Supreme Court Decision on Banking Sector’s Treatment of Advocates
In a pivotal ruling on Tuesday, the Supreme Court of India declared that banks do not possess the authority to blacklist advocates by placing their names on the caution list of the Indian Banks’ Association (IBA) based solely on allegations of negligence or erroneous legal opinions. This decision emerged from the case of Ajay Vijh v. Indian Banks Association & Ors., marking a significant precedent in the legal profession.
Details of the Court’s Ruling
A Bench comprising Justices PS Narasimha and Alok Aradhe clarified that banks have the discretion to remove lawyers from their panels if dissatisfied with their services. However, they cannot publicly declare these lawyers as incompetent or negligent to other banks. The Court emphasized that matters concerning an advocate’s professional conduct are solely within the jurisdiction of the Bar Councils under the Advocates Act.
“Banks have the choice of disengaging a legal professional and also to remove his/her name from the panel if the services are not up to the mark, but an action in the nature of public declaration to all other banks about the conduct, competency or incompetency of an advocate is clearly beyond their power and jurisdiction and clearly illegal,” noted the Court.
Background of the Case
The judgment came as a result of an appeal by advocate Ajay Vijh, who contested his inclusion in the IBA’s caution list after Canara Bank accused him of negligence for a title opinion related to a loan transaction. The Supreme Court ordered the immediate removal of Vijh’s name from the list, which had been placed under “Third Party Entities Involved in Fraud.”
The controversy began when Canara Bank alleged that Vijh’s 2015 legal opinion failed to identify that part of a land used as collateral for a ₹2 crore loan had already been sold, exposing the bank to financial risk. Following this, the bank removed him from its panel in 2019 and reported his name to the IBA.
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Judicial Review and Implications
The Allahabad High Court had previously dismissed Vijh’s petition, citing that the IBA was not considered “State” under Article 12 of the Constitution. However, the Supreme Court overturned this decision, stating that the High Court had taken an excessively narrow view of its writ jurisdiction. The Supreme Court underscored that actions impacting legal rights with a public law element can invoke Article 226, extending beyond just statutory authorities.
The Court examined RBI circulars on the IBA’s caution list and concluded they are meant to alert banks about fraud or dishonest conduct, not professional negligence. “Fraud, by its very nature, imports an element of mens rea and deliberate intention and design to defraud. An erroneous legal opinion or an omission in the course of due diligence, absent any allegation of dishonest intent or deliberate facilitation of illegality, cannot be elevated to the level of fraud,” the Court observed.
Future Directions and Recommendations
The Court stressed that allegations of negligence or misconduct by advocates should be addressed through the Advocates Act’s disciplinary mechanisms. It warned against banks or associations undermining the profession’s independence by assessing lawyers’ competence.
While acknowledging the banks’ concerns over legal opinion quality, the Court urged for a stronger disciplinary framework under the Advocates Act, rather than creating mechanisms that blacklist lawyers. It directed the Bar Council of India to audit the disciplinary mechanisms’ efficacy and consider establishing a National Legal Academy, akin to the National Judicial Academy.
The Supreme Court will review the progress made by the Bar Council of India on these directives on August 31.
