Alerts & Updates 27th Aug 2025
Attempts by lenders to criminalise ordinary loan defaults by invoking provisions such as Section 405 IPC have consistently been met with judicial resistance. Courts have underlined that every breach of repayment terms does not amount to criminal breach of trust or cheating, and that the criminal process cannot be used as a tool to recover debts. The Hon’ble Supreme Court in its recent decision in Sunil Sharma v. Hero Fincorp Ltd., has reiterated that such efforts to convert commercial defaults into criminal proceedings are an abuse of law and contrary to the principle that penal statutes must be strictly construed.
This update examines the issue in the context of RBI Guidelines on declaration of accounts as fraud and wilful defaulter.
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