In a landmark ruling, the Supreme Court stated on Tuesday that borrowers do not possess a legal entitlement to a personal or oral hearing prior to their accounts being labeled as “fraud” by banks, in accordance with the Reserve Bank of India’s (RBI) “Master Directions.”

A panel comprising Justices J B Pardiwala and K V Viswanathan expressed their agreement with the RBI’s position, asserting, “We are convinced that the existing process, which includes the issuance of a show-cause notice, the provision of evidentiary material, the opportunity for a response, and the requirement for a reasoned decision, fulfills the standards of fairness and prevents potential injustices.”

Justice Viswanathan, who authored the opinion for the court, noted, “Given the diverse nature of fraudulent activities in accounts, the RBI has determined that affording each borrower the right to a personal hearing would be impractical, especially considering the vast number of cases currently pending.”

The Supreme Court further remarked, “Allowing oral hearings would transform an administrative procedure, which is designed to be efficient, into a lengthy process, undermining the very intent of the system. It would also risk public funds, as borrowers could continue to maintain substantial exposures to banks.” The ruling highlighted that such a process would also significantly burden banking officials’ working hours.

This decision arose from appeals made by the State Bank of India (SBI) and Bank of India (BoI) contesting several High Court judgments that mandated banks to offer borrowers a personal hearing before categorizing their accounts as “fraud” and to provide complete forensic audit reports. In reversing the High Court’s rulings, the Supreme Court clarified that banks are still required to furnish the forensic audit report to account holders.