In Setback For Banks, Supreme Court Says Hear Borrowers Before Fraud Tag

New Delhi:

The borrowers must be heard before the banks declare their accounts as fraud, the Supreme Court held today. This is being seen as a huge setback for banks that follow a master circular by the central bank on the classification of frauds.

Declaring an account as fraud leads to serious civil consequences, the Supreme Court noted, upholding an order by the Telangana high court that was challenged by the centre.

Therefore, the banks must grant an opportunity for hearing to the borrowers under the Reserve Bank of India’s master circular, said a bench led by Chief Justice of India Dy Chandrachud.

The RBI circular cannot be presumed as excluding the principle of natural justice, it noted.

The former directors of Anil Ambani’s Reliance Communication and others had moved different high courts over their accounts being labelled as fraud and sent to the CBI for investigation based on a central bank circular.

Though the State Bank of India and other banks had forwarded complaints of fraud against Reliance Communication to the CBI two years back, the agency couldn’t file a case due to court order.