New Delhi, Dec 9 (PTI) The Supreme Court on Tuesday wondered what purpose the grant of "personal hearing" would serve to the bank account holders whose accounts were declared as fraud after following due diligence prescribed by the Reserve Bank of India in 2017.

A bench of Justices JB Pardiwala and KV Viswanathan was hearing a plea of the State Bank of India challenging a decision of the Calcutta High Court which directed giving personal hearing by following the principle of natural justice to such bank account holders.

"How do you justify the grant of personal hearing to you when the banks what they are actually doing as per the RBI circular is due diligence at the back end and providing you an opportunity to put your point forward in writing after issuance of a show cause notice," the bench told senior advocate K Parameshwar, appearing for private firm Amit Iron Pvt Ltd.

At the outset, Solicitor General Tushar Mehta, appearing for the country’s largest bank SBI, said that insisting on a personal hearing causes concrete prejudice to the banks and to the integrity of the regulatory regime, while the borrower suffers no real prejudice so long as it has had a full and effective opportunity to place its case in writing and have that case duly considered.

He said the circular (Master Directions on Fraud, 2017) relating to declaration of fraud was required for two essential purposes -- the sheer magnitude of the number of banking frauds in the country has shown a demonstrable rise, requiring the RBI to step in and provide a mechanism to be followed by the entire banking sector. Also, any impact on any bank or banking sector has a direct effect on the national economy; therefore, the financial strength of the banking sector is always a prime consideration.

Giving figures for banking frauds and the amounts involved from 2022 to 2025, according to the RBI's latest Annual report for 2024-2025, Mehta said the number of frauds for 2022-23 was 13,494 involving Rs 18,981 crore, in 2023-24 there were 36,060 bank frauds involving amount 12,230 crore and in 2024-25 there were 23,953 bank fraud cases involving 36,014 crore.

He submitted that these increased incidences of banking fraud and malpractices led the RBI to constitute multiple committees and working groups, including the Amitava Ghosh Committee in 1991, and the NL Mitra Committee in August 2003.

"Based on the recommendations of these committees and working groups, the RBI issued circulars/ directions from time to time advising banks on major fraud-prone areas, new modus operandi detected earlier, and necessary safeguards to be adopted for the prevention of fraud.

"However, despite this, there were problems, including delays in the detection of fraud, inadequate reporting to the RBI, and delays in reporting and alerting other banks on fraud by borrowers," Mehta submitted.

He said that the experience of RBI and deliberation before the expert committees revealed why such frauds take place and are perpetrated and one of the most important problems was the inevitable lack of coordination between various banks.

"This resulted in a borrower committing fraud with one bank, and they would approach another bank and avail huge finances, due to the delay in detection and fraud reporting. This would result in a chain reaction and, therefore, the RBI Directions, inter alia, elaborated on the said issues," the SBI said.

Mehta said the RBI had been struggling with the banking frauds since 2009, issuing several circulars from time to time and the Master direction of 2017 not only consolidates all previous circulars but also benefits from the experience gathered while implementing the earlier efforts.

"It may be mentioned that right from June 2009, the month in which the fraud became a subject matter of the regulatory mechanism of RBI, till date, no personal hearing is given to a fraudulent account holder. This is being pointed out to show that this is how the Master Direction, 2017, is intended by the RBI and understood by the entire banking sector," Mehta submitted.

He added that the fraud figures would clearly show the serious prejudice which would be caused to the banking sector if each account holder were mandated to be entitled to a personal hearing.

"The objective of the master directions on fraud issued by RBI is to direct the focus of the banks on the aspects relating to prevention, early detection, prompt reporting to the RBI [for system level aggregation, monitoring and dissemination, instituting criminal proceedings at the earliest and timely initiation for staff accountability proceedings (for deciding the negligence and/or connivance)]," Mehta said.

Parameshwar, however, disputed these fraud figures and said the data is mostly of credit card frauds and small loans and cannot be used to overwhelm the court for convincing that personal hearing was not required.

Without personal hearing, how can a borrower, whose bank account is redflagged and in the process of being declared fraud, can put forth his point, he said.

The hearing remained inconclusive and would continue on Wednesday.

The SBI had earlier referred to a March 2023 verdict of the apex court and said the decision should not be read or understood to convey in so many words that oral hearing or personal hearing is mandatory. PTI MNL RT

Bank account holders declared fraud face written show cause procedures; dispute over need for personal oral hearings versus written responses. The core issue is whether an oral personal hearing is required for account holders declared fraudulent under the RBI Master Directions, 2017. Banks contend the Directions envisage backend due diligence, issuance of show cause notices, and written opportunities to respond, and that mandating personal hearings would prejudice banks and impair regulatory integrity given the scale of fraud. Account holders counter that written responses alone may not satisfy natural justice and prevent adequate presentation of their case.