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State Bank of India v. M/s. Jah Developers Pvt. Ltd.

Civil Appeal · 2019 INSC 652Decided 8 May 2019
Civil Appeal No. 4776 of 2019
Justice Rohinton Fali Nariman · Justice Vineet Saran

Background

When a borrower is declared a "wilful defaulter" by a bank under RBI circulars, a status that triggers serious consequences like being barred from institutional finance for five years and losing eligibility to be an insolvency resolution applicant, the question arose whether the borrower has a right to be represented by a lawyer before the bank's in-house committees that decide this. The Delhi High Court had held that these in-house committees were "tribunals" and so a lawyer had a right to appear under the Advocates Act. Banks (including SBI) appealed this to the Supreme Court, while some borrowers supported the High Court's view.

Decision Breakdown

The Supreme Court held that the bank's in-house committees (the "First Committee" and "Review Committee") are not vested with the judicial power of the State and therefore are not "tribunals", so there is no statutory right under the Advocates Act for a lawyer to represent the borrower before them. The Court also held that an oral hearing is not mandatory at every stage. However, recognising that a wilful-defaulter tag seriously impacts a business's fundamental right to carry on trade (Article 19(1)(g)), the Court read procedural safeguards into the process: the First Committee's order must be given to the borrower, who then gets 15 days to make a written representation to the Review Committee, which must pass a reasoned order.

Lesson Learnt

Even where a person has no absolute right to a lawyer or an oral hearing before an internal administrative committee, courts will still insist on basic fairness, being told the reasons, and getting a real chance to respond in writing, whenever the decision has serious, life-altering consequences.

Official source (sci.gov.in)View Judgment (PDF)

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