On Tuesday, the Supreme Court directed the Centre and the Reserve Bank of India (RBI) to respond to a petition which termed the decision of banks to charge interest at a time when there is a moratorium on payment of equated monthly installments or EMIs has as unconstitutional.
The RBI in wake of Lockdown had on March 27 ordered a three-month moratorium till May 31 on EMIs. It was meant to ease the financial burden on borrowers during the lockdown. This period was further extended till August 31 as notified by a recent RBI circular.
Borrowers who availed this facility were in for a rude shock as the lending banks informed them that the interest during this period (March-August) will get added to their loan amount. This would prolong the loan installments. Alternatively, the borrowers could get their interest component increased.
Faced with this fate, an Uttar Pradesh resident approached the Supreme Court to challenge this decision of the banks. In his petition, Gajendra Sharma told the court that since the lockdown is in place, there is no means for citizens to earn a livelihood. Sharma has an optical shop in Agra and had availed of a home loan of over ₹37 lakh from ICICI Bank.
Sharma’s petition said:
“In the present scenario, when all the means of livelihood has been curtailed by the Government of India by imposition of complete lockdown pan-India, due to worldwide outbreak of Covid-19 pandemic and the petitioner being a citizen of India has no way to continue his work and earn livelihood, imposition of interest during the moratorium will defeat the purpose of permitting moratorium on loans.”
The Top Court has issued Notice to the Centre and RBI on the petition and posted the matter for hearing next week.
The petitioner argued that “imposition of interest during the moratorium period is completely devastating and wrong” as the decision of the RBI recognises the hardship faced by borrowers in the context of a national lockdown.
It may be recalled that in April, the apex court had refused to entertain a petition seeking similar relief. The court had dismissed the case as it was not filed by an affected party.
Sharma claimed to be directly affected by the levy of interest and claimed to be unable to repay his loan. The petitioner is a resident of Dayal Bagh in Agra and stated his annual income to be less than rupees seven lakh.
The order has been passed by a bench comprising of Justice Ashok Bhushan, Justice SK Kaul and Justice MR Shah on 26-05-2020.
Read Order Here:
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