Supreme Court Says Banks Must Hear Loan Defaulters Before Declaring Accounts Fraud

Many times people resort to loans to meet some sudden need or to handle some big work. Many times people also take loans from banks to increase business. Some of these cases also come to the fore, in which the borrower is unable to pay the loan installments of the bank and the bank declares his loan account as a fraud. Now banks will not be able to do this like before. The Supreme Court has given a fresh decision in this regard.

Defaulters will get this chance

The Supreme Court, while hearing a case on Monday, said that before declaring any loan account as a fraud, the lender should be given an opportunity to present its case on behalf of the banks, as the CIBIL score of the person concerned with this move of the banks. But there is a bad effect. Hearing the case, a bench headed by the Chief Justice said that banks cannot unilaterally declare an account as a fraud without giving the defaulter a chance to present his case.

Supreme Court made such a comment

Apart from this, the bench also said that in case of declaring a loan account as fraud, there is no need to take such a step even before registering an FIR. The Supreme Court said that declaring a loan account as a fraud is tantamount to blacklisting the concerned borrower. The apex court was considering two High Court decisions in this regard.

What does RBI circular say

In fact, the Telangana High Court and the Gujarat High Court had given a verdict on the Reserve Bank of India’s fraud master circular (Frauds Classification and Reporting by Commercial Banks and Select Fls Directions 2016). This master circular of the Reserve Bank directs banks to classify loan accounts of willful defaulters as fraud.

This was the decision of the High Court

This master circular of the Reserve Bank was challenged in several courts. The Telangana High Court, facing one such challenge, had said that not giving the right to represent is a violation of the constitutional rights of the borrower. The Supreme Court has also agreed with the opinion of the Telangana High Court.

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