Ignoring RBI revival circulars is not an atrocity, Supreme Court quashes SC/ST Act case against bank officers
Justices J.B. Pardiwala and K. Vinod Chandran held that an MSME borrower whose loan turned NPA must raise complaints about rehabilitation and forged documents in recovery proceedings, not criminal ones.
When a small Hyderabad enterprise's loan accounts with the State Bank of India were declared non-performing, its promoters filed a criminal complaint under the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989 against bank officials. They alleged caste discrimination, forged documents, and a refusal to give them the rehabilitation packages that the RBI's circulars provide and that, they said, upper-caste entrepreneurs had received twice. The Telangana High Court held that the officers would have to stand trial. In an order dated 12 October 2026, the Supreme Court quashed the case. Justices J.B. Pardiwala and K. Vinod Chandran said the case looked like retaliation by a struggling enterprise, and held that failing to follow RBI guidelines cannot become a criminal prosecution merely because the borrower's directors belong to the Scheduled Castes and Scheduled Tribes. The order is marked non-reportable.
The loan and the complaint
The respondent company, a small-scale industry, had credit facilities from the State Bank of India from 2010, backed by collateral. According to its director, it lost ₹2 crore of capital in 2012-13 but still repaid a term loan of ₹2.90 crore. The account was declared an NPA in 2016 and the company became sick. The promoters then paid ₹45 lakh to try to regularise the account. They said the debt had been serviced from 2010 to 2017.
The complaint made many allegations. Bank officials were said to have forged documents and given false information to their superiors, leading those officers to use their lawful powers to harm the promoters, which the complainants said fell under Section 3(1)(q) of the Act. The complaint also alleged an economic boycott of enterprises run by members of the Scheduled Castes and Scheduled Tribes, the denial of rehabilitation packages that higher-caste entrepreneurs had received twice with large discounts, and breaches of RBI circulars. FIR No. 1 of 2019 was registered on 4 February 2019 at the CID Police Station, Hyderabad.
The High Court's view
The High Court noted that the complaint concerned non-implementation of RBI circulars, the denial of a rehabilitation scheme, and alleged forgery of documents given as security for the loans. The accused officers replied that the documents said to be forged had been supplied by the company's own directors, who were guarantors for the loan. The High Court did not deal with that answer. Relying on a number of decisions, it held that the officers had a duty to follow the directions of the Central Government and the RBI on reviving and rehabilitating MSMEs, and that they must face trial.
Senior counsel Rajiv Shakdher appeared for the officers, senior counsel Shadan Farasat for the company and its director, and counsel Disha Wadekar for the State of Telangana.
Why the prosecution was quashed
The Court held that a duty to follow MSME revival directions does not justify a criminal case against bank officers. Once the account became an NPA, recovery proceedings would follow. Not complying with RBI circulars cannot lead to prosecution simply because the company's directors are members of the Scheduled Castes and Scheduled Tribes.
The Court also found the complaint lacked a basic element: there was no specific allegation that any officer had insulted the directors because of their caste. The complainant had described the company as mainly managed by women from the Scheduled Castes and Scheduled Tribes, yet its managing director, the second respondent, is not a woman.
Where the complaints belong
The Court did not dismiss the company's grievances. It said they could be raised in the appropriate forum, which would be the Debts Recovery Tribunal where recovery proceedings would take place. Breach of the circulars, refusal of a rehabilitation package, and false information used to start coercive action against a borrower can all be raised in recovery proceedings. The adjudicating authority can then decide whether they are legally valid and whether they affect the bank's claim.
Order
Leaving those contentions open, the Court quashed the criminal proceedings against the appellants under FIR No. 1 of 2019 of the CID Police Station, Hyderabad. The appeal was allowed.