the RBI.
Judge Bhushan: The petitioners’ main complaint is that they have not been provided with adequate relief and the National Disaster Management Authority (NDMA) under the Disaster Management Act (DM Act) has not been active in providing assistance. .
Bhushan J: If the NDMA and other authorities have to do something else under the DM Law? You have rightly said that other circulars are not questioned, so we are subject to the jurisdiction of article 32.
Judge Bhushan: Your argument is that there has to be sectoral relief.
Mehta refers to the RBI’s August 6 circular on the loan resolution and restructuring plan, saying that although this circular is not being questioned, this circular adequately addresses the complaints raised by the petitioners.
Mehta explains how Banks are empowered under the August 6 circular to propose and provide personalized relief to improve borrowers’ problems.
Mehta: Expert committee will develop sector-specific guidelines on September 6
Bench asks about the type of rules that will apply. SC points out that when borrowers go to banks, they don’t always know how long it will take.
Indian Banking Association (IBA) senior lawyer Harish Salve tells the Court that banks can propose the resolution plans, says some sectors such as the energy sector can develop their own rules.
Hail: Common man’s problems are different from those of corporations. By identifying the type of borrowers and the type of loan, specific relief can be provided. Individual and industrial problems must be approached differently.
Bench asks SG to address the point of NDMA and his action to bring relief.
SG Mehta says that the DM Law states that the government “can” take action. So far, the NDMA has deemed it appropriate for the RBI to adopt an oversight role.
Mehta: Without arguing that all sectors are under stress, also the country
Judge Bhushan: The Tribunal has no intention of dealing with the August 6 circular. It is not being questioned.
Judge Bhushan: The circular is not contested, but relief is required.
Justice Reddy: The question is about compound interest lawsuits in the meantime. The moratorium and criminal interests cannot go together. RBI will have to clarify.
Mehta: This is why the RBI and the government can go out together and a resolution plan is not drawn up, so it will be noted.
Judge MR Shah: And what happens in the meantime?
Salve: We will clarify that
Mehta (on NDMA): The law says the government and NDMA can enter any stage. The Law uses the word “can”, it is not set in stone that they have to.
Mehta: I’m not being technical here, but the word used is “can”.
Mehta: RBI also has to support the Banks. The banking sector is the backbone of the economy.
Mehta explains the circular that provides for the resolution and restructuring and makes people eligible for the benefit as long as their accounts are not in default as in February of this year.
Judge Bhushan asks: So some people who defaulted earlier but their situation got worse due to Covid don’t get the benefit of the circular.
Salve explains that those who defaulted in early 2019 can seek relief under another scheme, but not under the Covid-related scheme. They can seek relief under a general scheme that can also take Covid into account.
Justice Reddy: But not everything can be left to the individual banks.
Hail: RBI will establish a committee that will have representatives from Banks
Mehta says she will look for instructions on this.
Judge Bhushan: What about not being declared NPA for 90 days? Should we record that in our order?
Hail: That’s the rule. The moratorium is not included in the predetermined period. After the moratorium ends, the default 90-day period begins. We are not giving concessions here.
Salve: In fact, banks do not like to declare NPA. They have been arrested for not declaring NPA.
Petitioner’s lead attorney Rajiv Dutta seeks to make presentations, says he wants to point out how banks are treating people.
“Our people have been asked to fall at their feet (from the banks) to deposit partial amounts.”
SC asks Salve about compound interest and interest on interest.
Save: Compound interest is charged as contractual interest and no penalty interest is charged. In the event of default, the interest becomes criminal compound interest.
The Supreme Court expresses its inclination to postpone the hearing in the case.
Judge Bhushan: No account should be declared as NPA for 2 months and banks should not take enforcement action against borrowers. We have to protect them.
Lead attorney V Giri asks the court to consider the interim orders at the next hearing date that the court sets for next Thursday.
The Supreme Court takes in record the submissions of Mehta and Banks, saying that “accounts not declared as NPA until August 31 will not be declared as NPA until new orders are issued.”
Bench to resume hearing in the case on Thursday, September 10 at 10.30 am.
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