MHA wage order: SC divided between contrasting concerns? – The Financial Express

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Apex court says loan moratorium detrimental sans interest relief; on MHA wage order, it strikes a pragmatic tone, cites industry’s cash crunch.

The Supreme Court on Thursday wondered whether the law allowed the government to force employers to pay full wages to workers during crises like the current one, and seemed favouring industry-wise negotiations to open a middle way out of the imbroglio caused by the March 20 notification by the ministry of home affairs. While appreciating the government’s stated policy that workers should not be left without pay, the court said the concern should also be over the industry not having the money to pay, under the current circumstances.

However, in a separate case heard on the same day, the court rapped the Reserve Bank of India (RBI) for taking a stand that it can’t force the banks to grant interest waivers during the six-month (March-August) moratorium period for term loans. Orally observing that people deserved precedence over economic aspects and that a moratorium without interest relief could prove to be more detrimental (to the intended beneficiaries), the apex court also asked the finance ministry to clear its stand on the issue.

Uday Kotak, managing director of Kotak Mahindra Bank and the new president of CII, said on Thursday it was unfair to permit a moratorium on interest on borrowing while expecting full interest on deposits, in a seeming endorsement of the RBI stance. “Banks are intermediaries between depositors and borrowers. We cannot have a one-sided contract where we allow a moratorium on interest on borrowing and expect full interest on deposits too,” he said.

The RBI had stated in the court on Wednesday that any ‘forced’ interest waiver on loan moratorium will risk financial viability and hurt banks by as much as Rs 2 lakh crore (1% of GDP). The central bank on March 27 allowed lenders to provide a moratorium of three months for all term loans which are due for payment between March 1 and May 31. During this moratorium period, however, interest would continue to accrue, which the borrower will ultimately be required to pay. Last month, the RBI extended the moratorium by another three months through August 31.

Borrowers’ interest in moratorium has differed from lender to lender. While 80-90% of eligible borrowers of some banks such as Bank of Baroda and Punjab National Bank have availed of the facility, in case of some others, only about 15% had opted for the deferment until April, according to industry executives. However, in the past few weeks, the interest has picked up, they say.

A Bench comprising justices Ashok Bhushan, MR Shah and SK Kaul, posted the matter for further hearing on June 12. Justice Bhushan also said: “There are two issues – whether interest should be charged during the moratorium period and whether interest should be charged on the accrued interest”. However, Solicitor General Tushar Mehta sought time to take instructions from “the finance ministry as well as the higher officials of RBI” in a week’s time.

Senior advocate Rajiv Dutta, appearing for Gajendra Sharma, an Agra-based businessman, responded by arguing that “cat is out of the bag…They (RBI) are saying profitability of bank is prime… So only the banks should earn and rest of the country goes down under?”

Meanwhile, reserving its judgment on the validity of MHA’s March 29 notification directing employers to pay full wages to workers during the Covid-19 lockdown, the apex court asked the government to play the “role of a facilitator” between employers and workers to work out a solution for payment of salaries for 54 days – from March 25 to May 17.

The government said the order was aimed at reducing the financial hardships of lower strata of society, labourers and salaried employees. The bench comprising Justices Bhushan, Kaul and Shah said it would pronounce its verdict on June 12, on a batch of petitions challenging the MHA order. It also reiterated that no coercive action will be taken against any employer pursuant to the MHA order, which stands withdrawn from May 18.

Justice Kaul asked the government why the Industrial Disputes Act (IDA) wasn’t invoked by the MHA for the wage order. He said: “What is required to be paid (under the IDA) is 50% (of wages) but you compelled them to pay 100%… it can be around 50-75%. The question is do you have power to get the companies pay 100% and on their failure to do so, prosecute them?”

Justice Bhushan also joined in. “There is a concern that workmen should not be left without pay… but the concern should also be that the industry may not have money to pay. The government will have to balance the two sides,” Justice Bhushan said, adding some negotiations have to happen between employers and workmen to iron out what has to be done for the salary for these 54 days.

Justice Kaul further observed that “on one hand you (government) say you’re trying to put money in the pocket of workers. You tell us, can you run an industry without labour. Therefore, you have to strike a balance. It should not be tilted on either side of the employer or the employee.”

Defending the MHA order issued under the Disaster Management Act, Attorney General KK Venugopal Rao said “people were migrating in crores, the notification was to keep the workers stay. They would have stayed only if they were paid. The notification was to ensure compliance of directives of the Central government for effectuating business. The entirety of the March 29 notification needs to be looked at. It was brought in force to prevent human suffering.”

He said that the government wanted the economy to restart. “Keeping aside the validity, the payment of wages to workers during this lockdown period is a matter between employers and employees. In any event, employers have to pay 50%. Under the Industrial Disputes Act, conciliation and settlement is there. But the most appropriate thing would be to consider the humanitarian situation due to which MHA order was issued

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