Abstract
The rise in bank frauds is a serious issue that has highlighted the shortcomings of India’s judicial machinery to handle economic crime, which affects people and government prosperity and trust. Conventional courts, with their backlog of cases, do not provide a timely resolution for complex financial transactions.
The government has recently suggested Special Courts limited to bank frauds whereby cases are resolved quicker and assessed based on their own provisions.
This article argues the constitutional validity, statutory basis, and public governance implications of Special Courts, which is phrased by laws including PMLA, the Insolvency and Bankruptcy Code, and the Companies Act.
The article then analyses trends in the judiciary and data for the purpose of understanding where the trade-off between expediency and procedural fairness lies.
It concludes that Special Courts have the potential to increase deterrence and recovery, but must be built on appropriate statutory basis, guarding of rights, and fidelity to constitutional guarantees to preserve legitimacy into the future.
Introduction
India’s banking and financial sector is facing immense pressure as bank fraud continues to rise as a serious issue that challenges not only economic stability but also public trust.
Large-scale fraud not only costs banks resources, but it also has a much larger impact on the economy by:
- Limiting credit to businesses
- Undermining investments
- Eliminating confidence in financial governance
Reports from the Reserve Bank of India (RBI) along with the National Crime Records Bureau (NCRB) have documented a steady increase in the number of reported frauds. The scale of monetary loss shows the need for urgent legal and institutional reform.
The complexity of these offences makes it exceedingly difficult for normal courts to deal with them expeditiously, as they often involve:
- Multiple layers of transactions
- Numerous shell companies
- Cross-national activities
Since conventional courts already face backlogs, limited judges, and time constraints, the government is considering setting up Special Courts that will only deal with bank fraud.
The ultimate intention:
- Faster justice
- Better asset recovery and deterrence
- Aligning India with global practice in economic crime
However, serious questions arise about their constitutionality under Articles 14 and 21, their practicality, and whether they will avoid inefficiency like ordinary courts.
Legal Jargon
- Special Court: A legislative mandated body which has exclusive jurisdiction over certain offences, namely offences under the PMLA and IBC.
- Economic Offence: A crime that impinges upon the economic fabric of society, such as cheating, criminal breach of trust, or fraud against banks.
- Adjudication: An authoritative judgement or decision made by a court in respect of an alleged offence.
- Jurisdiction: The power provided by law to a court to adjudicate a case and give a determination.
- Expeditious Trial: Entitlement to a fair and timely trial, as set out by Article 21 of the Constitution of India.
- Intelligible Differentia: Principle stating that legal classifications must be made on reasonable and clear distinctions. Important for passing the Article 14 equality test.
The Proof Data & Trends
- In 2022, India recorded 1,93,000 economic crime incidents, with year-on-year increases.
- For FY25, banks reported 122 frauds equivalent to ₹18,674 crore after complying with RBI’s due diligence.
- Backlog remains: More than 10 lakh pending cases in fast-track courts, showing limitations of conventional judicial processes.
Arguments for Special Courts
1. Efficiency
- Specialized courts expedite disposal time since they are concerned only with economic offences.
- Regular courts are freed up.
2. Expertise
- Judges selected for their knowledge of financial and economic laws.
- Improves quality and precision of adjudication.
3. Legal Recoveries
- Prompt actions allow better recoveries and preservation of assets.
- Reduces litigation costs.
4. Public Trust
- Timely justice builds confidence in creditors and the banking system.
- Acts as a deterrence.
Constitutional Basis
Article 14 – Equality Before Law
In In Re: Special Courts Bill, 1978, the Supreme Court upheld that Special Courts are valid if based on reasoned criteria and maintain fairness.
Article 21 – Right to Life & Liberty
Special Courts align with the right to a speedy trial.
Statutory Basis
The Central Government may notify Special Courts under:
- PMLA (Section 43)
- IBC (Section 435)
- Companies Act (special penalties provisions)
Procedural Safeguards
- Clear specifications defining cases under Special Courts (e.g., minimum fraud amounts or specific statutory offences).
- Rights of parties to notices, hearings, and judicial reviews remain intact.
Relevant Case Law
- In Re: Special Courts Bill, 1978 [(1979) 1 SCC 380] – Upheld constitutionality of Special Courts, laid down intelligible differentia.
- State Bank of India & Ors. v. Rajesh Agarwal & Ors. (2019) – Classification of “fraud” accounts, stressed fair hearing safeguards.
- Satyanarayan Bankatlal Malu v. IBBI (2022) – Only designated Special Courts under IBC/Companies Act have jurisdiction.
- Bahadur Majid Malik v. ED (2024) – Emphasized procedural standards and expertise for economic offences.
- Prem Prakash v. Union of India (2024) – Reiterated bail as rule, jail as exception; Special Courts must apply fairness in bail decisions.
Conclusion
The formation of Special Courts for bank frauds is a governance-oriented and constitutionally endorsed reform in India’s legal framework.
They are legitimate, with Supreme Court recognition, but to avoid inefficiency, they need:
- Strong infrastructure
- Clear jurisdictional specifications
- Robust procedural safeguards
The challenge lies in balancing speedy justice with constitutional protections of due process and equality.
Future progress depends on:
- Investment in legal capacity
- Well-defined jurisdiction
- Continuous monitoring of economic crime trends
References
- In Re: Special Courts Bill, 1978, (1979) 1 SCC 380
- State Bank of India & Ors. v. Rajesh Agarwal & Ors. (2019)
- Satyanarayan Bankatlal Malu v. IBBI (2022)
- 47th Law Commission of India Report (1972)
- NCRB Crime in India 2022 Statistics
- RBI Guidelines on Fraud Risk Management
- Prevention of Money Laundering Act, 2002
- Insolvency and Bankruptcy Code, 2016
- Companies Act, 2013
FAQs
Q1. What is the purpose of Special Courts for bank frauds?
Special Courts ensure efficient, specialized, and timely adjudication of complex fraud cases, reducing pendency and enhancing public trust.
Q2. Are Special Courts constitutionally valid?
Yes. The Supreme Court has upheld their validity if their jurisdiction and purpose are based on rational classification and fairness.
Q3. How do Special Courts differ from regular courts?
Special Courts exclusively handle financial crimes with specialized judges and faster procedures. Regular courts deal with varied matters, causing delays.
Q4. What legal safeguards exist for the accused?
Accused persons retain rights to notice, hearing, and appeal. Any violation of rights can be challenged under judicial review.
Q5. What challenges confront Special Courts?
- Insufficient infrastructure
- Overlapping mandates with regular courts
- Resource constraints
- Risk of procedural complexity reducing effectiveness
Also Read:
- Rights of Undertrial Prisoners in India
- How to Send a Legal Notice in India
Also Read:
Rights of undertrial prisoners in India
How To Send A Legal Notice In India
