March 28, 2021 In Uncategorized


The #SupremeCourt has in a recent case of Small Scale Industrial Manufactures Association (Regd.) vs Union of India and others passed a Judgment dated 23-03-2021, whereby, the Apex Court allowed some of the #remedialmeasures sought by the Petitioners representing the Micro, Small and Medium Enterprises (#MSMEs) to redress the financial strain faced by the MSME Industrial Sector on account of #Coronavirus #Pandemic.


In this case, a number of Petitioners have the Small Scale Industrial Manufactures Association, Haryana (Petitioner) filed a Writ Petition before the Supreme Court under Article 32 of the Constitution of India seeking effective measures and substantive relief to salvage the MSME Sector and help them recover the financial losses caused during the COVID period. The Petitioner submitted that the regulatory measures provided by the Reserve Bank of India (RBI), vide Circular dated 27-03-2020 (RBI Circular), in respect of term loans, working capital facilities and restructuring of stressed account is inadequate and does not offer any substantial relief to the industries, particularly MSMEs. Therefore, the Petitioner filed the Writ Petition before the Apex Court and sought various directions, some of which are given below:


i) To direct the Respondent to allow lending institutions to not recover interest from industries, particularly MSMEs on term loans and working capital facilities availed by them during 01-03-2020 to 31-05-2020;


ii) To direct the Respondent to allow lending institutions to grant interest free moratorium period for term loans;


iii) To direct the Respondent to allow lending institutions to allow restructuring of stressed accounts.


Various other Writ Petitions have also been filed in this case challenging the said RBI Circular, with similar prayer seeking reliefs with respect to waiver of interest on all kinds of loans during the moratorium period, i.e. 01-03-2020 and 31-05-2020 (Moratorium Period) and further waiver of penal interest charged by banks and financial institutions for delay in repayment of loan instalments and interest on loan.


The Supreme Court has made the following observations:


1) That the Apex Court has limited scope of judicial review in economic and fiscal policy and regulatory measures matters, as Judges are not experts in these matters and thus, cannot advise or pass directions to the Government or other bodies such as RBI that are fully competent to take financial and economic policy decisions, and formulate financial reliefs and regulatory packages that are in the best interest of the national economy.


2) That this Court can interfere and strike down policy decisions only if they are patently arbitrary, discriminatory, wholly unreasonable, or mala fide, or if they are contrary to any statutory provision or the Constitution of India. The Court cannot interfere with policy decisions on the ground that a particular policy is insufficient or that a better or wiser policy can be evolved. Therefore, it has been reiterated that this Court cannot act as an appellate authority to examine the correctness and appropriateness of a policy or act as an adviser to the Executive in policy matters such as extension of Moratorium Period or waiver of interest on all loans.


3) Further, it is to be borne in mind that the bankers/lenders have to continue paying interest to the depositors even during the Moratorium Period and further incur administrative expenses. The depositors depend on the income generated from such interests on their deposits. Therefore, the grant of a relief of total waiver of interest during Moratorium Period would have adverse financial implication on Indian economy.


4) That the Government has also been adversely affected due to the Pandemic, for instance, loss of revenue on account of non-recovery of Goods and Services Tax (GST), etc. But the Government and RBI went ahead to announce several Relief Packages to provide financial assistance to poor people, MSMEs, non-banking finance companies, agriculture sector, etc. Thus, while offering Relief Packages, the financial stress and burden on the Government also needs to be considered. Merely because the reliefs announced by the Government is not suiting the desires of the Petitioners, such reliefs or policy decisions will not become arbitrary or discriminative under Article 14 of the Constitution of India.


5) However, the Supreme Court held that the rationale behind Government’s Policy Decision to not charge penal interest for non-payment of interest on loans up to Rs. 2 Crores during the Moratorium Period (Policy Decision) is not justified. There is no reasonable justification to restrict the relief only to loans up to Rs. 2 Crores. There may be cases where a borrower has taken a loan of Rs. 5 Crores, but has subsequently made repayments of instalments, bringing the principal amount to less than Rs. 2 Crores as on 29-02-2020, but he may be declared ineligible to claim the relief of waiver of penal interest during the Moratorium Period, only because the sanctioned loan amount was more than Rs. 2 Crores. Thus, the Apex Court held that the said Policy Decision will apply to all and that there would be no charge of penal interest for the Moratorium Period on any borrower.


6) Further, as the RBI Circular allows deferring of payment of instalments, so, non-payment of the instalment during the Moratorium Period cannot be said to be wilful and therefore, there is no justification to charge penal interest for the said period. Therefore, the Apex Court held that the said Policy Decision is arbitrary and discriminative under Article 14 of the Constitution.


Thus, the Supreme Court refused to give any directions to the Government to formulate better regulatory packages or financial reliefs. However, the Apex Court allowed the Petitioners’ prayer for relief to not charge penal interest during the Moratorium Period.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer

Leave a Reply