Disclaimer

This website is only for informational purposes. Visitors are requested to note that the information is intended to be correct, complete, and up-to-date. Juris Corp does not warrant that the information contained on this website is accurate or complete, and disclaims any and all liability to any person for any loss or damage caused by errors or omissions, whether such errors or omissions result from negligence, accident or any other cause.

This website is not intended to be a source of advertising or solicitation. The reader must not consider the information contained herein to be an invitation for a lawyer-client relationship, must not rely on information provided herein and must seek independent advice. Transmission, receipt or use of any information on this website does not constitute or create a lawyer-client relationship. No recipients of content from this website should act or refrain from acting, based upon any or all of the contents of this website.

Furthermore, Juris Corp does not wish to represent anyone desiring representation based solely upon viewing this web site. Finally, the reader is warned that the use of e-mail for confidential or sensitive information is susceptible to inherent risks of lack of confidentiality associated with sending e-mail over the internet.

By clicking on the "I understand and agree" button below, the user acknowledges that:

  • This website is not a mode of advertisement, promotion, personal communication, or solicitation of any sort whatsoever and the user wishes to gain information about us for his/her own reasons;
  • Entering into this website does not establish a lawyer-client relationship.

We are not liable for any consequence of any action taken by the user relying on information provided under this website. In cases where the user has any legal issues, he/she must seek independent legal advice.

JC - Legal Updates - Banks must provide borrowers with an opportunity of hearing before classifying their accounts as fraud under the Master Directions on Frauds

Legal Updates

30 Mar 2023

Banks must provide borrowers with an opportunity of hearing before classifying their accounts as fraud under the Master Directions on Frauds

Overview:

Rule of audi alteram partem has to be necessarily read into the provisions of Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions 2016 (“Master Directions on Frauds”).

 Technical Details:

“Whether the principles of natural justice should be read into the provisions of the Master Directions on Frauds”

The Supreme Court when posed with this question, observed, and held that:

1)     Master Directions on Frauds do not expressly provide an opportunity of hearing to the borrowers before classifying their account as fraud.

2)    Debarring the borrowers from accessing institutional finance under Clause 8.12.1 of the Master Directions on Frauds results in serious civil consequences for the borrowers and is akin to blacklisting them for being untrustworthy and unworthy of credit by banks.

3)    In view of the time frame contemplated under the Master Directions on Frauds as well as the nature of the procedure adopted, it is reasonably practicable for the lender banks that the borrowers must be:

(a)    served a notice;

(b)    given an opportunity to explain the conclusions of the forensic audit report and be allowed representation by bank/JLF before their account is classified as fraud; and

(c)    Further, the classification of the borrower’s account as fraudulent must be made by a reasoned order.

4)    Rule of audi alteram partem has to be read into the provisions of the Master Directions on Frauds to save them from the vice of arbitrariness.

For further details, please see:

https://main.sci.gov.in/supremecourt/2021/1710/1710_2021_1_1501_43127_Judgement_27-Mar-2023.pdf

For any queries / clarifications, please feel free to ping us and we will be happy to chat
●
Mr. Jayesh H (jayesh.h@jclex.com)
● Mr. Ankit Sinha (ankit.sinha@jclex.com)
● Ms. Sharmistha Ghosh (sharmistha.ghosh@jclex.com)