Supreme Court bars Charging Compound Interest/Penal Interest On Borrower During Moratorium [Read Judgment]

Supreme Court - Compound Interest - Penal Interest - Borrower - Moratorium - Taxscan

The Supreme Court has directed that for installments that were due during the loan moratorium period from March 1 to August 31 last year, there should be no charging of compound interest, interest on interest, or penal interest on any borrower, irrespective of the loan amount.

Last year, the Centre had taken a decision to allow waiver of interest on interest in eight specified categories for loans up to Rupees 2 crores. The Court observed that there is no rationale in the Centre’s policy to limit the benefit of waiver and no justification shown to restrict the relief of not charging interest on interest with respect to the loans up to Rs. 2 crores.

The three bench court consisting of Justice Ashok Bhushan, Justice R. Subhash Reddy, and Justice M.R. Shah ruledIf such interest has already been collected, it should be either refunded to the borrower or adjusted towards the next installments stating”…we are of the opinion that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded and to be adjusted/given credit in the next installment of the loan account”.

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