What’s fair is fair
1 min read 20 Jun 2023, 11:34 PM ISTBombay high court stays Reserve Bank of India's (RBI) 2016 master circular that allows banks to declare accounts as fraudulent without a hearing, as RBI has little judicial backing for such moves. The circular gives banks excessive authority to act against defaulters, which can cause reputational damage and invite criminal action, without conclusive proof of culpability, thus violating natural justice.
PremiumAfter the Supreme Court, the Bombay high court has ordered a stay on the effect of a Reserve Bank of India (RBI) master circular issued in 2016 that lets banks declare any account as fraudulent without a hearing. The matter was taken to the high court after the apex court order—which has since been challenged by RBI—was not executed. The odd entanglement of cases aside, what’s clear is that RBI has little judicial backing, at least at this point, for its move that seems to give banks unilateral and excessive authority to act against defaulters. True, as lenders acting in their commercial interest, they should have reasonable rights on how to classify borrowers that don’t pay up. But tagging them as “wilful defaulters", which applies to borrowers who don’t repay despite having the resources to do so, could be going too far. Such action can cause reputational damage and also invite criminal action, for it puts into question the client’s intent. All the information needed to conclusively determine such culpability is hard to come by, surely. In any case, it’s only fair that a debtor is heard out before any coercive action is taken. That would constitute natural justice.