SC: Opportunity must be given to borrowers before banks declare their account as fraud

The Supreme Court on Monday ruled that an opportunity must be given to an account holder to be heard, before the borrower or account is declared fraud.

A bench headed by Chief Justice of India D.Y. Chandrachud affirmed the order passed by Telangana High Court and set aside the contrary view taken by the Gujarat High Court.

The bench said decision classifying borrower accounts as fraudulent must be with reasoned order and further added that debarring borrowers from accessing institutional finances causes severe impact on borrowers and is similar to blacklisting of borrowers, which impacts credit score.

It 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.