Court Denies Full Interest Waiver, Stops Compound Interest

The court dismissed petitions seeking total waiver of interest during the moratorium period, extension of the moratorium period, sector-wise reliefs, and additional reliefs. However, the court directed that no interest on interest/compound interest/penal interest shall be charged during the moratorium period, with any amount already recovered under these heads to be refunded or adjusted. The interim relief not to declare borrower accounts as NPA was vacated.

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Issues Involved:
1. Waiver of compound interest/interest on interest during the moratorium period.
2. Waiver of total interest during the moratorium period.
3. Extension of the moratorium period.
4. Sector-wise economic packages/reliefs.

Comprehensive Issue-wise Detailed Analysis:

1. Waiver of Compound Interest/Interest on Interest During the Moratorium Period:
The petitioners sought a complete waiver of compound interest/interest on interest during the moratorium period. The court noted that the Central Government had already decided not to charge interest on interest for loans up to Rs. 2 crores across specific categories such as MSME loans, education loans, housing loans, etc. However, the court found no justification to restrict this relief to loans up to Rs. 2 crores only and to the specified categories. It was observed that charging compound interest/interest on interest during the moratorium period is akin to penal interest, which is typically charged on willful defaults. Since the non-payment of installments during the moratorium period cannot be deemed willful, the court directed that no interest on interest/compound interest/penal interest shall be charged for the moratorium period. Any amount already recovered under these heads should be refunded or adjusted in the next installment of the loan account.

2. Waiver of Total Interest During the Moratorium Period:
The petitioners argued for a complete waiver of interest during the moratorium period. The court held that such a waiver would have significant financial implications on the economy and the banking sector. Banks need to continue paying interest to depositors, and a waiver would disrupt this essential banking activity. The court emphasized that conscious policy decisions had been made to defer the payment of installments and provide other reliefs, and it would not interfere with these decisions. Thus, the request for a total waiver of interest was denied.

3. Extension of the Moratorium Period:
The petitioners sought an extension of the moratorium period beyond 31.08.2020. The court noted that the RBI had already provided a resolution framework for COVID-19 related stress, allowing the extension of the moratorium by a maximum of two years based on the assessment of the borrower's income streams. The court held that the decision on the moratorium period is a policy matter and not within the judicial scope to extend. Therefore, the request for extending the moratorium period was denied.

4. Sector-wise Economic Packages/Reliefs:
The petitioners argued for sector-specific relief packages. The court observed that the Kamath Committee had already addressed sector-specific issues and provided recommendations, which were accepted by the RBI. The court further noted that different sectors might have suffered differently, making it impractical to provide sector-specific reliefs through judicial intervention. The court held that such financial stress management measures require examination and consideration of several financial parameters and impacts, which are beyond judicial review. Hence, the request for sector-wise reliefs was denied.

Conclusion:
The court dismissed the petitions seeking:
- Total waiver of interest during the moratorium period.
- Extension of the moratorium period.
- Extension of the period for invocation of the resolution mechanism.
- Sector-wise reliefs provided by the RBI.
- Additional reliefs over and above the already offered packages.

However, the court directed that no interest on interest/compound interest/penal interest shall be charged during the moratorium period, and any amount already recovered under these heads should be refunded or adjusted. The interim relief granted earlier not to declare the accounts of respective borrowers as NPA was vacated.

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