Indian lenders must hear their borrowers’ version before tagging any loan account as fraudulent, the country’s top court ruled, blunting banks’ powers to make quick recoveries.
(Bloomberg) — Indian lenders must hear their borrowers’ version before tagging any loan account as fraudulent, the country’s top court ruled, blunting banks’ powers to make quick recoveries.
The verdict turned down an appeal by the country’s banking regulator and the State Bank of India, the nation’s largest, against a lower court judgment that stripped lenders’ power to unilaterally declare loan accounts as fraudulent. Such classifications should record reasons after allowing borrowers to be heard, the Supreme Court of India said on Monday.
Banks had opposed any change to the seven-year-old power that they yielded on the grounds that it facilitates timely detection of fraud. The consequences were severe for accounts declared fraudulent and entailed filing a complaint with the Central Bureau of Investigation and debarring founders and directors of the companies from accessing institutional capital.
The top court said that a fraud declaration brings civil and penal liabilities and can’t be done without giving the borrower a fair opportunity to be heard. “This Court has consistently held that an opportunity of hearing ought to be provided before a person is blacklisted,” it said in the order.
–With assistance from Preeti Singh.
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