Arguments continue in HC over fraudulent loan accounts

Persons who had taken banks for a ride need not be given an opportunity for hearing under principles of natural justice: AG

The Telangana High Court building.

Advocate General B.S. Prasad on Monday told the Telangana High Court that State Bank of India lost nearly ₹1,500 crore due to fraudulent loan accounts. If losses incurred by other banks due to such accounts are included, the total money lost by all banks put together would be around ₹4,000 crore, he said.

Appearing for SBI in a writ petition filed by BS Company and its owner Rajesh Agarwal, the AG said the petitioner need not be given an opportunity afresh for hearing before declaring his loan account as a fraudulent one. Rajesh Agarwal and others filed petitions in HC seeking to declare the RBI circular relating to fraud loan accounts as arbitrary.

According to B.S. Prasad, the RBI had issued a master circular along with certain directions. A bench of Chief Justice Raghvendra Singh Chauhan and Justice B. Vijaysen Reddy, hearing the pleas, sought to know from B.S. Prasad if the RBI circular was against principles of natural justice of hearing the other side. The AG said persons who had taken the bank for a ride need not be given an opportunity under principles of natural justice. The RBI circular asked all the banks to verify such accounts. If sufficient evidence was there, those accounts should be declared fraudulent, the direction from RBI said, according to AG. The RBI direction did not have any provision like giving an opportunity of hearing to the loan account holder, he contended.

The circular to declare a loan account as fraud was part of an internal communication. Mere declaration of a loan account as a fraudulent one would not attract penal action, he said. In case of Agarwal’s loan account, a forensic audit was conducted. Some clarification was sought about the discrepancies found in the forensic audit. Replies were also received from the account holder to that extent, the AG said.

RBI counsel Nalin Kumar said that he would present objective and goals of the RBI circular to the court on Tuesday. Supreme Court senior counsel Mukul Rohatgi presented arguments challenging validity of the circular.

The pleas would be heard again on Tuesday.