State Bank of India Vs Amit Iron Private Limited & Ors. (Supreme Court of India)
Supreme Court held that borrower doesn’t possess any legal right to a personal hearing by banks before classifying their account as fraud account. Accordingly, the civil appeal is partly allowed.
Facts- On 20.08.2019, the loan account of respondent No.1 was classified as a Non-Performing Asset (NPA) by the appellant-State Bank of India on account of defaults in repayment obligations. On 27.12.2023, the appellant-Bank issued a show cause notice to the respondents alleging various acts of non-compliance with the agreed terms of the loan documents, commission of irregularities in financial conduct suggesting fraudulent activity. The respondents were asked to show cause as to why the account should not be categorized and reported as “fraud”. On 08.02.2024, respondent Nos.1 and 2 submitted replies and denied any breach of the terms and conditions of the loan agreement. On 13.03.2024, the appellant-Bank communicated to the respondents that the loan account has been classified as “fraud” and a speaking order passed in this regard was communicated.
The respondents filed a Writ Petition before the High Court at Calcutta. By a judgment dated 07.08.2024, it was held that the borrower should be given an opportunity to explain in person and further that the Forensic Audit Report should be supplied to the borrower. The Court held that the borrower should be allowed to represent his case before the authority, by way of a personal hearing and, thereafter, the order ought to have been passed. The Writ Petition was allowed in the above terms. The appellant-Bank carried the matter in appeal to the Division Bench. The Division Bench, by its judgment dated 12.03.2025 dismissed the appeal and did not interfere with the directions of the Single Judge. Aggrieved, the appellant-Bank is before us.
