Banks have been given special advice by the Bombay High Court. The Court has said that banks and financial institutions should pass reasoned orders before declaring any institution or individual as willful defaulter under the main circular of the Reserve Bank of India (RBI). A division bench of Justice BP Colabawala and Justice Somashekhar Sundaresan said this in an order on March 4. According to Bhasha news, the order said that willful defaulters are excluded from access to the financial sector and hence the discretion given to banks under the circular should be used with caution and in accordance with RBI rules.
These instructions were given for banks
According to the news, the High Court in its order said that banks and financial institutions which want to implement the master circular to declare the occurrence of willful default will have to share the reasoned orders passed by their identification committee and review committee. The bench was hearing a petition filed by Milind Patel, former joint managing director of IL&FS Financial Services Ltd (IFIN).
In this petition, an order passed by Union Bank of India in February 2023 was challenged, in which the company and its promoters were declared willful defaulters under the Main Circular of 2015 issued by the RBI. The RBI circular asks banks/financial institutions to submit data of willful defaulters on a quarterly basis. This data is also sent to the Securities and Exchange Board of India (SEBI).
A willful defaulter is a borrower who deliberately refuses to repay a loan. It is not that he does not have the means to do so. Whereas a defaulter is a borrower who is unable to repay the loan due to financial difficulties. The main difference between the two is the borrower’s intention to repay the loan.
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