Loan Moratorium Judgment Refusal of Too Many Expectations of MSME/ SSI By CS Shubham Budhiraja


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


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.


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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