Interest on Bank Loan: A subject of legal entitlement not a subject of Policy or charity by State or Bank

Author: Ms. Anamika Sharma, Advocate, Sr. Associate, Juris & Juris

Hon’ble Supreme Court of India vides its judgment dated 23.03.2021 rendered in Small Scale Industrial Manufacturers Association Vs. Union of India; disposed of, a batch of Public Interest Litigation (PIL) Writ Petitions. Consequently, granting only limited relief of waiver of penal interest, interest on interest, penal charges, etc. during the moratorium period from 01.03.2020 to 31.08.2020 (6 months) to all the borrowers without limit & restrictions.

It rejected all other prayers of waiver of interest, further relief sector-wise, the extension of moratorium period, etc. on the ground that these nature of reliefs are in the nature of policy, which appropriate authorities, statutory bodies & govt. respectively are competent to decide & that they are not exigible to judicial review unless any legal questions are involved for the court to adjudicate.

Through this batch of judgments, the Hon’ble Supreme Court of India has once again emphasized the separation of power between the court & the govt.

It reiterated that the court has a domain limited to law & government remit is confined to the subject of policy. Hon’ble Supreme Court of India acknowledged the Govt. & authorities’ actions under the Epidemic Disease Act, 1897 & Disaster Management Act, 2005 & reposed faith on them that they will act appropriately in due discharge of their duties to deal, prevent & mitigate the Covid-19 effects.

While the Hon’ble Supreme Court of India was dealing with the party’s public interest claim; a unique individual petition was filed before it by one Advocate Sh. Biswajit Das for a private client seeking a declaration that interest levy under loan contract is not enforceable by law. Moreover, that levy of interest during the moratorium period cannot be mandated by RBI in the exercise of its power under the Banking Regulation Act, 1949. Taking note of the substance of this new & unique legal argument, the Hon’ble Supreme Court of India advised the Petitioner to approach the Hon’ble High Court under Article 226 for its just adjudication.

Claiming that this proposition involves a unique jurisprudential concept, which he coined as Black-Hole Doctrine, Sh. B. Das filed a Writ Petition in Jharkhand High Court, which is now scheduled for onward hearing on 13.07.2021.

It is being argued by Sh. B. Das that RBI has no power to authorize banks & financial institutions to levy interest on borrowers de horse constitutional principles & law of contracts RBI Covid-19 package circular dated 27.03.2020 & 23.03.2020 transgress its power under Banking Regulation Act, 1949 in breach of Article 300A of the Constitution of India.

Sh. B.Das further stated that the issue involved in this petition is not an issue of waiver/charity but an issue of law involving lenders entitlement & borrowers liability under their respective loan contract/agreement.

He stated that State cannot wedge a divide amongst its population putting one class at a higher pedestal over the other in the name of effective management of disaster. Such a classification has to specifically come through legislative mandate & not through executive route this violates the constitutional concept of governance.

This provides a ray of hope to the entrepreneurs, commercial entities, etc. of India, who are grappling with Covid-19 infused operational & financial distress, to wrest some respite from their already distressed & precarious operable position.