The Supreme Court on Monday ruled that borrowers had the right to be heard before their accounts were classified as fraud by the banks.
Upholding the Telangana High Court of December, 2020, the Bench of Chief Justice of India (CJI) D.Y. Chandrachud and Justice Hima Kohli observed that it was important to grant the opportunity of hearing to the borrowers under the Master Directions on Fraud, since the classification of accounts as fraud resulted in serious civil consequences for borrowers, apart from their blacklisting.
It said the principles of “audi alterm partem” or natural justice must be followed and read into the Master Circular issued by the Reserve Bank of India on classification of bank accounts as fraud, adding that such a decision should be made by a reasoned order.
While setting aside the Gujarat High Court on the matter, the top court of the country ruled that it cannot be presumed that the Master Circular excluded the principles of natural justice.
The High Court of Telangana had ruled that principles of audi alteram partem, howsoever short, had to be applied before declaring a party as ‘a fraudulent borrower’, or as ‘a holder of fraudulent account’.
(Case title: State Bank of India vs Rajesh Agarwal)