No Right to be Represented by Lawyers: Supreme Court on Loan Defaulters

The Supreme Court of India has held that no person will be allowed to claim for lawyers in the in-house proceedings initiated by the banks or financial institutions.

A bench including Justices Vineet Saran and R F Nariman had a question that whether a person should be represented by a lawyer in the process of declaring him ‘wilful defaulter ‘ under a notice issued by the Reserve Bank of India. 

"It cannot be said that the Circulars in any manner vests the State's judicial power in such in-house committees. On this ground, therefore, the view of Delhi High Court is not correct, and no lawyer has any right under Section 30 of the Advocates Act to appear before the in-house committees so mentioned. Further, the said committees are also not persons legally authorised to take evidence by statute or subordinate legislation, and on this score also, no lawyer would have any right under Section 30 of the Advocates Act to appear before the same."

The justices believe that there is no right for any person to be represented by a lawyer in the in-house proceedings since it is obvious that the individual facts of each case will be different. However; it is to be discovered whether the person deliberately defaulted the payments even when he had the capacity to pay.

The important question is whether the defaulter was deliberate, calculated or intentional and the fact can only be established by the borrower or the lender and for this no lawyer is needed. 

The Apex Court allowed the appeal of State Bank of India against the order of Delhi High Court which had held that the firm, Jah Developers Pvt. Ltd. can be presented by lawyers in the in-house proceedings of the lending bank to declare it as a wilful defaulter.

Ignoring the high court order, the apex court ordered that the bank must give the copy of the order of the first in-house committee which conducted the proceedings to the borrower. The borrower can represent against such order within 15 days to the Review Committee.

The Committee must pass a reasoned order on such representation which should be served by the borrower.

On this, the lending bank asserted that the defaulting borrower does not require the assistance of lawyers in the proceedings since there is no complex legal questions asked on part of the court. 

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