[Loan Moratorium Case] "Incorrect To Say That Government Did Not Take Action During Pandemic": Supreme Court

  • Sakshi Shukla
  • 07:19 PM, 23 Mar 2021

The Top Court in its judgment today said that Economic and fiscal regulatory measures are a field where judges should encroach upon very warily as they are not experts in these matters.

A Full Judge Bench of Justice Ashok Bhushan, Justice R. Subhash Reddy and Justice M.R. Shah, while disposing the batch of appeals, observed,

“Even the Government also suffered due to the lockdown, due to unprecedented COVID 19 pandemic and also even lost the revenue in the form of GST. Still, the Government seems to have come out with various relief/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 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…”

It was conclusively held that, complete waiver of interest cannot be granted during the loan moratorium period and that no sector specific relief(s) can be granted by the Court.

“Payment of interest to depositors is not only one of the most essential banking activities but it shall be a huge responsibility owed by the banks to crores and crores of small depositors, pensioners etc. surviving on the interest from their deposits. There may be several welfare fund schemes, category specific and sector specific which might be surviving and are implemented on the strength of the interest generated from their deposits. 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.”

On the issue of interest on interest, Court held that no borrower shall be charged compounding interest during moratorium period and that whatever amount of interest on interest has been charged, unless the same is wilful default, shall be adjusted in the next instalment.

24 Writ Petitions were heard together seeking following reliefs, mainly:

  1. Waiver of compound interest/ interest on interest during the moratorium period.
  2. Sector wise relief packages to be offered by the Union/RBI/Lenders.
  3. Moratorium to be permitted for all accounts instead of being at the discretion of the Lenders.
  4. Extension of Moratorium beyond 31.08.2020.
  5. Relief Packages, whatever offered, by the Central Government or the RBI or the Lenders are not sufficient in view of the adversities caused due to the pandemic.
  6. Last date for invocation of the resolution mechanism, namely 31.12.2020, as provided under the 06.08.2020 circular should be extended.

Issue precisely was, scope of Judicial Review on policy decisions or decisions having financial implications over country’s economy.

The general rule, as crystallized from various judgments decided earlier, says, (i) The Court will not debate academic matters or concern itself with intricacies of trade and commerce (ii) Wisdom and advisability of economic policy are ordinarily not amenable to judicial review (BALCO judgment) (iii) Economic and fiscal regulatory measures are a field where Judges should encroach upon very warily as Judges are not experts in these matters.

Notable Observations

  1. In 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.
  2. 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 violative of any provisions of the Constitution or any statute.
  3. What is best in the national economy and in what manner and to what extent the financial reliefs/packages be formulated, offered and implemented is ultimately to be decided by the Government and RBI on the advice of the experts. Merely because some class/sector may not be agreeable or satisfied with such packages/policy decisions, the Court, in exercise of the power of Judicial Review, do not ordinarily interfere with the policy decisions, unless such policy decisions could be faulted on the ground of mala fide, arbitrariness, unfairness etc.
  4. In assessing the propriety of the decision of the Government, the Court cannot interfere even if a second view is possible from that of the Government.
  5. Legality of the policy and not the wisdom or soundness of the policy is the subject of judicial review.
  6. 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.
  7. When the Government forms its policy, it is based on a number of circumstances on facts, law including constraints based on its resources. It is also based on expert opinion. It would be dangerous if court is asked to test the utility, beneficial effect of the policy or its appraisal based on facts set out on affidavits.
  8. No Right could be absolute in a Welfare State.
  9. 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.
  10. Government has to decide its own priorities and relied to the different sectors.

Case Title: Small Scale Industrial Manufacturers Association v. Union of India | WP (C) No. 476 of 2020