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COVID-19 & FINANCIAL ARRANGEMENTS: IS THE COMMON MAN TO SUFFER?


Introduction

With the entire nation and most of its businesses shut on account of the Novel Coronavirus pandemic, the economy along with the income of the people has come to a screeching halt and its effects and implementations are far-reaching. A nation-wide complete lockdown was announced on 25th March 2020 which has been extended for the fourth time till 30th June 2020. This note will discuss the various provisions surrounding the facts & circumstances of various financial arrangements done by the government in its fight against the COVID-19 virus. We will delve into their legality as well as the morality of the various measures taken by the government and how effective they really are, not only for the businesses and/or MSMEs but also for the common man and small traders/self-employed businessmen since they form the major chunk of the population of our nation as compared to the larger businesses. Notably, a huge chunk of the working population of the country is not registered under the MSME Scheme and carries out self-employed businesses or professions by pooling their working capital and financial resources either on their own account or by taking a loan from the banks.


The Missing Middle Phenomenon

For every 100 companies in India, there are more than 95 micro-enterprises, four small-to-medium businesses, and less than one large company. Developed countries, however, feature around 50 micro-entities, and 40 small-to-medium companies in the same sample size. This gap, which is the absence of small and medium companies in the optics of the India distribution, is referred to by economists as “the Missing Middle”. [1]
This research makes it abundantly clear that the percentage of the so-called “Common Man” operating a small-time business in manufacturing, service, trading or any other field is significantly more than any other group of population. Going by these statistics, it is rather obvious that in such unprecedented times of COVID-19, the most number of relief measures must be operated by the government for the common man population rather than for the bigger businesses. But in reality, the situation seems to be the exact opposite of it.

MHA Notification Directing Payment of Complete Wages/Salaries During the Lockdown
In spite of complete knowledge of the fact that majority of the business in the country (since they classify as non-essential) are on complete shutdown and probably will be so for a considerable time in the future for maintaining proper social distancing and to curb the spread of the virus, the Secretary, Ministry of Home Affairs, Govt. of India in his capacity as Chairperson, National Executive Committee issued an Order dated 29th March 2020 under section 10(2)(l) of the Disaster Management Act, 2005 directing the employers to make payment of their workers in full for the period of lockdown. The relevant excerpt from the said notification is reproduced herein below:
“All the employers, be it in the industry or in the shops and commercial establishments, shall make payment of wages of their workers, at their workplaces, on the due date, without any deduction, for the period their establishments are under closure during lockdown period”. [2]
Pursuant to the aforesaid Order issued by the National Executive Committee, the Chief Secretary, Govt. of Maharashtra, in his capacity as Chairman of State Executive Committee, issued a Government Resolution dated 31st March 2020 under section 24 of the Disaster Management Act, 2005. The relevant direction contained in the said resolution is reproduced herein below:
“All the workers (including those working on contract basis or outsourced workers/employees, temporary workers/employees or daily wage workers) working in private establishments, factories, companies, shops (except essential services organizations), etc. who are required to remain in their home due to spread of COVID-19 virus shall be deemed to be on duty and shall be paid their full salary and allowances to which they are entitled to. This order shall apply to all semi-governmental, industrial, commercial, trading, and shops establishments within the State of Maharashtra”.

Shifting of the burden from State to Private
In view of the author, the above-mentioned notifications (as well as all the similar notifications issued on the same lines by all the states in the country as well as center) are in gross violation of principles of natural justice and directive principles of state policy as well the fundamental duties of the state enshrined in the Constitution of India. The above said notifications were issued with the primary intention of tackling the problems of migrant workers moving back to their hometowns, creating a draught of the workforce in various cities of the nation. However, the government, in doing this has shifted the entire burden of tackling this problem on the private sector and the individual employers and has taken a back seat remaining a mere spectator under the garb of providing only public healthcare facilities for COVID positive patients. The state has miserably neglected the scheme of the Disaster Management Act, 2005 which includes steps for mitigation of loss caused to the citizens on the part of the state and its instrumentalities. 
Articles 38 & 39 of the Constitution of India (though not legally enforceable for their breach) provide for an obligation on the state to promote the social, economic, and political welfare of the people. They are as follows:
Article 38: State to secure a social order for the promotion of the welfare of the people” [3]
(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life.
(2) The State shall, in particular, strive to minimize the inequalities in income, and endeavor to eliminate inequalities in status, facilities, and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations.
Article 39: “Certain principles of policy to be followed by the State” [4]
The State shall, in particular, direct its policy towards securing-
(a) that the citizens, men, and women equally, have the right to an adequate means to livelihood;
(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;
(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment;
(d) that there is equal pay for equal work for both men and women;
(e) that the health and strength of workers, men, and women, and the tender age of children are not abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age or strength;
(f) that children are given opportunities and facilities to develop in a healthy manner and in conditions of freedom and dignity and that childhood and youth are protected against exploitation and against moral and material abandonment.
These principles provide for a clear obligation on the part of the state to pave the way for the above-mentioned opportunities by bringing in necessary legislation for the same. But the state can be seen to be doing the absolute opposite of it. By directing the private sector employers to pay the complete wages of their employees, the government is shaking off its responsibility of looking after the common man and his/her basic minimum income. On the other hand, no kind of incentive scheme/stimulus package providing efficacious relief to the common man and small businesses/self-employed professionals are in sight. 
Also, to add to the unfairness and arbitrariness on the part of the government, quite a lot of governments of states i.e. Maharashtra for e.g. having announced pay cuts in the government employees on 31st March 2020 and the center too taking a step forward in this direction has announced a cut in the Dearness Allowance of its employees also stopping the increment in the said allowance announced by the Modi government earlier. In an official statement, Deputy Chief Minister as well as finance minister for the state, Mr. Ajit Pawar announced a 60 percent cut in the March salaries of the chief minister, all other ministers, MLAs, MLCs, and representatives of local governing bodies.
“The salaries of Class I and II will be cut by 50 percent while that of Class III employees will be cut by 25 percent. There will be no cut in the salaries of remaining classes in the state bureaucracy,” he said.
In a similar move, Telangana Chief Minister K Chandrasekhar Rao on Monday has announced that his salary would be cut by 75% and that state ministers and members of Legislative Assembly (MLAs) will also face a three-fourth salary cut. [5]
Further, the government should also consider providing rebate/concessions to the private entities by allowing them to pay salaries of their staff at a reduced amount and the rest can be planned to be paid by the government by utilizing Employees’ State Insurance Corporation (ESIC) or the PM Cares Fund or through any other government fund/scheme. 

Double-Trouble for taxpayers & Private Entities
This spells out as double-trouble for the private individuals since, on one hand, they are bearing the brunt of all the utility expenses such as electricity charges, water charges, insurance of the workplace, payment of complete salaries of staff, etc. They also face the ever-increasing burden of immeasurable household expenses such as payment of school fees, monthly household expenditures, utilities, regular investments such as SIPs, insurance premiums, etc. 
The government has not extended any kind of support in these sectors as well. The government could have directed the schools do not charge fees for the lockdown period in which they are shut (excluding the regime of online classes which have just been started by few schools) or charge minimum fees to only cover the salaries of their staff which has to be compulsorily paid owing to the MHA notification (supra). Similar directives could have been issued to the insurance companies as well as banks to proportionately decrease the premium/interest payments by individuals owing to the reduction of their overhead costs due to the on-going lockdown. This works out as gross unfair means on the part of the government technically shifting the burden of looking after the well-being of its citizens onto the private sector. Further, the Supreme Court on 02.06.2020 also dismissed a PIL which sought directions to exclude the time period of lockdown for calculating the limitation for the purpose of presentation of cheques/demand drafts. 
Even the special economic package introduced by the Modi government is of little avail to the common man/trader of the country as the majority of the benefits are being given only to the MSMEs and no regard whatsoever has been given to the common man (and most likely also a debtor) of the country.

Principle of “No Work No Pay” Does Not Apply
To add to the plight of the common man, the Bombay High Court’s Aurangabad bench held in Rashtriya Shramik Aghadi. Vs. The State of Maharashtra & Ors. [6]  that the principle of “No Work No Pay/No Work No Wages” will not be applicable in the face of such an extraordinary situation of COVID-19 lockdown. The court directed the petitioner to pay to ensure full wages for the months of March, April, and May are paid to the workers and the principle of “no work-no wages” is not invoked until further orders. 

Moratorium by RBI: A Toothless Tiger
The mother of all Indian banks viz. the Reserve Bank of India exercising its controlling supervisory jurisdiction over all banks in the country, on 27th March 2020 vide its circular RBI/2019-20/186
DOR.No.BP.BC.47/21.04.048/2019-20, [7] in an ‘alleged attempt’ to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses permitted the banks to grant a moratorium of three months on payment of all installments for a period of 3 months. As per the RBI release, lenders are permitted to grant a moratorium of three months on payment of all installments falling due between March 1, 2020, and May 31, 2020. The three-month moratorium is applicable to all term loans. That means car loans, home loans, corporate loans, education loans, personal loans, most of which are availed of by the so-called common man of India for some of the most necessities of life. These installments include:
(i) Principal and/or Interest components;
(ii) Bullet repayments;
(iii) Equated Monthly installments;
(iv) Credit card dues.
Unfortunately, this moratorium is a rather “toothless tiger” as there is no effective remedy actually provided to the common man debtor or any other debtor whatsoever. This can be clearly derived from the language used in the said circular. The relevant clause from the said circular is reproduced herein below:
1.“ Rescheduling of Payments – Term Loans and Working Capital Facilities [8]
2. In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks, and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments1 falling due between March 1, 2020, and May 31, 2020. The repayment schedule for such loans as also the residual tenor will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
3. In respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020, up to May 31, 2020 (“deferment”). The accumulated accrued interest shall be recovered immediately after the completion of this period”.
In the abovementioned clause, RBI has used words and phrases like “permitted”, “residual tenor will be shifted”, “defer the recovery” which clearly indicate the discretionary use of such moratorium by the lending institutions/banks. There is no kind of obligation or compulsion placed on the banks to necessarily defer the payment of interest on all outstanding loan accounts by default. In fact, what should have been done by RBI, to make the moratorium effective, is to “waive off” the interest for the period of lockdown completely, at least for the businesses/individuals whose working has been halted due to the lockdown imposed.
Such kind of a mere deferment provided by the government is of no avail to the debtors since it makes no difference to them in terms of payment of interest/repayment of the loan amount in any manner. In fact, on the contrary, it will prove to be a much heavier burden on the heads of the debtor once their businesses re-open as on one hand, they will be facing a slump period as the economy will be reviving from this pandemic shock and on the other hand, they will have to make monthly payments equivalent to double the amount of normal EMI that they used to pay before lockdown for at least 3 to 6 months depending upon the paying capacity of each debtor and also on the period of lockdown to further be extended for all different kinds/categories of businesses. 
Further, the common man who has a term loan in the form of Housing loan, car loan or similar in operation, also has to be bear the brunt of additional interest component that is being charged by many banks and lending institutions in spite of the moratorium imposed and the direction of RBI that the credit score of no debtor shall be affected due to non-payment of EMIs in the moratorium period. Hence, this moratorium which has now been extended for a period of further 3 months (i.e. from till 31st August 2020) vide circular RBI/2019-20/244 DOR. No. BP.BC.71/21.04.048/2019-20 [9] is of no avail since the interest component (and in most cases, additional interest component) will continue to accrue and there will no relief to the common man therefrom. It is also to be noted that the common man is not being able to use the money taken a loan for whatsoever purpose during the lockdown while the banks and lending institutions are working just as normally as ever before and investing the money held by the common man in their bank accounts as the whole investment industry including stock exchanges and various other ventures are working as normally as ever before. This means that the money maintained by the common men in their bank accounts is being utilized by the banks as they normally do and they are also taking advantage of the pandemic situation and the consequent moratorium by charging additional interest on the EMIs not being made to them under the instructions of RBI itself.
The Maharashtra Chambers of Housing Industry – Thane Unit (an association of real estate developers) challenged both the above-mentioned circulars to the extent that they explicitly allow the banks/lending institutions to levy interest on loans even during the moratorium period of 6 months alleging it to be violative of Article 14, 19 (1) (g) and 21 of the Constitution of India and calling the decision as ‘arbitrary and unreasonable’. 

Reliefs Introduced by various other Nations:
While the government of India is being grossly negligent towards to hardships being faced by the common man, other nations of the world are pro-actively introducing schemes to come to the aid of the common man and help the small business and traders/employees earning average income/wages and who are debtors of some or the other bank/lending institution in their nation. Following are some examples from around the globe:
(i) Australia: Australia has initiated a “Jobkeeper” wage subsidy plan, under which an employer can claim payment of $1,500 every fortnight per eligible employee from March 30, 2020. The Australian government has provided payments of up to $25,000 to businesses to cover the wages of employees.
(ii) Canada: The government of Canada has announced a fiscal stimulus package amounting to C$202 billion which also includes wage subsidies and tax deferrals to inject cash into the country’s small and medium-sized businesses providing 75% subsidy on wages.
(iii) Ireland: Ireland has also announced a Wage Subsidy scheme, under which employers are refunded up to 70 percent of an employee’s wages, up to a specific amount to reduce the adverse financial effects of COVID-19 on employers.
(iv) USA: The United States of America has announced a $2.2 trillion stimulus package which includes distribution of $1,200 stimulus checks, enhanced unemployment benefits, and forgivable loans for small businesses to pay workers and other expenses even while they’re shuttered. Individuals with an adjusted gross income below $99,000 as a single filer, $136,500 as head of household, or $198,000 as a joint filer will be getting stimulus checks. [10]

Conclusion

The expectation of the government from the common man to simultaneously pay complete wages to his employees, bear the brunt of expenses of all utilities of his office and home without even nominal rebates on electricity, water or interest charges, bear the brunt of the entire household expenditure and educational fees of children while not generating a single rupee as income for months together is rather horrendous and beyond the imagination of a fair and just democratic system of governance. This seems to stem out from the inability of the common man or lack of finance/resources for the common man of this country to either negotiate with the banks/lending institutions like the big businessmen or to challenge the said moves of the government before the Hon’ble Supreme Court of India. The future seems dark for the common man of India.
References
[1] D&B research, Available here
[2] MHA notification directing payment of complete wages/salaries during the lockdown
[3] Art. 38- The Constitution of India
[4] Art. 39- The Constitution of India
[5] The Economic Times, Available here
[6] WRIT PETITION NO.4013 OF 2020 – Order dated 12.05.2020, CORAM:  RAVINDRA V. GHUGE, J.
[7] The Circular released by the Reserve Bank of India (RBI), Available here
[8] The Circular released by the Reserve Bank of India (RBI)
[9] The Circular released by the Reserve Bank of India (RBI), Available here
[10] Mondaq, Available here

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