LOAN MORATORIUM JUDGMENT: REFUSAL OF TOO MANY EXPECTATIONS OF MSME/ SSI
LOAN MORATORIUM JUDGMENT: REFUSAL OF TOO MANY EXPECTATIONS OF MSME/ SSI
SHUBHAM BUDHIRAJA[1]
Small Scale Industrial Manufacturer
Association v. UOI & Ors, 23.03.2021
ASHOK BHUSHAN, J, R. SUBHASH REDDY, J, M.R. SHAH, J
SUMMARY OF JUDGMENT
The Covid-19 pandemic was an unexpected tragedy if not disaster to the
entire world including Republic of India. India as mixed economy has
socialistic as well as capitalistic obligations to ensure the balance between
un-equals. The role of state as welfare state was duly tested and people have
had legitimate expectations of waiver and relief from the Govt. concern. On
same line, the GOI through its ministers issued various relief and one of them
were Loan moratorium. In the present case, SSI/ MSME have prayed that court
must issue directions because the existing relief was not sufficient and they
have also contended that compound Interest/ penal interest cannot be charged
when loan moratorium is availed. The court refused to issue any directions by
holding that judicial review is very limited in policy matter and court cannot
substitute the wisdom of experts. However, the court directed the policy of
chagrining the penal interest as arbitrary and struck it off. The court also
held that allowing complete waiver of Interest have far fetching impact on
economy and every Individual right in a welfare state is subject to rights of
public at large.
|
Petitioner Contentions |
State contentions |
|
-
The “disaster management” must be and can only
be addressed under the statutory regime of law enacted by the Parliament. The
question of executive response will come into play only after the special law
on the aspect of “disaster management” has run its full course. -
This Court ought not to limit the scope for
relief and directions only qua waiver of compound interest which is limited
to a highly restricted segment of the class of borrowers.
-
Covid19 pandemic is a “disaster” within the
meaning of Section 2(d) of the Act
-
The steps for disaster management have not
been undertaken by the statutory authorities under the Act, which makes out a
plain and simple case of issue of mandamus to put the statutory authorities
in action for performing their duties under the law -
Section 12 of the Act imposes a mandatory duty
on the National Authority to recommend guidelines for the minimum standards
of relief to be provided to ‘persons affected by disaster’ -
National Authority has not made any
recommendation with regard to relief in the repayment of loans and/or for
grant of fresh loans to persons affected by disaster on such concessional
terms as may be appropriate. -
Some of the measures which are suggested to
have been taken are only executive measures and are dehors of the
provisions of Sections 12 and 13 of the DMA 2005. Those measures cannot be
read in substitution of the requirements of Sections 12 and 13. -
NDMA has not stepped in despite the clear
mandate under Section 13 of the Act. -
Ministry of Finance and the RBI do have an
important role to play but their role is and can only be to aid and assist
the National Authority in formulation of the measures of relief.
-
The waiver of compound interest by way of
Ex-Gratia Scheme vide memo dated 23.10.2020 is concerned, the very use of the
word “exgratia” is inappropriate and indicates complete lack of empathy and a
misdirected approach -
The distressed class of persons affected by
the disaster are entitled to reliefs and concessions as a matter of right
because that flows from the legal and statutory duty imposed by the statutory
law of Parliament – DMA 2005 and the supreme law of the land, i.e., the
Constitution of India. -
Even relief and concession which was announced
has been further restricted making it wholly arbitrary and eyewash -
The classification between small borrowers’
and ‘big borrowers’ is wholly arbitrary -
Business loan to MSME category is considered
at par with home loan and educational loan. The conditions of the loans and
interests are bound to be different so much so the credit card holders and
consumer durable loans and automobile loans are inherently dissimilar, also
the personal loans to professional and the MSME loans are different in
content. -
Even charging interest on interest/compound
interest can be said to be in the form of penal interest. -
Penal interest can be charged only in case of
willful default. -
The resolution framework in RBI circular is
highly bank centric and leans not only heavily but only in favor of the banks
and lending institutions rather than walking extra mile for the distress
class of persons and borrowers. -
The Government of India being the parens patriae has to
act in a meaningful manner and meaning of the doctrine as the father of the
citizens of the republic and therefore the ultimate custodian and guardian of
their welfare |
-
DMA 2005 contemplates a “National Plan” under section
2(l) of the Act. Such plan is to be prepared under Section 11 of the DMA 2005 -
The present disaster can fall under “biological
and public health emergencies” under clause 7.15 of the National
Disaster Management Plan -
it was not possible to lay down any
straightjacket methodology of dealing with such disaster and each country in
the world is responding to the challenges in the best possible manner with rationalized
utilization of resources -
It is not that once a disaster as defined
under Section 2(d) of the Act takes place, the functions of all Central
Government Ministries stand vested in the NDMA and each and every measure
shall be taken either only by the NDMA and not by the respective Ministries/Departments
or at least vetted or ratified by NDMA -
The disaster management under the Act by NDMA
is restricted to Section 6 of the Act, while the nodal ministries under the
National Plan take the steps -
NDMA is alert and is functioning much prior to
the outbreak of pandemic in our country through Advisory Committee under
Section 7, National Executive Committee under Section 8 and sub- Committees under
Section 9 of the Act -
National Disaster Management Plan also
envisages nodal ministries for management of different disasters. National
Plan prepared by the NDMA itself envisages that each category of disaster
will be dealt with by a nodal ministry -
‘Covid19 was a disaster of such a nature that
it could not be confined to one nodal ministry. -
Whatever measures/reliefs were required to be
taken/given were provided by every ministry in each and every way needed. -
Ministry of Railways provided free rails for transport
of migrants, Ministry of Health and Family Welfare dealt with the substantial
part of disaster management namely taking care of public health and hospital
infrastructure, Ministry of Agriculture & Farmer Welfare provided for
various reliefs in the agriculture sector, Ministry of Housing and Urban
Affairs issued separate relief measures for real estate sector etc. -
Ministry of Finance, whose role otherwise was
to finance the measures undertaken by other Ministries also undertook several
reliefs in terms of financial package and either directly or through RBI
relief ensures for stressed accounts. -
Considering the very nature of the pandemic
which was not confined to any specific geographic location but at PAN India impact
having adversely affecting the various fields of human life, the disaster
management authority consisted “Empowered Groups” under Section
10(2)(h) and (i) for comprehensive action and integrated response
-
One of the empowered groups was “economic
and welfare measure” -
The word “may” used in Section 13 shall
have to be read as an enabling discretionary provision and not mandatory -
The provision of Section 13 is an enabling
provision in which in any given set of facts the NDMA can “recommend” relief
in repayment of loans or grant of fresh loans. -
Section
13 may perhaps be used in case of localized disasters like Bhopal Gas tragedy
or earthquake in Gujarat. However, when a national disaster takes place, the
disaster is to be managed through several ministries -
Use of the word “may” and “shall” would mean
the entire economy of the country shall have to be divested and used in and
through banking sector leaving all other areas untouched and even at the cost
of national economy and the stability of the banking sector. This could never
have been the intention of the legislature -
Judicial review of the policy decisions, more
particularly in the field of economy, would be on very narrow grounds. -
It is true that it is the duty of the
government to bring back the economy on track. -
When a conscious decision has been taken by
the NDMA/UOI through various ministries, RBI and the lenders, there may be
various options/reliefs which may be available, however ultimately, it is for
the policy maker to take appropriate decisions/frame appropriate policies
after having the expert opinion |
COURT OBSERVATIONS
i)
The Court will not debate academic matters or
concern itself with intricacies of trade and commerce
ii)
It is neither within the domain of the courts
nor the scope of judicial review to embark upon an enquiry as to whether a
particular public policy is wise or whether better public policy can be
evolved. Nor are the courts inclined to strike down a policy at the behest of a
petitioner merely because it has been urged that a different policy would have
been fairer or wiser or more scientific or more logical. Wisdom and
advisability of economic policy are ordinarily not amenable to judicial review
iii)
Economic and fiscal regulatory measures are a
field where Judges should encroach upon very warily as Judges are not experts
in these matters
|
Case
Name
|
Relevant
Remarks |
|
BALCO Employees’ Union (Regd.) v. Union of India, (2002) 2 SCC 333 |
In the case of a policy
decision on economic matters, the courts should be very circumspect in conducting an enquiry
or investigation and must be more reluctant to impugn the judgment
of the experts who may have arrived at a conclusion unless the court is
satisfied that there is illegality in the decision itself |
|
Arun Kumar Agrawal v.
Union of India (2013) 7 SCC 1 |
The problems of Government are practical
ones and may justify, if they do
not require, rough accommodation, illogical, if may be, and unscientific. But
even such criticism should not be hastily expressed. What is the best is not
always discernible; the wisdom of any choice may be disputed or condemned.
Mere errors of Government are not subject to our judicial review. It is only
its palpably arbitrary exercises which can be declared void… |
|
Permian Basin Area Rate
Cases, 20 L Ed (2d) 312 |
The court cannot strike down a policy decision taken by the State Government
merely because it feels that another policy decision would have been fairer
or wiser or more scientific or logical. The court can interfere only if the
policy decision is patently arbitrary, discriminatory or mala fide. |
|
Peerless General Finance
and Investment Co. Ltd. v. RBI, (1992) 2 SCC 343 |
The function of the Court is to see that lawful authority is not abused
but not to appropriate to itself the task entrusted to that authority. It is
further observed that a public body invested with statutory powers must take
care not to exceed or abuse its power. It must keep within the limits of the
authority committed to it. It must act in good faith and it must act
reasonably. Courts are not to interfere with economic policy which is the function
of experts. It is not the function of the courts to sit in judgment over
matters of economic policy and it must necessarily
be left to the expert bodies. In such matters even experts can
seriously and doubtlessly differ. Courts cannot be expected to decide them
without even the aid of experts. It is further observed that it is not the
function of the Court to amend and lay down some other directions. The function of the court is not to advise in matters relating
to financial and economic policies for
which bodies like RBI are fully competent. The court can only strike down
some or entire directions issued by the RBI in case the court is satisfied
that the directions were wholly unreasonable or in violative of any
provisions of the Constitution or any statute. It would be hazardous and
risky for the courts to tread an unknown path and should leave such task to
the expert bodies. This Court has repeatedly said that matters of economic
policy ought to be left to the government |
|
P.T.R. Exports (Madras)
P. Ltd. V. Union of India (1996) 5 SCC 268. |
In matters of economic policy, it is settled law that the Court gives a large leeway to the executive and the Legislature Government would take diverse
factors for formulating the policy in the overall larger interest of the economy
of the country. The Court therefore would prefer
to allow free play to the Government to evolve fiscal policy in the public
interest and to act upon the same. |
RATIO OF THE JUDGMENT
-
Merely
because some class/sector may not be agreeable and/or satisfied with such
packages/policy decisions, the courts, in exercise of the power of judicial review, do not ordinarily interfere with
the policy decisions, unless such policy could be faulted on the
ground of mala fide, arbitrariness, unfairness etc.
-
Legality of the
policy, and not the wisdom or soundness of the policy, is the subject of
judicial review. The
scope of judicial review of the governmental policy is now well defined.
-
Even the government
also suffered due to lockdown, due to unprecedented covid19 pandemic and also\ even lost the revenue
in the form of GST. Still, the Government seems to have come out with various
reliefs/packages. Government has its own financial constraints. Therefore, as
such, no writ of mandamus can be issued directing
the Government/RBI to announce/declare particular relief packages and/or to declare a particular policy, more
particularly when many complex issues will arise in the field of economy and
what will be the overall effect on the economy of the country for which the
courts do not have any expertise
-
No State or
country can have unlimited resources to
spend on any of its projects. That is why it only announces the financial
reliefs/packages to the extent it is feasible. The court would not interfere
with any opinion formed by the Government if it is based on the relevant facts
and circumstances or based on expert advice.
-
No right could be
absolute in a welfare State. Man is a social animal. He cannot live without the cooperation of a
large number of persons. Every article one uses is the contribution of many.
Hence every individual right has to give way to
the right of the public at large. Not every fundamental right
under Part III of the Constitution is absolute and it is to be within
permissible reasonable restriction. This principal equally applies when there
is any constraint on the health budget on account of financial stringencies.
-
Not
only that, if such reliefs are granted, it would seriously affect the banking
sectors and it would have far reaching financial implications on the economy of
the country.
-
The
relief sought of waiver of interest during the moratorium period is concerned,
it is required to be noted that the bankers/lenders have to pay the interest to
the depositors and their liability to pay the interest on the deposits continue
even during the moratorium period. .
-
There
may be several welfare funds schemes, category specific and sector specific
which might be surviving and are implemented on the strength of the interest
generated from their deposits. All such welfare funds would depend on the
income generated from their deposits for the survival of their members.
Therefore, to grant such a relief of total waiver
of interest during the moratorium period would have a far reaching financial
implication in the economy of the
country as well as the lenders/banks.
-
From
the various steps/measures/policy decisions/packages declared by the Union of
India/RBI and the bankers, it cannot be said that
the UOI and/or the RBI have not at all addressed the issues related to the
impact of Covid19 on the borrowers. As such, none of the
petitioners have specifically challenged the various circulars/policy decisions
taken by the UOI/RBI.
-
Merely
because the reliefs announced by the UOI/RBI either may not be suiting the
desires of the borrowers, the reliefs/policy
decisions related to Covid19 cannot be said to be arbitrary and/or violative of
Article 14 of the Constitution of
India. It cannot be said that any of the fundamental rights guaranteed under
the Constitution are infringed and/or violated.
-
Conjoint
reading of the relevant provisions of the DMA 2005, it cannot be said that the functions of all the Ministries
are to be discharged by the NDMA which should take decision qua
the area in each Ministry. It also cannot be said that the functions of the
Ministries will stand transferred to the NDMA and will have to be discharged by
the NDMA either directly or indirectly for the purpose of disaster management. Various Ministries under the Central Government have to take
various relief measures within their respective spheres for remedying the
effects of the disaster
-
On a
fair reading of Section 13, it appears that the legislature has deliberately
used the word “may”. This “may” is used after
considering the object and purpose of the Act as a whole as well as the role to
be placed by the Central Government through different ministries,
role to be placed by the State Government, role to be played by the District
Authority at the district level. In the present case, the Ministry of Finance
and the RBI have already come out with different packages/reliefs in repayment
of loans or grant of fresh loans to the persons affected by disaster.
-
Charging of penal interest/interest on interest/compound
interest during the moratorium period
-
Compound
interest/interest on interest shall be chargeable on deliberate/willful default
by the borrower to pay the installments due and payable. Therefore, it is in
the nature of a penal interest.
-
Once
the payment of installment is deferred as per circular dated 27.03.2020, nonpayment of the installment during the moratorium period
cannot be said to be willful and therefore there is no justification to charge
the interest on interest/compound interest/penal interest for the
period during the moratorium
-
The
above mentioned work is an expression of minimum creativity in form of
compilation and giving fair understanding of summary of the court Judgment.
This work is based on labor of author and therefore duly protected by
provisions of Copyright act, 1957
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