India's Supreme Court ruled on Tuesday that borrowers have no legal right to a personal or oral hearing before banks classify their accounts as 'fraud' under RBI's Master Directions. A bench of Justices J B Pardiwala and K V Viswanathan held that issuing show-cause notices, providing evidence, eliciting replies, and passing reasoned orders meet fairness requirements.
A bench of Justices J B Pardiwala and K V Viswanathan stated: "We are persuaded to accept the stand of the RBI that the procedure of issuing a show-cause notice, furnishing of the evidentiary material, eliciting a reply and the obligation to pass a reasoned order will meet the requirements of fairness and also thwart miscarriage of justice."
Justice Viswanathan, writing for the bench, noted that the RBI had opined granting personal hearings to every borrower would be practically inexpedient given the large volume of fraud cases. The court observed that oral hearings would turn a swift administrative process into a protracted one, defeating its purpose, endangering public money as borrowers continue accessing bank funds, and encumbering bank officials' time.
The ruling came on appeals by State Bank of India and Bank of India challenging high court decisions that mandated personal hearings before fraud classification and disclosure of full forensic audit reports. Overruling those high courts, the Supreme Court directed banks to provide the forensic audit report to account holders.
