Supreme Court reserves verdict on extension of loan moratorium period

• The Supreme Court of India has reserved its judgements on pleas regarding extension of the loan moratorium period on December 17.
• Various sectors of the economy have argued that the government and Reserve Bank of India’s (RBI) measures leave large borrowers struggling to make payments out of the loop.
• The Solicitor General argued that sectors like real estate and power were in trouble long before the COVID-19 pandemic hit India.

The Indian Supreme Court reserved its judgement on pleas regarding extension of the loan moratorium period after hearing arguments on December 17.

This means that the apex court bench headed by Justice Ashok Bushan won’t be announcing any verdict on the issue of extending the loan moratorium and sector-specific concerns, according to LiveLaw.

Solicitor General Tushar Mehta stated that the pleas made by specific sectors cannot be entertained under Article 13 of the Disaster Management Act (DMA), which gives provision for relief in loan repayments during disasters of severe magnitude.

The government claims that if banks were to bear the burden of waiving interest — under a blanket order — it would wipe out ₹6 lakh crore of their net worth, rendering most banks unviable.

"Of course, the court will not pass an order which will lead to the economy going haywire. We are conscious of the fact," the Supreme Court told Mehta.

Small borrowers vs large borrowers
One of the primary concerns expressed is that the compound interest waiver is limited to loans smaller than ₹2 crore, leaving bigger corporates out in the cold. “This is a case where the National Disaster Management Authority (NDMA) should have come out, instead of handing it over to the banks,” argued senior advocate Ravindra Srivastava.

According to him and his peers arguing for relief, the government and the Reserve Bank of India (RBI) has not justified why and how it arrived at the ₹2 crore threshold, which discriminates against those who do not meet that requirement.

Banks are businesses
According to senior advocate Harish Salve, banks have to operate like listed companies. He argued that even though a bank like the State Bank of India (SBI) has a majority government share, it is also accountable to its private shareholders, which is why it can’t simply write off the debt.

If banks are to offer relief, the funds need to come from the government.

“This proceeding has metamorphosed from a public interest litigation to nudge the government to help people who are jobless and have zero cash flow to focus on large commercial interests,” said Salve.

It’s not COVID-19’s fault that the real estate sector is in trouble
Senior advocate Kapil Sibal, arguing on behalf of CREDAI, asserted that the real estate market met the pandemic under unfavourable circumstances. According to him, COVID-19 has only worsened an already deteriorating situation, but no relief has come the sector’s way.

“If you’re already fragile, then a small wind may also be too much to tip you over. That is not the effect of a disaster,” retorted Salve, arguing that the real estate sector’s woes are not COVID-19 specific but only a small fragment of the sector’s overall diminishing health.

“The CREDAI or the real estate companies are not ‘persons affected by the disaster’. The economy was bad, the customers had gone, the liquidity had gone. It is worse now because the economy is contracting by 8,” he added.

Power producers seek relief with COVID-19 worsening their already dire debt situation
Power producers already had mounting dues before the COVID-19. According to senior advocate Abhishek Singhvi, his client’s dues currently amount to ₹1.22 crore.

“The circular of the RBI dated October 6 has created inadvertent exclusions,” Singhvi told the bench, asking them to plug this ‘loophole’.

Educational institutions are waiting for scholarships
Educational institutions have a bone to pick over the release of funds for post-matric scholarships. According to advocate Vivek Anandh, the delay is hampering the progress of students.

"They do not come under MSME's. The specific needs of educational institutions have not been taken into account by any circulars of RBI. All Engineering colleges run on a non-profit basis," he told the court.

Mall owners accuse banks of making a killing during COVID-19
The nationwide lockdown completely shut down malls. Even when the blanket ban was linked, football at malls has remained below 10% amid social distancing and avoiding public areas, according to advocate Amit Bhandari.

“Banks have actually made a killing during Covid times,” he told the judges.

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