The Supreme Court on Monday said a borrower must be accorded a hearing before an account is classified as "fraud" and a reasoned order must follow if such an action is taken.
A bench headed by Chief Justice D Y Chandrachud, while upholding a Telangana High Court verdict, said a classification of accounts as fraud results in civil consequences for borrowers and hence, an opportunity of hearing must be given to such persons.
"Opportunity of hearing must be given by the banks to the borrowers before classifying their accounts as fraud under the Master Directions on fraud," the bench said.
The decision classifying the borrower account as fraudulent must be followed by a reasoned order, it said. The verdict came on a plea of the State Bank of India.