HC grants interim stay on RBI circulars allowing banks to declare account as fraudulent without hearing
June 19, 2023
Synopsis
The Bombay High Court has issued an interim stay on the effect of circulars issued by the Reserve Bank of India, which empower banks to declare an account as fraudulent without a hearing. The court has granted the stay until September 11, when it will hold hearings on petitions filed by Jet Airways' former owners Naresh Goyal and Anita Goyal, which will challenge the central bank's approach, saying that denying borrowers a chance to be heard violates the principle of natural justice.
The Bombay High Court on Monday granted interim stay on the effect of the master circulars issued by the Reserve Bank of India that permits banks to declare any account as a fraud account without a hearing. A division bench of Justices Gautam Patel and Neela Gokhale stayed effect of the Reserve Bank of India Master Directions on Frauds Classification and Reporting by Commercial Banks and Select FIs issued in 2016 till September 11 when it would hear petitions challenging the same.
The petitions include two filed by erstwhile promoters of Jet Airways Naresh Goyal and his wife Anita Goyal.
The pleas said the circulars were in violation of the principle of natural justice as no opportunity to be heard was being given to borrowers before classifying their accounts as fraudulent.
As per the circulars, once a bank classifies an account as fraud, it is the responsibility of that bank to report the same to the Central Repository of Information on Large Credits platform to alert other banks.
If a bank decides to straightaway classify the account as fraud, it is obligated to report the fraud to RBI within 21 days and report the case to any investigating agency.
The petitions claimed that, in effect, the banks were neither giving the opportunity to borrowers to be heard nor giving them copies of material relied upon by the bank before taking further precipitative action.
The HC bench, on Monday, admitted all the petitions and said it would take them up for hearing on September 7 and 8.
"The effect of the circulars shall remain stayed till September 11," the court said.
[The Economic Times]
