Repayment of Loans Does Not Shield Borrowers from Fraudulent Designation, Rules Court
In a significant judgment, the Calcutta High Court's Division Bench, comprising Justices Rajasekhar Mantha and Rai Chattopadhyay, upheld the Reserve Bank of India's designation of Bhanu Properties as fraudulent, despite the company's repayment of its debts. The case, Bhanu Properties v. Reserve Bank of India, revolved around the interpretation of the RBI Master Circular and the implications of declaring a borrower's account as fraudulent.
The court deliberated on whether Bhanu Properties' settlement of dues could absolve it from the fraudulent conduct allegations. The judgment emphasized that repayment does not nullify fraudulent actions such as misrepresentation and jeopardizing bank security. The court highlighted that the primary purpose of the RBI Master Circular is to deter fraudulent conduct by borrowers, a principle that remains unaffected by debt repayment.
The judgment also addressed the principles of natural justice. Bhanu Properties claimed that it was not provided with certain documents, arguing that this constituted a violation of natural justice. However, the court ruled that not every violation vitiates a proceeding unless prejudice is demonstrated. The court noted that the company failed to formally object or request documents, weakening their claim of prejudice.
The decision has far-reaching implications, as being declared a fraudster under the Master Circular can lead to severe civil and commercial consequences, including being barred from obtaining loans for five years. The court clarified that such declarations are not negated by settlements between banks and borrowers.
The ruling reinforces the stringent measures in place to prevent fraudulent activities in the banking sector, ensuring that borrowers cannot escape consequences merely by settling dues.
Bottom line:-
Reserve Bank of India Master Circular - Declaration of borrower's account as fraudulent - Repayment of debt does not absolve a borrower from fraudulent conduct - Non-supply of certain documents does not vitiate proceedings if no prejudice is demonstrated.
Statutory provision(s):
SARFAESI Act, 2002 Section 13(2), Reserve Bank of India Master Circular dated 1.7.2016, Principles of Natural Justice
Bhanu Properties v. Reserve Bank of India, (Calcutta)(DB) : Law Finder Doc id # 2910615
