Give Reasons: Bombay HC Directs Banks To Issue Reasoning Order Before Labeling Someone A Willful Defaulter

Give Reasons: Bombay HC Directs Banks To Issue Reasoning Order Before Labeling Someone A Willful Defaulter

Until now remained at the sole discretion of the banks, whether or not to deem on as a 'willful defaulter'.

Juviraj AnchilUpdated: Wednesday, March 27, 2024, 01:14 PM IST
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Bombay HC Directs Banks To Issue Reasoning Order Before Labeling Someone A Willful Defaulter |

The Bombay high court in a recent order, has asked the banking sector to issue reasoned orders before categorizing an individual or entity as a willful defaulter. This, as according to the court, once one is labeled as a willful defaulter there exposure to financial sector is truncated.

And this until now remained at the sole discretion of the banks, whether or not to deem on as a 'willful defaulter'.

This ruling, coupled with the banking regulator's directive to banks, mandates that the defaulter be provided with an opportunity for an in-person hearing, before proceeding are carried out.

This will come as relief to small, individual borrowers, who will have the opportunity to present their case against their fiscal agency being taken away.

This will come as relief to small, individual borrowers, who will have the opportunity to present their case against their fiscal agency being taken away. |

The case of willful defaulter, unlike an entity that is incapable i.e impecunious is grave, given the central bank of the country defines a willful defaulter as someone who eludes the responsibility of paying despite being able to do the needful. This tag therefore besmirches the reputation of the entity in question, affecting their future prospects.

Bombay High Court

Bombay High Court | File

This will come as relief to small, individual borrowers, who will have the opportunity to present their case against their fiscal agency being taken away.

On the other hand some observers of the sector have raised concerns over potential misuse of the system by big defaulter, including high-net worth individuals and corporations alike.

This as these elements could use this provision to not only delay much needed action against potential detrimental ways of corporations, that not only default larger amounts, but also could further engage in other ventures, despite not having a very resilient and reliable history or reputation of doing business.

This ruling nevertheless is expected to bring about major changes to the way banking, especially borrowing is handled.

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