‘LEVY & DEMAND OF INTEREST’ ON BORROWERS DURING COVID-19 - The Daily Guardian
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‘LEVY & DEMAND OF INTEREST’ ON BORROWERS DURING COVID-19

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In the wake of the pandemic and the subsequent lockdown, the Reserve Bank of India in March issued circular, allowing banks to grant a moratorium to borrowers on payment of installments for three months. An extension of the moratorium period was announced in May, making it a six-month moratorium. 

The objective behind the RBI circular was to “mitigate the burden of debt servicing on account of the disruption caused due to the pandemic”. As per the RBI circular, banks will be permitted to continue charging interest for the moratorium period also but the interest would be collected later.

 Later a petition (PIL) by Gajendra Sharma has been filed in the Supreme Court followed by petitions by various business groups & associations that the objective of the circular would be rendered futile if interest is levied later and further contended that interest should not be charged during the moratorium period. 

The RBI has rightly pleaded that waiver of interest during moratorium on term loan repayment would jeopardizes the financial health and stability of banks as well as the interest of debtors. The RBI has informed that the decision of moratorium was to ensure continuity of viable businesses and the regulatory package to defer payment of loan cannot be construed as a waiver. The RBI has also informed that banks are expected to run on viable commercial considerations and are guardians of the depositors’ monies and actions of the banks need to be guided by the interest of the depositors.

 Banks are important for any economic activity in the country and they should be financially viable at any point of time. Banks cannot be treated as charitable institutions to help only borrowers. Expecting banks to lend free without any interest can never be an acceptable proposition as they have to pay interest to depositors and depositors also cannot be expected to freely park their funds with the banks. 

When banks accept deposit, it is a contractual obligation. On their own, banks cannot deny paying interest to depositors. Even when banks provide moratorium to borrowers, it is the banks’ discretion and not borrowers’ decision. In the same way, when depositors park their money, the depositors are lenders to the bank and only depositors can decide whether to forego interest or whether there should be any moratorium on the funds lent. 

The Supreme Court of India (SC) hearing on the plea has asked the centre, Reserve Bank of India to “review” the issue whereas asked India Bank Association to see if new guidelines can be created. The Supreme Court has restrained banks from declaring any account of the borrower, which has availed the loan moratorium, as NPA due to non-payment of dues — principal or /and interest — until it decides the matter. 

“There are 133 lakh crore rupees in deposits with banks and interest has to be paid on them and the waiver will have a cascading effect,” said Tushar Mehta, Solicitar General on behalf of centre and RBI told the apex court in the same PIL. As per RBI’s estimates, out of the total Rs 102 lakh crore loan book, Rs 38.68 lakh crore was under the six-month moratorium. Suppose, this was carrying an average interest of 12%, the simple interest would work out to Rs 2.32 lakh crore for six months. On compounding (12.30%), the overall interest dues could aggregate to Rs 2.38 lakh crore, an additional loss of approximately Rs 6,000 crore (interest on interest). 

While hearing the pleas on 17 Sept, the apex court observed that the borrowers’ request for relief can’t be termed as adversarial. SC is inclined to consider that there can be no levy of interest on interest; they are yet to decide on the interest waiver. The RBI in its submission to the Supreme Court had stated that the lenders would lose Rs 2 lakh crore if interest for the moratorium period was waived. While posting the matter for further hearing on September 28, the SC had advised the GoI, the RBI and banks to come out with their final views on the request for waiver of accrued interest and interest on interest, and place all the documents before it for appropriate decision in the matter. SC would allow no more adjournments in the matter. 

Following the SC observation, the GoI has set up a three-member expert committee to scale the impact of waiver of (i)interest and (ii) interest on interest due to the COVID-19 related moratorium on the financial stability of the lenders as also to suggest measures to contain the financial constraints of various sections of society in this regard.

 While the Government at the highest levels is considering solutions in consultation with RBI and the scheduled commercial banks, if the Banking Law (i.e., levy of interest on loans and compounding of interest — interest on interest) which has been in practice since the time banking came into existence is rewritten, the fallout will be immense. Also these solutions cannot permit the restructuring of loan. If you look at the 2008 financial crisis, many borrowers opted for restructuring, and converted into longer-term tenures, this brought along moral hazards. That point in time, cash flows which ideally should have gone back to lenders, was used for further growth purposes. Restructuring also resulted in ever greening of loans, which eventually led to an NPA problem. 

Unfortunately, apart from force majeure doctrine there is no other legal remedy available to address the current situation but this also cannot be use as it only delay the performance of contract & do not waive it. The various petitions filed before apex court on this ground have also not achieved success. The doctrine of proportionality also not came to the rescue of such petitions as the contract or its performance has not been challenged but the discretionary power of Central Government & NDMA under Disaster Management Act have been mostly challenged under the petitions before the apex court.

 However, the 180 days moratorium and even the interest waiver might not be enough considering the Corona impact on businesses. Accordingly, the most viable solution for borrowers and the lenders might need to resort to one time settlements (OTS) to ease the financial burden and pave the way for a more conducive repayment schedule. The resorting to OTS would assume even more importance with the suspension of Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency & Bankruptcy Code (IBC) initiation to avoid the potential business disruptions. The Government also announced other amends and relaxation to the IBC including increasing the monetary threshold of default for the initiation of insolvency and resolution process, excluding the period of lockdown for counting the time-lines for any activity in relation to liquidation process, et al. The measures are collectively aimed at providing some safeguard to corporate debtors and would lead lenders to look at other modalities of recovery.

 With a view to channelize the money flow in the midst of the acute financial crunch and to provide impetus to have the economy running again, businesses and lenders might need to negotiate more and more closed room deals for debt restructuring/ OTS. Further, the OTS package deal may have various permutation and combinations of incentives including, inter-alia, interest waiver, conversion of unpaid interest into loan, partial waiver of principal portion of the loan. The tax implications under Section 28(iv) of the ITA on loan waiver being benefit or perquisite arising from the business was ruled out by the Supreme Court in the recent case of Commissioner v. Mahindra And Mahindra Ltd. 2018 which averred that the loan waiver is a monetary item to which the provisions which aim to tax benefit/perquisite, whether convertible into money or not, would not be applicable. 

While efficiencies can be built into most of these covenants of OTS, benevolent relaxations provided by various stakeholders including tax policy is required to enable the businesses opting for OTS to sail through these testing times and help in attainment of the Government’s vision of “Atmanirbhar” (self-reliant) India. 

Adv. Ankit Singh practices at the Delhi High Court

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Legally Speaking

SUPREME COURT CRITICISES HIGH COURT: POSTING ANTICIPATORY BAIL PLEA AFTER TWO MONTHS CAN’T BE APPRECIATED

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The Supreme Court in the case Sanjay versus The State (NCT of Delhi) & ANR observed and stated that in the case where personal liberty is involved, the court is expected to pass orders at the earliest while taking into account the merits of the matter in one way or other. Further, the top court observed that posting of an application for anticipatory bail after a couple of months cannot be appreciated by the court.

The bench comprising of Justice C. T. Ravikumar and the Justice Sudhanshu Dhulia was hearing a June 2 SLP against the Delhi High Court in a petition filed under section 420, 467, 468, 471, 120-B, 34 of the Indian Penal Code, 1860 for seeking anticipatory bail in a 2022 FIR, a notice is issued. It was stated that the learned APP for the state is present and accepts the notice and seeks time to file status report. The High Court in the impugned order stated that Let the status report be filed by the state prior to the next date with an advance copy to the learned counsel for the petitioner. The matter is to be list on 31.08.2022.

It was noted by the bench comprising of Justice Ravikumar and the Justice Dhulia that in the captioned Special Leave Petition, the grievance of the petitioner is that the application for anticipatory bail moved by the petitioner, being Crl. M.A. No. 11480 of 2022 in Bail Application No. 1751 of 2022 without granting any interim protection, was posted to 31.08.2022. on 24.05.2022, the bail application was moved on.

However, the bench asserted that the bench is of the considered view that in a matter involving personal liberty, the Court is expected to to pass orders at the earliest while taking into account the merits of the matter in one way or other.

It was declared by the bench that at any rate posting an application for anticipatory bail after a couple of months cannot be appreciated by the court.

Further, the bench requested to the High Court to dispose off the application for anticipatory bail on its own merits and in accordance with law expeditiously, preferably within a period of three weeks after reopening of the Court. Adding to it, the bench stated that if the main application could not be disposed off, for any reason, within the stipulated time, relief sought for in the interlocutory and on and on its own merits, the application shall be considered.

While disposing of the SLP, the bench directed in its order that we grant interim protection from arrest to the petitioner herein, Till such time.

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IN THE CIRP OF BOMBAY RAYON FASHIONS LTD, NATIONAL COMPANY APPELLATE TRIBUNAL (NCLT) STAYS THE CONSTITUTION OF COC

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The National Company Appellate Tribunal (NCLT) in the case National Company Appellate Tribunal (NCLT), comprising of the bench of Justice M. Venugopal (Judicial Member) and the technical member, Shri Kanthi Narahari observed while adjudicating an appeal filed in Prashant Agarwal v Vikash Parasprampuria, has stayed in the Corporate Insolvency Resolution Process (CIRP) the constitution of the Committee of Creditors (COC) of Bombay Rayon Fashions Ltd. on 15.06.2022, the order was passed.

FACTS OF THE CASE:

The Operational Creditor or the Respondent, Vikash Parasprampuria is the sole Proprietor of Chiranjilal Yarn Traders and the respondent had supplied goods to a public listed company i.e., Bombay Rayon Fashions Limited (“Corporate Debtor”). The Operational Creditor raised nine invoices which was accepted by the Corporate Debtor without any demur and it was noted that the dispute, protest and part payments were also made towards certain invoices.

The reminder letter was sent by the Operational Creditor when the Corporate Debtor failed to release balance payments letters followed by a Demand Notice under Section 8 of the IBC dated 05.11.2020, which was delivered to the Corporate Debtor but no response was received from the Corporate Debtor.

MUMBAI NCLT PROCEEDINGS

An application under section 9 of the Insolvency & Bankruptcy Code, 2016 was filled by the Operational Creditor before the NCLT Mumbai Bench, seeking to initiation of CIRP against the Corporate Debtor, for defaulting in payment of Rs.1,60,87,838/-, wherein the principal amount was Rs. 97,87,220/- and remaining was interest. 01.11.2020, was the default date.

the Operational Creditor placed reliance so as to justify the compliance of Rs. 1 Crore threshold for initiating CIRP of the NCLT judgement in the case Pavan Enterprises v. Gammon India, it was held in the case that interest is payable to the Operational of Financial Creditor then the debt will include interest, in terms of any agreement. However, by including the interest component the threshold of Rs. 1 Crore was being me and no reply has been filled by the Corporate Debtor.

NCLT DECISION:

An order dated 07.06.2022, the NCLT Mumbai Bench observed that the Corporate Debtor had time and again by its letter, invoices and by making part payment acknowledged its liability.

It was stated by the bench that the application under Section 9 was complete in all respects as required by law and there was a default in the payment of debt amount by the Corporate Debtor. The bench accepted the application and the CIRP was initiated against the Corporate Debtor, Mr. Santanu T Ray, Interim Resolution Professional was appointed.

NCLT PROCEEDINGS:

An application was filled by the appellant, Prashant Agarwal before the NCLT against the order dated 07.06.2022.

The settlement was proposed by the Respondent by submitting that if it would be satisfied if the Appellant pays the principal amount along with the CIRP cost towards settlement and on the settlement proposal, the appellant is yet to seek instructions.

Accordingly, the bench in the CIRP of the Corporate Debtor stayed the constitution of CoC and the CIRP process would otherwise continue.

The Appellant to accept or reject the settlement proposal of the Respondent, the bench listed the matter on 07.07.2022.

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ESTOPPEL CANNOT OVERRIDE LAW: SUPREME COURT ACCEPTS UNSUCCESSFUL CANDIDATES’ CHALLENGES TO SELECTION PROCESS HELD AGAINST REGULATIONS

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The Supreme Court in the case Krishna Rai (Dead) Through LRs versus The Benarus Hindu University & Others observed and held that the principle of estoppel or acquiescence would not be applied in a selection process when the principle of estoppel is held contrary to the relevant rules.

The bench comprising of Justices Dinesh Maheshwari and Justice Vikram Nath observed and reiterated that that the procedure in the relevant service manual will prevail over the principle of estoppel and the principle of estoppel cannot override in the eye of law.

An appeal was considered by bench relating to the filling up of 14 posts in Class III (Junior Clerk) in the Benarus Hindu University by way of promotion. However, the notification inviting the applications from Class IV employees for promotion to Class III had not prescribed that interview will be conducted in addition to the typing test. It was also stated that the The service rules also did not mention interview for promotion to Class III. However, it finalized 14 candidates, the Board of Examiners conducted an interview as well.

Before the Allahabad High Court, some of the candidates challenged the selection process by some candidates, who did not get selected. The candidates alleging that through the manual did not prescribe an interview and the Board of Examiners conducted the interview by “changing the rules of the game”. The Selection process was set aside by the Single bench of the High Court by holding that a grave error was committed by preparing the merit list on the basis of the interview as well.

on appeal by the BHU, the division bench of the High Court set aside the judgement of the Single bench on the ground that the petitioners without protest after having participated in the interview, the petitioners are estopped from challenging the selection process after becoming unsuccessful. The appellants approached the Supreme Court challenging the order of division bench.

The Court noted that the Supreme Court held that the division bench fell in error by applying the principle of estoppel. the Manual duly approved by the Executive Council, According to para 6.4, all Class-IV employees who had put in five years’ service and passed matriculation examination or equivalent, those employees were eligible for the promotion to the post of Junior Clerk Grade.

the departmental written test of simple English, Hindi, and Arithmetic, but could not pass the typing test, was passed by the eligible candidates and still the candidates would be eligible for promotion.

It was observed by the Court that the Board on their own changed the criteria and by introducing an interview it made it purely merit based and the merit list was also prepared on the basis of marks awarded in the type test, the written test and interview.

The Top Court said that it is settled principle that the principle of estoppel cannot override the law and the manual duly approved by the Executive Council will prevail over any such principle of estoppel or acquiescence.

The Court remarked, while referring to the precents that If the law requires something to be done in a particular manner, there can be no estoppel against law, then it must be done in that particular manner, and if it is not done in that particular manner, then in the eye of the law, it would have no existence.

It was stated that the case laws relied upon by the Division bench had no application in the facts of the present case as none of those judgments laid down states that the principle of estoppel would be above in the eye of law.

Accordingly, The judgement of the Single bench was restored and the appeal was allowed, the judgement of the division bench was set aside.

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PRIMARY TEACHER RECRUITMENT SCAM: CALCUTTA HIGH COURT ORDERS REMOVAL OF CHAIRMAN OF WB BOARD OF PRIMARY EDUCATION

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On Monday, the Calcutta High Court removed Trinamool MLA Manik Bhattacharya from the post of Chairman of the Board of Primary Education, in connection with the alleging irregularities in the recruitment of the teachers in the State government-sponsored and aided primary schools.

Earlier, the bench comprising of Justice Abhijit Gangopadhyay observed and ordered that a court-monitored probe by a special investigation team of the CBI into the alleged illegal appointments of at least 269 primary teachers.

It was contended that such a direction was passed on the basis of the recommendation put forward by the CBI additional director Upendranath Biswas.

The additional director Upendranath Biswas headed the probe into the Bihar fodder scam that led to the conviction of that state’s former chief minister Lalu Prasad Yadav.

From 2011 to 2016, A minister in the first Mamata Banerjee government. additional director Upendranath Biswas had named one Chandan Mondal of Bagda, North 24 Parganas for allegedly giving jobs of primary school teachers in lieu of money.

The Court ordered that the Secretary of the Board, Ratna Chakraborty Bagchi, would remain in the charge till the new appointment is made to the Chairman of the Board. Thereafter, it was intstructed to Bhattacharya to appear in person before the court for further investigation.

It was further ordered by Justice Gangopadhyay that the CBI Joint Director N. Venugopal shall head the SIT and supervise the whole investigation as the counsel appearing for the Court about the constitution of the SIT in accordance with his earlier order.

Six SIT members name have been submitted by the CBI, who will be investigating the cases under the supervision of its anti-corruption branch’s superintendent of police, and its joint director.

Appearing for the petitioner, senior counsel Bikash Ranjan Bhattacharya had requested requested CBI counsel Billwadal Bhattacharyya to reconsider the name of K.C. Risinamol for replacing her by some other officer of similar rank, during the course of proceedings.

Accordingly, It was stated that the Counsel for the CBI had averred that he would talk to senior counsel Bikash Ranjan Bhattacharya as well as his client in this regard and apprise the Court about the appropriate decision taken in this regard.

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‘PUBLIC EMPLOYMENT CANNOT BE OBTAINED BY PAYING BRIBE’: MADRAS HC REJECTS PETITION OF ACCUSED FOR INTERIM CUSTODY OF RS 10 LAKH SEIZED DURING JOB RACKET CASE PROBE

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The Madras High Court in the case K.Sadagopan v. State Rep.by, Inspector of Police and ors observed and dismissed a petition seeking to provide an interim custody of Rs 10 lakh, which is seized in a job racketing case. The Madras High Court bench comprising of Justice D Bharatha Chakravarthy expressed his displeasure at the way people of how they were willing to pay huge amount of money for getting a job. The bench enunciated those public appointments were made through a selection procedure and it cannot be obtained by paying bribes. The bench further highlighted that such persons does not realise that it took years of work to earn such salaries and gave no though to the plight of persons who scored more marks than them.

The Court in its order stated:

Through all the concerns it is to be understood that the public appointments is only done through selection process and no job can be obtained by giving bribe. But the present case, it is it is seen that the petitioner with his full knowledge has given a huge amount of Rs.78 Lakhs for the purpose of securing job under Class -I and without any thought about that how many years a person has to work and earn that much of salary and the accused without any guilt as to what will happen to the person, who has scored much more marks. However, the court inclined to pass any order expediting the trial and hence, the Court concluded that the petition is liable to be dismissed.

Facts of the Case:

The petitioner was a victim of Job racketing and the police in the course of investigation has seized some amounts and had frozen the accounts of the accused. An application was filled by the petitioner under section 451 and section 457 for a return of Rs. 10 lakh as interim custody of Code of Criminal Procedure, 1973. Therefore, the application was rejected by the Magistrate who held that the investigation was at the nascent stage and that the matter could be decided only during trial. However, the petitioner approached the high court seeking to quash this impugned order and to direct interim custody of Rs. 10 lakhs, the return of money in the account of the accused.

The Court remarked while dismissing the petition that the petitioner appeared to be a greedy person who paid a sum of Rs.78 lakh for getting a Class-I job. Furthermore, the petitioner approached the court for the return of money without even waiting for the trial to be completed as only then a clear finding could be arrived at.

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Plea in Supreme Court to direct Centre to reconsider Agnipath recruitment scheme for Armed forces

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In the case Harsh Ajay Singh v Union of India, a writ petition is filed before the Supreme Court seeking issuance of directions to the Centre to reconsider its “Agnipath” recruitment scheme for armed forces.

The Writ petition is filled by Advocate Harsh Singh, It is stated in the writ petition that the announcement of scheme had caused nation-wide protest in Haryana, Uttarakhand, Telangana, Uttar Pradesh, Bihar, West Bengal and various other states due to the short- term duration of the scheme in the Indian Army for Four years coupled with future uncertainties of the trained “Agniveers”.

It was further contended by Advocate Harsh Singh in his petition that the Agniveers, would not be matured so as to retain self-discipline with the realization to become a better version of himself or herself both professionally as also personally, on completion of the four-year tenure in the prime of their youth.

Against the Scheme backdrop, Advocate Harsh Singh has also sought for implementation of scheme from June 24, 2022.

It was contended in the petition filled that there is a great possibility for the Agniveers trained under the scheme to go stray. The petition filled by Advocate Kumud Lata Das stated that making up the fighting sinews of its armed forces, the nation should never compromise with the army personnel’s. They shouldn’t be looked upon as a burden to the exchequer, but as rough diamonds, to be cut and polished to their maximum capabilities and then deployed in the defence of the nation

The petitioner has also served the petition to the Union, as a result of caveat filed by the Centre.

A plea has already been filled in the Supreme Court challenging the Centre’s “Agnipath” recruitment scheme for armed forces.

It may be noted that another Public Interest Litigation has been filled in the Supreme Court for setting up a Special Investigation Team (SIT) to enquire into the mass violence and the damage to the public properties which include that of railways, during the widespread protests against the Centre’s “Agnipath” recruitment scheme.

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