The Bombay High Court noted that such cases are becoming common, where banks declare accounts as ‘fraud’ or ‘willful defaulter’ without adhering to RBI’s guidelines.
MUMBAI: Today, 28th Feb, The Bombay High Court expressed serious concerns over how banks declare loan accounts as ‘fraud‘ or ‘defaulter‘ without properly applying their minds. The court highlighted that banks often pass such orders in a “cut, copy, paste manner” without following due procedures.
The court suggested that the Reserve Bank of India (RBI) must step in and take action to ensure such lapses do not continue.
A division bench comprising Justices Revati Mohite Dere and Neela Gokhale was hearing a petition filed by industrialist Anil Ambani. He had challenged an order passed by the Union Bank of India on October 10, 2024, which declared his loan account as ‘fraud.’ Ambani contended that he was not given any opportunity to present his side before the order was passed.
His petition also mentioned that he had requested copies of the documents that the bank relied upon to pass this decision, but no documents were provided to him.
During the hearing, the Bombay High Court noted that such cases are becoming common, where banks declare accounts as ‘fraud‘ or ‘willful defaulter‘ without adhering to RBI’s guidelines.
The court strongly criticized this approach, stating:
“There cannot be such cut, copy and paste orders. There has to be some application of mind. Ultimately this is public money. We cannot have such orders passed in such a casual manner. There has to be some mechanism put in place.”
The court emphasized that banks must follow the rules set out in RBI’s ‘master circulars‘ while declaring accounts fraudulent. It further stated that unless RBI takes strict action against bank officials responsible for such orders, the problem will persist.
“We feel this is being done deliberately. There has to be some checks and balances, otherwise this will go on.”
Senior advocate Venkatesh Dhond, representing the RBI, informed the court that any individual who believes a bank has unfairly declared their account as ‘fraud’ can file a complaint online with the RBI.
However, he clarified “The RBI will not go into the merits of the case after a complaint is filed, but only see if mandatory procedures were followed before passing the order.”
The court accepted this explanation and directed Anil Ambani to submit his complaint online to the RBI.
“Let the petitioner upload his complaint. Let us start with that.”
Additionally, the High Court instructed the Union Bank of India to file an affidavit responding to Ambani’s petition.
Earlier, Bombay High Court asked the Reserve Bank of India (RBI) whether it plans to take action against banks that repeatedly classify a person’s loan account as fraudulent without first giving them a chance to explain their side. The court’s direction came while hearing a petition filed by industrialist Anil Ambani, whose loan account with Canara Bank was declared fraudulent without any hearing.
The judges highlighted that when an account is marked fraudulent, it leads to what is known as “civil death,” which has serious financial consequences for the account holder.
The case is scheduled for its next hearing on March 13, 2025.
