High Court gave instructions to banks, take these precautions before declaring the customer a willful defaulter
Willful Defaulter: Willful defaulter is a borrower who deliberately refuses to repay the loan while defaulter is a borrower who is unable to repay the loan due to financial difficulties. Recently, the Court has said in an order that banks and financial institutions should pass a reasoned order under the main circular of the Reserve Bank of India (RBI) before declaring any institution or individual as a willful defaulter.
HR Mandi Bhav News, Digital Desk: Recently an important news is coming out from Bombay High Court. Bombay High Court has said an important thing regarding willful defaulters . The High Court says that banks or other financial institutions should issue a logical order before declaring a person a willful defaulter.
Let us tell you that this is necessary under the Master Circular of Reserve Bank of India 2015. The bench of Justice BP Kulabawala and Justice Somashekhar Sundaresan has given this decision on the petition of Milind Patel, former Joint Managing Director of IL&FS Financial Services Limited (IFIN) .
Banks should be careful before declaring defaulter
It has been made clear in this decision that being declared a defaulter has serious civil consequences. In short, after being declared a defaulter, the person is out of the financial sector, such a person is not given any facilities from any bank or financial institution . Therefore, banks should use the powers in this regard carefully.
The bench said that the bank must share the evidence used to declare it a willful defaulter with the person who willfully defaults on the loan. Let us tell you that the process related to declaring a defaulter must be completely transparent and fair. A copy of the reasoned order along with necessary materials is required to be given to the defaulter by the Identification and Review Committee of the Bank.
It is necessary to establish a transparent system
The petition filed challenged an order passed by Union Bank of India in February 2023. In this order, under the 2015 circular of RBI, IFIN Firm and its promoters were declared willful defaulters. The bench said that the reasons have not been mentioned in the order issued in this case.
Also, the things written in the notice have been included in the final order. Seeing this stance of the bench, the bank lawyer said that the bank will withdraw the order issued in this case and will start the proceedings of the case afresh from the stage of show cause. The bench said that it will provide all the documents and materials of the case to the petitioner.
What does RBI circular say?
For information, let us tell you that the circular of the Central Bank of India asks banks and other financial institutions to collect data of willful defaulters every three months. This data is informed to SEBI.
The RBI circular also clearly contains a caveat, asking it to put in place a transparent mechanism for declaring banks and financial institutions as defaulters. So that the process is not misused in any way.