The pandemic and the hardships attached to it are now the ‘new normal’. And interestingly these hardships are manifold and omnipresent. It has seeped in the life of nearly every person, be he a private individual pulling a rickshaw or be it a highest department of the Government. Barring a few, all face the brunt of the pandemic though to a varying degree.
The Government and its institutions being the front-runners to ameliorate these hardships, their acts have been attended by both, praises and critiques. One such occasion which has caught attention of the mass public is deferment in payment of installments but without a waiver of interest on those payments i.e. loan moratorium by the Reserve Bank of India (“RBI”). Where the former act appeared to balm the immediate re-payment worries of the borrowers, the latter has kept the worries of increased payments within pipeline since inception.
This charging of interest for the moratorium period (i.e. March 1, 2020 to August 31, 2020 or till the time Supreme Court decides the issue) has been recently challenged in a club of writ petitions with lead petition titled as, Gajendra Sharma & Ors. vs. Union of India & Ors. (“Gajendra Sharma”) before the Supreme Court of India. As on today, the matter was last listed on September 10 and adjourned for September 28, 2020 as the expert committee at the highest level is deliberating on the issue and attempting to take a holistic view of the situation.
In the said petitions, the petitioners have principally averred that charging of interest and moreover profiting by way of interest on interest for said period is arbitrary, unreasonable, capricious, in violation of right to life and livelihood of borrowers, and against the principles of the natural justice. It has been averred that imposition of interest takes away the benefit of imposing moratorium. It has also been argued that the said policy of the RBI is disproportionate to the object sought to be achieved by charging of interest.
On the other hand, the respondents, the Reserve Bank of India and the Union of India have averred non-possibility of waiver principally on the fabric of it having severe impact on the financial stability of the nation. It is argued that the object was not to waive but to reduce immediate pressure of repayment amid sudden shutting or losing of work due to pandemic. Moratorium on payment of both principal and interest was by its very nature a temporary standstill arrangement. The banks continue to incur cost on deposits and in such circumstances a waiver of interest whose amount would nearly form 1% of the GDP, would severely affect the national economy. Moreover, given the heterogeneity in lending banks, nature of loans, borrowers, and their difficulties no homogeneous relief like complete waiver of interest for all can be made. Individual resolution plans by the respective banks is the best possible long-term solution and not the extension of moratorium or waiver of interest.
In the light of this brief, the author in the present article attempts to examine whether the Hon’ble Supreme Court may consider the circulars issued by the RBI as policy matter and give a deference to the decisions of the RBI and Government or should it re-define the boundaries of non-intervention with the policy matters in this unprecedented time and exercise its power to relieve hapless people feeling the brunt on unprecedented times
It is well-understood that a Government has three organs, i.e. legislature, executive, and judiciary. Inter-se the organs are expected to maintain a check and balance over the acts of each other to contain any whimsical and capricious exercise of the power. The legislature makes the law, the executive put the law in motion, and the judiciary examines whether the laws made and executed, including the mode of execution is within the contours of the constitutional and statutory principles.
This role of the judiciary of reviewing the constitutional vires of acts of other organs however, is firstly, subject to the principle that a law or act of the legislature or its functionaries to whom powers have been delegated are presumed to be constitutional and bona-fide unless proven otherwise. Secondly, it is well-settled through numerous judicial precedents that the Courts often do not interfere in policy matters of the State or its functionaries like RBI unless these decisions are discriminatory, ‘manifestly arbitrary’, unreasonable, irrational, and suffers from procedural impropriety. For example, in Peerless General Finance & Investment Co. Ltd. vs. Reserve Bank of India, (1992) 2 SCC 343, the Hon’ble Supreme Court noted that the function of the court is to only see that a public body with statutory power does not exceed its authority and acts reasonably and in good faith. The Court further went on to note that “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” (para. 31).
In State of Punjab & Ors. Vs Ram Lubhaya Bagga & Ors., (1998) 4 SCC 117, the Hon’ble Supreme Court again aptly noted that “when Government forms its policy, it is based on 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 in affidavits. The Court would dissuade itself from entering into this realm which belongs to the executive. It is within this matrix that it is to be seen whether the new policy violates Article 21 when it restricts reimbursement on account of its financial constraints” (para. 25).
Similarly, in Balco Employees’ Union (Regd) v. Union of India, the Hon’ble Court while noting the supremacy of the Government in policy decisions noted that “wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved. For testing the correctness of a policy, the appropriate forum is parliament and not the courts” (para. 93). The deference observed in the quoted observations can also be found resonating in more recent decisions of different High Courts and the Supreme Court.
However, as may be noted, the acts of the government or its functionaries are not provided with an absolute immunity. Where there is an unreasonable or irrational exercise of power, the Courts can hold such acts as ultra vires on the contours of constitutional rights. This however, would depend on independent facts and circumstances of each case. For instance, recently in March 2020 in Internet and Mobile Association of India vs Reserve Bank of India, the Hon’ble Supreme Court held circular of RBI forbearing the entities regulated by RBI from engaging in exchange of crypto-currencies as unconstitutional on the “test of proportionality”. The test means striking a balance between the importance of the object pursued and the value of the right intruded upon. As noted above, this contention of disproportionality in the act of the RBI has also been raised in the present writ petitions.
Interestingly, the present circumstances are unprecedented and peculiar. It might be the first time that right to life which is a storehouse of many other fundamental rights like right to work and livelihood is in conflict with the principle function of the RBI i.e. maintenance of the financial stability of the national economy.
In present circumstances, it is an established fact now that the lockdowns have affected millions and infinite of them has lost their work or jobs and thus, their source of income. In Delhi Transport Corporation D.T.C. vs. Mazdoor Congress and Ors., the Hon’ble Supreme Court noted that “right to life includes right to livelihood” and it cannot hang on the whims and fancies of an authority. The Court continued to observe and stated that “income is foundation of many fundamental rights and when work is the sole source of income, the right to work becomes as much fundamental”. Given the fact that many people have presently lost their work and consequently source of income, charging of interest on interest in such circumstances thus, do not appear as reasonable and proportionate.
It must also be remembered that India is a welfare State and the Government and its functionaries being its protagonists owe certain constitutional obligations towards its people. For example, Article 38(1) of the Constitution obliges the State to strive towards welfare of the people and securing and protecting social order in terms of “justice, social, economic and political”. Article 41 calls upon the State to make effective provisions for securing the right to work. Moreover, preamble describes India as “socialist” which means elimination of inequality in income status and standard of life.
In light of this discussion and severity of the situation, the author opines that the situation does not call for a complete deference to the policies of the RBI and Union of India. Though the Expert Committee formed for this purpose is exploring the formulating definite reliefs for the borrowers, however, if it fails to give some substantial reliefs, easing the burden of interest and interest on interest, when they have lost their income, the Hon’ble Supreme Court should intervene by redefining its contours of judicial deference for the present unprecedented situation. The hardships of these people cannot be ignored in an anticipation that the waiver of interest and interest on interest may severely in future affect the economy of the nation. It is duty of the State to explore other viable options for keeping the economy afloat. But it would be unjustified and unreasonable this being done only on the cost or sacrifice of the borrowers, whose financial conditions can otherwise itself be presumed as precarious.
Pertinently, the Supreme Court has and has exercised such power to protect and safeguard the right and livelihood of the people on various occasions. For example, while holding the right to livelihood as part of right to life, the Hon’ble Supreme Court in Olga Tellis & Ors Vs. Bombay Municipal Corporation & Ors rightly observed that “if the right to livelihood is not treated as a part of the constitutional right to live, the easiest way of depriving a person of his right to life would be to deprive him of his means of livelihood to the point of abrogation. Such deprivation would not only denude the life of its effective content and meaningfulness but it would make life impossible to live” (para. 32).
The author in conclusion opine that the unprecedented situation calls for unprecedented deference in terms of guiding the State in its steps towards securing the precarious position of borrowers. Thus, the situation does call for an activist approach of the Court and not a complete deference. However, practically speaking, though the Supreme Court may not strike down charging of interest for the said period, but in likely to strike down the charging of the interest on interest for all. This way, the Court will strike a balance in judicial deference and judicial activism. Having said this, it would be now interesting to see how will the Hon’ble Court how will the Court soften up the friction between the right to life and livelihood and apprehended risk of future instability in the national economy.
(Please note, the article was written before the judgement. The Hon’ble Supreme Court has allowed interest but held charging of interest on interest as unconstitutional and excessive.)