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Informist, Friday, Apr. 25, 2025

 

--SC: HCs not right in quashing FIRs against borrowers despite no challenge 

--CONTEXT: HCs quashed FIRs against borrowers following SC's 2023 order

--CONTEXT:In 2023, SC held borrower be heard before account classified fraud 

--SC: No bar on RBI, bks to act afresh against borrowers in fraud cases 

 

NEW DELHI – The Supreme Court Friday held that high courts across India exceeded their jurisdiction when they quashed first information reports and the subsequent criminal proceedings against borrowers whose accounts had been declared fraudulent without any challenge being made to such declaration. The apex court said the first information reports were "erroneously" quashed in certain cases where no opportunity of being heard was given to the Central Bureau of Investigation or where the probe agency was not even made a party to the matter.

 

"It is pertinent to mention that the administrative actions initiated in pursuance of the RBI's (Reserve Bank of India's) Master Directions (2016) were set aside only on grounds of non-adherence to the principle of audi altarem partem (hear the other side) and not on merits," said a bench of Justice M.M. Sundresh and Justice Rajesh Bindal.

 

The court held that there was no bar on the RBI and banks proceeding afresh against big defaulters after a high court had quashed actions by them to declare the accounts as frauds. "Setting aside of an administrative action on the grounds of violation of the principles of natural justice does not bar the administrative authorities from proceeding afresh," the apex court said.

 

In July 2016, the RBI's master circular had asked banks to be cautious with defaulters of large loans, and advised them to declare large loan accounts that were found to be suspicious as fraudulent. Consequently, banks began declaring defaulters and their accounts as frauds.

 

In 2023, the Supreme Court, hearing a challenge to the master circular, said a borrower must be heard before its account is classified as fraud. Thereafter, high courts across India not only quashed the declaration of defaulter accounts as frauds, but also the first information reports filed and criminal proceedings instituted against the borrowers.

 

The Supreme Court said Friday that administrative actions, such as those by the RBI and banks, and criminal proceedings stand on different footings. A first information report, by taking cognisance of an offence, merely sets the law into motion, it said. This has nothing to do with a decision on the administrative side by a different authority.

 

"Merely because the facts are same or similar, one cannot say that in the absence of a valid administrative action, no offence which is otherwise cognisable can be registered," the court said. Therefore, even assuming there is no action forthcoming on the administrative side, a first information report can be held to be maintainable, it said. The scope and role of both actions are distinct, more so when undertaken by different statutory or public authorities, it said.

 

Even in a case where a first information report is registered on the basis of an administrative action, setting the latter aside on a technical or legal premise would not "ipso facto", or as a consequence, nullify the former, it said. "When an administrative order is set aside on the ground of non-compliance of a legal necessity or mandate, the facts mentioned thereunder could still be the basis for the registration of an FIR," the court held. "The High Courts have clearly failed to take note of the same."

 

Setting the high courts' orders aside, the Supreme Court sent the matters back to the respective courts to consider afresh where borrowers had not challenged the first information reports or the accounts being declared fraudulent. The first information reports and subsequent criminal proceedings that were quashed without any prayer for action would stand restored in their original form, it said. It also directed the borrowers to implead the CBI as a party while resorting to legal remedies.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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