Excelsior Correspondent
SRINAGAR, Nov 20: The High Court today while setting aside the communication for fraud declaration issued by the bank against its borrower said prior hearing to the borrower is mandatory before issuing such communication.
Justice Wasim Sadiq Nargal has set aside the communication issued by the bank declaring as ‘fraud’ a borrower’s account. The court held the declaration issued by the bank as violation of fundamental rights as no opportunity of hearing was give to the borrower.
“…without providing the mandatory opportunity of hearing, the requirement of issuing a prior notice before classifying an account as fraud forms an integral part of the principles of natural justice, and any declaration of fraud without affording a Show Cause Notice violates fundamental rights”, the court recorded
A petition was filed by a borrower-firm challenging the declaration of its loan account as fraud under the RBI Master Directions governing fraud classification on the ground that no notice or opportunity of representation had been afforded prior to the declaration.
“…no financial institution/bank can declare the account of any person who had borrowed facilities from the bank/financial institution as fraud unless and until a detailed show cause notice is issued prior and a reasonable time is given to the said person for placing on record his stand”, ruled the court.
The aggrieved firm contended in its plea that the Bank’s communication had far-reaching civil consequences, including debarment from financial facilities, and therefore could not have been issued without strict compliance with the applicable procedural safeguards.
Accordingly, the Court allowed the petition and quashed the communication by which the petitioner’s account had been classified as fraud. The Court, however, clarified that while the impugned action could not be sustained, the Bank was at liberty to initiate fresh proceedings in accordance with law after issuing a show-cause notice and affording a reasonable opportunity of hearing.
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