Supreme Court Bars Banks From Blacklisting Lawyers Via Caution Lists

New Delhi: The Supreme Court Tuesday said the Indian Banks’ Association (IBA) has no authority to include the names of lawyers in ‘caution' lists for negligence or professional incompetence, ruling that such declarations are “unsustainable in law.” Such lists, published by banks, typically pertain to borrowers or legal opinions on loan exposures that eventually turn into non-performing assets (NPA).The top court also ruled the 'caution' list - circulated among banks and financial institutions through Reserve Bank of India (RBI) sanctions - is to alert other banks against only potential unscrupulous borrowers - not negligent professionals.“Banks have the choice of disengaging a legal professional and also to remove his or 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 illegal,” a bench of justices PS Narasimha and Alok Aradhe said.The top court said the IBA cannot blacklist lawyers through the caution list mechanism and cannot assume the role of adjudicating allegations of professional misconduct by publicly blacklisting lawyers for having acted improperly.Read more: ‘How can court regulate CM's visit?’ : Supreme Court asks DMK as it dismisses plea against Vijay's Karur stampede victims visitThe judgment came in an appeal filed by advocate Ajay Vijh, who had challenged his inclusion in the IBA’s ‘caution list’ and the consequent comment on his competency after Syndicate Bank (now Canara Bank) accused him of negligence while rendering a title opinion for a loan transaction.According to the apex court, 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.'Overreach'While the RBI may issue directions to ensure integrity in banking transactions, such powers do not allow a commercial bank to declare an advocate professionally negligent by including his name on a caution list, which is meant to identify fraudulent entities.The Supreme Court also added that matters concerning the professional conduct of an advocate are within the exclusive province of the disciplinary authorities contemplated under the Advocates Act.It said that permitting banks or banking associations to bypass the disciplinary process under the Advocates Act and unilaterally portray an advocate as professionally incompetent by including his name in a caution list is illegal, unsustainable and not permissible.Read more: SC to hear plea against Asian Games dressage team selectionIt would amount to circumventing the legal profession's freedom of self-regulation, which, in turn, is an inextricable feature of the independence of the judiciary, said the bench stated in its 41-page judgement.The Supreme Court, while setting aside Canara Bank’s action, said that inclusion of Vijh's name in the caution list and remarks imputing negligence and wrongful legal opinion undeniably carried serious consequences, apart from affecting his fundamental right to practice the profession.Such action effectively amounted to professional blacklisting, adversely affecting Vijh's standing and future professional engagements with other banks, it said.'Accountability'However, the judges clarified that their decision should not be read as insulating advocates from accountability.While acknowledging that banks have legitimate concerns about the quality and reliability of legal opinions, particularly in the high-value financial transactions, it said that the solution lay in strengthening the disciplinary framework under the Advocates Act rather than creating parallel mechanisms that effectively blacklist lawyers.Welcoming the ruling as a significant reaffirmation of due process in professional life, legal experts said that blacklisting, in any form, is treated by courts as an extremely serious step, one that can effectively end an individual's or entity's ability to work, and the threshold for it has always been kept deliberately high.“Extending that same rigour to advocates placed on the IBA caution list is a meaningful development, because such lists, while not formally labelled as blacklisting, can have an identical chilling effect once circulated across the banking sector,” said Varun Singh, Founder and Managing Partner, Foresight Law Offices.“There is a real difference between a bank choosing to de-empanel a lawyer from its own panel and an industry body effectively shutting that lawyer out of an entire profession, without notice or a fair opportunity to respond. No professional's reputation or livelihood should be affected without being heard first. This judgment sends a clear signal to banks, regulators, and industry bodies alike that reputational consequences of this magnitude cannot be imposed outside a fair, accountable process,” according to Singh.The apex court also suggested the Bar Council establish a dedicated institution for continuing legal education on the lines of the National Judicial Academy that has been established for training and capacity building for judges. Such an institution would enable post-enrolment structural learning, enhance professional competence, ethical awareness, technological adaptability, and long-term planning and corroboration, according to the judgement.It also directed the Bar Council to submit a report before the Supreme Court on the steps taken pursuant to the directions and suggestions contained in the judgment.