SC refuses SBI's plea on judgement on defaulters' accounts

The Supreme Court on Friday refused a plea by the SBI to clarify that its March 27 judgement, which made it mandatory for banks to accord an opportunity of hearing to a borrower before classifying his loan account as fraudulent, would apply prospectively.

The bank sought the clarification so that the ruling would not affect its past decisions.

A bench presided over by Chief Justice of India D Y Chandrachud, however, clarified that borrowers should be heard by banks did not mean that they should be personally heard.

“Personal hearing meant that a defaulter should be given an adequate notice and an opportunity to make a representation. Our law has never been that opportunity of hearing means a personal hearing," the bench said.

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While partly allowing the SBI’s application, the court asked the lender to file a separate review petition on the issue of prospective application of the ruling.

On behalf of the SBI, Solicitor General Tushar Mehta said the clarification was required since “there is an apprehension of the judgement being misconstrued and misapplied” by the high courts.

In its petition, the bank said there is “apprehension that the defaulter borrowers may raise the question of personal hearing and may try to delay the adjudication in absence of specific time limit stipulated".

“They may now insist on complete copy of the forensic auditor report, instead of relevant extracts,” the bank's plea stated.

On March 27, the Supreme Court had declared that the banks are obligated to give a personal hearing to borrowers before classifying their account as fraudulent as per the RBI’s Master Circular of July 1, 2016, since such a decision is stigmatic, affecting their right to reputation.

It said it has been consistently held that an opportunity of hearing ought to be provided before a person is blacklisted.