Excelsior Correspondent
JAMMU, Nov 18: The High Court of Jammu & Kashmir and Ladakh has today quashed Jammu & Kashmir Bank’s decision declaring the loan account of Aman Hospitality Pvt Ltd (AHPL) as “fraud”, holding that the bank acted in violation of the mandatory requirement of issuing a prior show-cause notice.
The petitioner represented by Senior Advocate Tanveer Ahmad Mir with Advocate Arfat Rashid approached the court seeking quashing of J&K Bank’s action classifying its account as “fraud” relying on Para 3.2.3 of the RBI Master Directions on Frauds, the RBI Master Directions themselves, claiming they violated Articles 14 and 19 due to absence of natural justice safeguards and all proceedings initiated by the bank following the fraud declaration.
During proceedings, Senior Counsel Mir stated that no relief was being pressed against the RBI due to change in circumstances, following which the RBI was deleted from the array of parties. The J&K Bank, through an affidavit, argued that it had classified Aman Hospitality’s account as “fraud” strictly in compliance with the RBI’s Master Directions and submitted that the responsibility to follow principles of natural justice lay with the RBI, not the bank.
The petitioner relied heavily on the landmark Supreme Court verdict in State Bank of India & Ors Versus Rajesh Agarwal & Others case Ors, which had laid down that classifying an account as fraud has serious civil consequences, debarment from institutional finance is akin to blacklisting as such the right to be heard must be read into the RBI Master Directions.
Justice Wasim Sadiq Nargal found this binding precedent squarely applicable and observed, “Aman Hospitality was never issued a show-cause notice before its account was declared fraud—a fact admitted by the bank”, adding “Supreme Court law requires an opportunity of hearing prior to such classification. Moreover, the RBI’s July 15, 2024 circular also directs all institutions to issue SCNs before tagging any account as fraud”.
While allowing the writ petition, the High Court quashed the communication declaring account as “fraud” and all proceedings arising from that declaration. “However, the bank is free to issue a fresh notice and proceed in accordance with law, provided it grants reasonable opportunity of hearing”, read the judgment.
Follow our WhatsApp channel
