A borrower must be accorded a hearing before an account is classified as "fraud" & a reasoned order must follow if such an action is taken, the Supreme Court said on Monday. A classification of accounts as fraud results in civil consequences for borrowers & hence, an opportunity of hearing must be given to such persons, it added.
A bench headed by CJI D.Y. Chandrachud affirmed the order passed by the High Court of Telangana & set aside the contrary view taken by the High Court of Gujarat.
The decision classifying the borrower account as fraudulent must be followed by a reasoned order, it said. The verdict came on a plea of the State Bank of India, news agency PTI reported.
A borrower account is declared as fraud based on the findings of a forensic report where the loan has become a non-performing asset (where interest or principal payment is overdue for 90 days).
The bench held that the principles of "audi alterm partem" must be read into the circular issued by the Reserve Bank of India (RBI) on the classification of bank accounts as fraud.The bench stressed that opportunity of hearing must be granted for the borrowers under the master directions on fraud.
The judgment in the matter will be uploaded later in the day.
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