A) ABSTRACT / HEADNOTE

The writ petition arose in the backdrop of the unprecedented economic and social disruption caused by the COVID-19 pandemic and the nationwide lockdown imposed under the Disaster Management Act, 2005. The petitioner, a housing loan borrower, challenged the Reserve Bank of India Notification dated 27.03.2020 to the limited extent that it permitted accrual of interest during the moratorium period. The petitioner asserted that charging interest during a period when economic activity was suspended defeated the very purpose of the moratorium and infringed the right to life under Article 21 of the Constitution. The petition also invoked principles of natural justice and proportionality, arguing that the State could not simultaneously halt livelihoods and allow financial institutions to impose interest burdens.

During the pendency of the petition, the Union of India placed on record a series of affidavits detailing policy measures undertaken to mitigate borrower distress. Central to the resolution was the Ministry of Finance Order dated 23.10.2020, approved by the Union Cabinet, introducing an ex-gratia scheme for waiver of the difference between compound interest and simple interest for specified categories of loans up to ₹2 crores, including housing loans. The petitioner acknowledged that his loan fell squarely within the eligibility framework of the scheme and expressed satisfaction with the relief granted.

The Supreme Court, while recognising the magnitude of economic hardship caused by the pandemic, refrained from adjudicating the constitutional validity of the RBI notification. Instead, it disposed of the petition in view of subsequent executive policy decisions, directing effective implementation of the relief scheme so that its benefits reach eligible borrowers. The judgment underscores judicial restraint in economic policy matters during emergencies and affirms the State’s proactive role under disaster management jurisprudence.

Keywords: COVID-19, Moratorium, Disaster Management Act, Housing Loan, Interest Waiver, Economic Relief

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The litigation emerged during an extraordinary public health emergency that compelled the Government of India to invoke statutory powers under the Disaster Management Act, 2005. The declaration of COVID-19 as a pandemic by the World Health Organization triggered a nationwide lockdown, resulting in suspension of economic activities across sectors. In response to severe liquidity stress faced by borrowers, the Reserve Bank of India, exercising its regulatory authority, issued a notification dated 27.03.2020 permitting lending institutions to grant a moratorium on repayment of term loans. The moratorium, initially for three months and later extended to six months, deferred repayment obligations but expressly allowed interest to continue accruing.

This regulatory design became the focal point of constitutional challenge. Borrowers contended that accrual of interest during a period when income generation was virtually impossible rendered the moratorium illusory. The petitioner, a housing loan borrower, argued that the policy disproportionately burdened individuals and violated substantive due process under Article 21. The case assumed significance as it reflected widespread borrower distress and raised broader questions regarding the State’s obligation to balance financial stability with social welfare during disasters.

Parallelly, the Union of India undertook extensive policy deliberations to cushion the economic impact of the pandemic. Multiple affidavits placed before the Court documented sector-specific relief measures, fiscal interventions, and coordination with the RBI. The background of the judgment thus reflects a dynamic interaction between judicial scrutiny and evolving executive policy, set against the pressing demands of an unprecedented crisis.

D) FACTS OF THE CASE

The petitioner had availed a housing loan of ₹37.48 lakhs from ICICI Bank. Following the outbreak of COVID-19 and the imposition of a nationwide lockdown, his income streams were severely disrupted. On 27.03.2020, the Reserve Bank of India issued a regulatory notification permitting lending institutions to grant a moratorium on payment of instalments for term loans. The notification explicitly stipulated that interest shall continue to accrue on the outstanding loan amount during the moratorium period.

The petitioner challenged this stipulation, contending that while instalment payments were deferred, the accumulation of interest imposed an additional financial burden. He argued that the moratorium period coincided with a near-complete cessation of economic activity, making it unjust to impose interest obligations. The petitioner asserted that such accrual effectively increased future EMIs and defeated the objective of borrower relief.

The RBI subsequently extended the moratorium by another three months through notification dated 23.05.2020, maintaining the same condition regarding interest accrual. The petitioner approached the Supreme Court under Article 32, seeking a declaration that the impugned portion of the notification was ultra vires and violative of Article 21. He also sought a mandamus directing authorities not to charge interest during the moratorium.

During the proceedings, affidavits filed by the Union of India revealed a series of financial relief measures, culminating in a policy decision approved by the Union Cabinet on 21.10.2020. Pursuant thereto, the Ministry of Finance issued an Order dated 23.10.2020 introducing a scheme for ex-gratia payment of the difference between compound interest and simple interest for specified loan categories, including housing loans up to ₹2 crores. The petitioner acknowledged that his grievance stood substantially redressed by this scheme.

E) LEGAL ISSUES RAISED

i. Whether charging interest during the moratorium period under the RBI notification dated 27.03.2020 violates Article 21 of the Constitution of India?
ii. Whether the moratorium scheme, permitting interest accrual, defeats the object of borrower relief during a disaster declared under the Disaster Management Act, 2005?
iii. Whether the Central Government is obligated to grant complete waiver of interest during the moratorium period?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the petitioner submitted that the moratorium announced by the RBI was rendered ineffective by permitting interest accrual. It was argued that when the State imposed a complete lockdown, depriving individuals of livelihood, it could not allow financial institutions to continue charging interest. Such action, it was contended, amounted to an unreasonable restriction on the right to life under Article 21. The petitioner further argued that the accrual of interest on interest was arbitrary and contrary to principles of natural justice. It was submitted that the Disaster Management Act, 2005 empowered the Central Government to grant comprehensive relief, including suspension of interest obligations during the disaster period.

G) RESPONDENT’S ARGUMENTS

The counsels for the Union of India submitted that the Government was fully conscious of the hardships faced by borrowers and had undertaken a series of calibrated policy measures. It was argued that economic policy decisions, particularly during a crisis, involved complex considerations of financial stability and could not be subjected to rigid judicial mandates. The respondents highlighted the ex-gratia interest relief scheme dated 23.10.2020, approved by the Union Cabinet, as a targeted and equitable solution. The RBI supported the policy framework, emphasising that interest accrual was essential to maintain systemic stability of the banking sector.

H) RELATED LEGAL PROVISIONS

i. Article 21, Constitution of India
ii. Section 6, Disaster Management Act, 2005
iii. Section 10, Disaster Management Act, 2005

I) JUDGEMENT 

The Supreme Court acknowledged the severe economic impact of the COVID-19 pandemic and the legitimacy of borrower distress. The Court noted that the moratorium period extended from 01.03.2020 to 31.08.2020, covering six months of unprecedented disruption. The affidavits filed by the Union of India demonstrated sustained governmental engagement with economic fallout and continuous policy evolution.

The Court placed significant reliance on the Ministry of Finance Order dated 23.10.2020, which provided for ex-gratia payment of the difference between compound interest and simple interest. The Court observed that the petitioner’s housing loan, being below ₹2 crores, was fully covered under the scheme. The petitioner’s express satisfaction with the relief granted weighed heavily in the Court’s approach.

Refraining from entering into a constitutional adjudication of the RBI notification, the Court exercised judicial restraint. It held that in view of subsequent policy decisions, the grievance stood substantially redressed. The writ petition was accordingly disposed of with a direction to the respondents to ensure effective implementation of the relief scheme so that its benefits percolate to eligible borrowers.

a) RATIO DECIDENDI

The ratio of the judgment lies in the Court’s recognition that subsequent executive policy measures can validly address and neutralise constitutional grievances raised against earlier regulatory actions. Where the State, in exercise of powers under the Disaster Management Act, 2005, adopts a calibrated relief mechanism approved at the highest executive level, the Court may refrain from striking down regulatory measures. The decision affirms judicial deference to economic policy during emergencies, provided the policy demonstrates reasoned consideration of borrower hardship.

b) OBITER DICTA

The Court observed that the COVID-19 pandemic constituted an unparalleled disruption to both health and economic systems. It noted that lockdown measures, though necessary, had widespread financial consequences. The observations underscore that disaster governance requires balancing competing interests and that relief measures must evolve with changing circumstances.

c) GUIDELINES

i. Lending institutions must ensure faithful implementation of the ex-gratia interest relief scheme dated 23.10.2020.
ii. Regulatory authorities shall issue follow-up instructions to facilitate uniform application of relief measures.
iii. Benefits envisaged under disaster-related economic policies must effectively reach intended beneficiaries.

J) CONCLUSION & COMMENTS

The judgment reflects a pragmatic judicial approach during a national emergency. By prioritising effective implementation of executive relief measures over abstract constitutional adjudication, the Court reinforced the principle of institutional comity. The decision illustrates how disaster jurisprudence accommodates flexibility and responsiveness, while ensuring that borrower welfare remains a central consideration.

K) REFERENCES

a) Important Cases Referred

i. Gajendra Sharma v. Union of India and Another, [2020] 13 SCR 835

b) Important Statutes Referred

i. Constitution of India
ii. Disaster Management Act, 2005