Supreme Court Ruling on RBI and Lenders' Actions Against Defaulters
The Supreme Court has allowed the Reserve Bank of India (RBI) and lenders to resume actions against major defaulters. This decision overturns previous high court orders that had halted criminal proceedings and the categorization of borrowers' accounts as 'fraud'.
Key Points from the Judgment
- Scope of Administrative Action:
- The bench, comprising Justices M.M. Sundresh and Rajesh Bindal, emphasized that setting aside an administrative action due to a violation of natural justice principles does not prevent authorities from starting anew.
- High courts overstepped by quashing FIRs and criminal proceedings when borrower accounts were deemed fraudulent without challenge.
- Distinction Between Administrative and Criminal Proceedings:
- The court clarified that RBI and banks' administrative actions are distinct from criminal proceedings.
- An FIR initiates legal action and is separate from decisions made administratively by other authorities.
- A valid FIR can exist even without administrative action, highlighting the different roles of these processes.
- Errors in Quashing FIRs:
- FIRs were wrongly quashed in some instances where the CBI was not heard or included as a party in the case.
- Personal Hearing for Borrowers:
- In 2023, the Supreme Court mandated that lenders provide borrowers a personal hearing before classifying their accounts as fraudulent, as per a Master Circular dated July 1, 2016.
- Fraud classification entails civil consequences and effectively blacklists borrowers, thus necessitating a hearing opportunity to uphold natural justice principles.
