In a huge relief to both big and small borrowers, the Supreme Court ruled that waiver of interest on interest would apply to loans of all amounts in the six-month moratorium period from March 1 to August 31 last year during the Covid-19 pandemic and said the Centre's decision to put a £200,000 cap on loan amount for the relief lacked rationale and logic.
A bench of Justices Ashok Bhushan, R S Reddy and M R Shah said, "Once the payment of instalment is deferred as per March 27, 2020 circular, non-payment of the instalment during the moratorium period cannot be said to be wilful and therefore there is no justification to charge interest on interest/compound interest/ penal interest for the period during the moratorium."
Writing the judgment for the bench, Justice Shah said, "Therefore, we are of the opinion that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers."
Writing the 148-page judgment for the bench, Justice Shah said, "Therefore, we are of the opinion that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded and adjusted/given credit in the next instalment of the loan account."
The bench examined and rejected a batch of petitions filed by industries and borrowers seeking various financial relief, including extension of moratorium period and complete waiver of interest during the moratorium period. However, the bench said the issue of waiver of interest on interest during the six-month moratorium period when the government had offered deferment of payment of equalised monthly instalments towards repayment of loans stood on a different footing. The government had waived interest on interest for deferred EMIs for loans up to £200,000 taken by MSMEs, educational loans, auto and housing loans, personal loans and credit card dues.
