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Bombay HC Puts a Halt to Bank Actions under RBI Circular on Fraudulent Accounts
Published : Jun 20, 2023, 2:22 pm IST
Updated : Jun 20, 2023, 2:22 pm IST
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HC Stresses the Importance of Fair Procedures & Natural Justice in RBI's Circular on Fraudulent Accounts

MUMBAI: In a significant development, the Bombay High Court has issued a stay on the Reserve Bank of India's (RBI) master circular, which required banks to label any account as a 'fraud account' without providing a fair hearing. The court order, valid until September 11, comes in response to a batch of petitions filed by Jet Airways founder Naresh Goyal and his wife Anita, challenging the circular on the grounds that it violates the principles of natural justice.

A division bench consisting of Justice Gautam S Patel and Justice Nila K Gokhale granted the stay, acknowledging the need for a thorough examination of the matter. The court expressed concern that the RBI's decision lacked proper consideration of fair procedures and emphasized the importance of affording individuals an opportunity to present their case.

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During the hearing, it was clarified that in cases where FIRs (First Information Reports) have already been registered and investigations are underway, actions initiated by the investigating agencies would continue independent of the outcome of the disputed circular.

The circular in question, titled "Reserve Bank of India (Fraud Classification and Reporting by Commercial Banks and Selected FLSs) Circular 2016," directed banks to utilize the Central Fraud Registry to promptly detect, control, report, and mitigate associated risks.

As per the circular, once a bank identifies an account as fraudulent, it is obligated to report the account to a central repository of information shared among major credit platforms, thereby alerting other banks to exercise caution. Furthermore, if a bank independently determines that an account should be classified as fraudulent, it must report the fraud to the RBI within 21 days and inform the matter to the relevant investigating agency.

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The petitions challenging the RBI's decision will be further heard by the court in September, allowing for a more comprehensive examination of the issues raised. This stay granted by the Bombay High Court provides temporary relief to individuals and entities who may have been affected by the RBI circular, allowing for a fair and unbiased assessment of the situation. It reaffirms the importance of upholding principles of natural justice and providing individuals with a chance to present their side of the story before severe actions are taken.

The outcome of the court proceedings in September will shed further light on the future course of action regarding the RBI circular, ultimately shaping the regulatory landscape concerning the identification and reporting of fraudulent accounts in the banking sector.

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Location: India, Maharashtra

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