Accounts That Weren’t NPAs Before Aug. 31 Can’t Be Declared One, Says Supreme Court

Accounts that weren’t non-performing assets as on Aug. 31 won’t be declared such until further orders, the Supreme Court has said.

The top court’s interim order came while hearing a batch of petitions from individuals, construction bodies, hotel associations, among others. The issue in contention is the levying of interest on the interest which was to be paid by borrowers during the moratorium period. During the hearings, the court had expressed its intention to examine the issue of added interest being charged on the loan and interest which the borrowers would be paying in the absence of moratorium.

A bench headed by Justice Ashok Bhushan will next hear the case on Sept. 10.

The Reserve Bank of India had permitted banks to grant a moratorium on term loans to help soften the economic blow of the Covid-19 outbreak. The moratorium, which was initially for a period of three months till May 31, was later extended till Aug. 31.

During the hearing, the petitioners sought waiver of interest on loans. Senior Advocate Rajiv Dutta, arguing for petitioner Gajendra Sharma, said the lockdown saw almost 70% of the country shutting down at one point of time and highlighted what he called the problems being faced by the public.

“Interest on interest is going to be a double whammy for us,” he told the court. “By asking the loan takers to pay interest on interest, the bank is treating it as default on payment by me. It is not a default. Please don’t treat it as default.”

Senior Advocate Ranjit Kumar, who appeared for Shopping Centres Association of India, raised the issue of accounts being classified as non-performing assets. Kumar argued that on the expiry of the moratorium period, the accounts will start becoming NPAs ipso facto and urged the bench to take care of that situation as well.

Solicitor General Tushar Mehta countered by saying that the period of moratorium excludes the period counted for calculation of NPAs. Those accounts which were clearing their dues before Covid-19 outbreak wouldn’t turn NPAs on Sept. 1, Mehta said.

“If a buyer didn’t default on payments till March and he did not pay only due to Covid reasons in the period of the moratorium, then the period counted for him to be declared NPA starts from Sept. 1 and only if there is no payment for 90 days is when he will become NPA,” the solicitor general said.

Another petitioner, the Pune Hotel Association, informed the court of its losses and sought waiver on the interest payment.

“My hotels have completely shut down. I have done zero economic activity. You cannot paint everybody with the same brush,” the association told the court. “An IT (information technology) company which has done more business cannot be equated with someone who has done no business. Interest during the moratorium period should be waived.”

The solicitor general told the court that the government’s looking at the issue with a holistic approach and instead of a knee-jerk reaction in the form of a blanket waiver, it reduced the pressure of repayment of loans as far as possible.

The solicitor general also defended the RBI which the petitioners argued was pleading for the banks’ case.

“There are arguments being made that the RBI has left it to the banks; RBI is a mouthpiece of the bank,” Mehta said, adding that banks form a substantial part of the economic stability of the country.

“We can do nothing about economic revival without looking after the interests of the banks,” he said. “So banks are also a part of the revival framework conceived by the country as a financial policy”.