There shall not be any charge of interest on interest/compound interest/penal interest: Supreme Court of India
There shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium and any amount already recovered under the same head, namely, interest on interest/penal interest/compound interest shall be refunded to the concerned borrowers and to be given credit/adjusted in the next instalment of the loan account. This striking judgment was addressed in the matter of Small Scale Industrial Manufacturers Association (Regd.) v. Union of India and others [WRIT PETITION (C) NO. 476 OF 2020] by Hon’ble Justice M.R. SHAH.
The Writ Petition (Civil) No. 955 of 2020 was disposed of in terms of the statement made by Shri V. Giri, learned Senior Advocate appearing on behalf of the RBI that Circular dated 27.03.2020 was applicable to all banks, nonbanking financial companies, housing finance companies, and other financial institutions compulsorily and mandatorily. All the petitions were partly allowed to the aforesaid extent only and as observed for the reliefs, the petitions were dismissed and the Interim relief granted earlier not to declare the accounts of respective borrowers as NPA stood vacated. However, there was no order as to costs.
Writ Petition (Civil) No. 476 of 2020 was preferred under Article 32 of the Constitution of India by the Small Scale Industrial Manufacturers Association, Haryana for an appropriate writ, direction, or order directing the Union of India and others to take effective and remedial measures to redress the financial strain faced by the industrial sector, particularly MSMEs due to the Corona Virus Pandemic. It appeared that the writ petitioner was not satisfied with the steps taken by the RBI vide notification dated 27.03.2020. According to the petitioner, the Covid19 Regulatory Package notified by the RBI vide notification dated 27.03.2020 insofar as the terms loans, working capital facilities, and restructuring of Stressed Account is inadequate, ineffective, and does not offer any substantial relief, aid, or assistance to the industries particularly MSMEs. According to the petitioner, the abovementioned Regulatory Package would not in any manner salvage the MSMEs and help them recover from financial losses that had been caused due to unforeseen circumstances.
The court held that “It is also prayed for waiver of the penal interest charged for a period of one year or until such time as it takes for the pandemic to abate. It is also further prayed to direct the Union of India – Ministry of Finance and the RBI to direct the financial institutions to grant additional credit facility of Rs. 2 crores to each member institutions of the petitioners without interest to meet salary cost and other overheads during the Covid19 pandemic. It is also further prayed to direct to the financial institutions to reschedule the loan installments for one academic year without any charge of interest over the interest for the unpaid period.”