New Delhi: State Bank of India (SBI) has filed an application in the Supreme Court, seeking clarifications on the court’s March 27 order on the manner of fraud classification by banks.
In the application filed before the apex court, SBI said, “there is an apprehension of the said judgment (dated March 27, 2023) being misconstrued and misapplied in absence of the clarifications which are sought in the present application.”
On March 27, the Supreme Court had ruled that borrowers have the right to be heard before banks classify their accounts as fraudulent. The court emphasised that the principles of natural justice must be followed and read into the Reserve Bank of India’s 2016 Master Circular on Frauds. The court in its ruling had said that when an account is classified as fraudulent, it has both civil and criminal consequences for the borrower, effectively blacklisting them from availing any credit, holding that a hearing must be granted to the borrower to ensure fairness and transparency in the process.
In this matter, SBI said that it was not seeking a review of the order, but certain clarifications to ensure the order wasn’t misconstrued.
First, the bank has sought clarity that the hearing contemplated in the judgment is not understood to be personal hearing and that the banks can decide the time frame of adjudication depending upon the urgency of the matter. “It is respectfully submitted that on right construction and interpretation of the judgment of this Hon’ble Court has merely required that an opportunity of hearing to be given before an account is declared as fraud. This Hon’ble Court, very rightly, did not read personal hearing into the said Circular. By the very nature of the exercise of the powers conferred under the Circular, no lis is to be decided,” it said.
SBI said that the order allowing a hearing was likely to be misconstrued and used by defaulters to initiate litigation.
Secondly, SBI sought that the court clarify that providing relevant extracts from the forensic auditor report would meet the ends of justice. “It is humbly submitted that handing over the complete Forensic Auditor Report would hamper the investigation by law enforcement agencies as it would result in forewarning the perpetrators by way of disclosure of confidential/critical information. The disclosure of the entire material against the borrower, at this stage, would give an opportunity to the borrower to delay the investigation, destroy the evidence and abscond the country. This is more so since the forensic report which is basis of the decision making is prepared based upon the documents supplied by the borrower themselves and in the process of forensic audit the borrowers’/representative do participate. Hence supplying relevant extract of the forensic auditor report would meet the ends of justice,” it said in the application.
Thirdly, SBI sought that SC clarify that the March 27 judgement was prospective in nature, and would not impact past cases.
Lastly, SBI added that the court may consider passing any further orders as it deems fit and proper in the facts and circumstances of the appeal.
Lenders have been worried that the March 27 order could lead to further hamper recoveries, as borrowers may misuse the judgement to drag banks to court, and delay penal action. Banks have expressed concerns that the order will result in more processes for the banks to follow, and impact the timely classification as well as reporting of fraud.
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