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TMI Blog2025 (3) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... against the borrower, it has thus, been concluded in Rajesh Agarwal, that application of principle of audi alteram partem cannot be excluded under the RBI Directions on fraud and that it is reasonably practicable for lender banks to provide for an opportunity of hearing to the borrowers before classifying their accounts as fraud.
The impugned direction by the learned Single Judge, which is under challenge herein, does not warrant any interference in this Letters Patent Appeal.
Conclusion - The rule of audi alteram partem, including the provision of a personal hearing, applies to proceedings under the RBI Directions on fraud classification due to their civil consequences.
The Letters Patent Appeal is hereby dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusions set out in the said judgment, it has been argued that the said order dated 12.05.2023 makes the legal position clear that in the proceedings drawn under the RBI Directions, there is no scope of providing the borrowers a personal hearing. 5. Submission, thus, is that the learned Single Judge has misread the judgment of the Hon'ble Supreme Court in the case of Rajesh Agarwal, (supra) and has also not taken into account the order dated 12.05.2023 passed by the Hon'ble Supreme Court while issuing the impugned direction. 6. Opposing the appeal, it has been contended by learned counsel representing the respondents that there is no illegality or irregularity in the impugned direction issued by the learned Single Judge by means of the judgment dated 22.05.2024 for the reason that the judgment of the Hon'ble Supreme Court in Rajesh Agarwal, (supra) has correctly been applied and relied upon to conclude that the proceedings drawn under the RBI Directions require that application of the principle of audi alteram partem cannot be impliedly excluded under the RBI Directions on frauds and that what has been held by Hon'ble Supreme Court in the said judgment is that under the RB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court has reiterated the settled principle of law that rule of audi alteram partem applies to administrative actions as well, apart from judicial and quasi-judicial functions. Another important principle reiterated in the said judgment by the Hon'ble Supreme Court is that it is also a settled position in administrative law that it is mandatory to provide for an opportunity of being heard when an administrative action results in civil consequences to a person or entity. The Hon'ble Supreme Court has further observed that that every authority which has the power to take punitive or damaging action has a duty to give a reasonable opportunity to be heard and that administrative action involving civil consequences must be made consistent with the rules of natural justice. 13. Paragraph 40 and 41 of the said judgment in Rajesh Agarwal, (supra) are relevant to be extracted here, which run as under: "40. The process of forming an informed opinion under the Master Directions on Frauds is administrative in nature. This has also been acceded to by RBI and lender banks in their written submissions. It is now a settled principle of law that the rule of audi alteram partem appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reporting the crime to the investigating agencies, but also has other penal and civil consequences against the borrowers. 98.3. Debarring the borrowers from accessing institutional finance under Clause 8.12.1 of the Master Directions on Frauds results in serious civil consequences for the borrower. 98.4. Such a debarment under Clause 8.12.1 of the Master Directions on Frauds is akin to blacklisting the borrowers for being untrustworthy and unworthy of credit by banks. This Court has consistently held that an opportunity of hearing ought to be provided before a person is blacklisted. 98.5. The application of audi alteram partem cannot be impliedly excluded under the Master Directions on Frauds. In view of the time-frame contemplated under the Master Directions on Frauds as well as the nature of the procedure adopted, it is reasonably practicable for the lender banks to provide an opportunity of a hearing to the borrowers before classifying their account as fraud. 98.6. The principles of natural justice demand that the borrowers must be served a notice, given an opportunity to explain the conclusions of the forensic audit report, and be allowed to represent by the banks/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the following terms:- 76.1. Firstly, the principle of audi alteram partem, part of the principles of natural justice, is to be read in Clause 8.9.4 and 8.9.5 of the Master Circular. 76.2. Secondly, the decision, dated 15.02.2019, passed by the JLF, and the resolution dated 31.07.2019, passed by the FIC are, hereby, set aside. 76.3. Thirdly, the JLF is directed to give an opportunity of hearing by furnishing copies of both the Reports, namely the Forensic Auditor Report, dated 06.04.2018 and the subsequent Report submitted by Dr. K.V. Srinivas, IRP, to the petitioner, and to the OL. 76.4. Fourthly, the JLF is directed to give an opportunity of personal hearing both to the petitioner and to the OL before taking any decision on the issue whether the account should be classified as „fraud‟ or not? 76.5. Fifthly, after the JLF has taken its decision, the FIC is directed to pass its resolution whether the decision of the JLF should be confirmed or not? 76.6. Lastly, the said exercise shall be carried out by the JLF within a period of three months from the date of receipt of the certified copy of this judgment. Furthermore, the subsequent exercise by FI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the provisions under which such proceedings are drawn as also on the consequences which such proceedings entail. 22. However, once the Hon'ble Supreme Court in Rajesh Agarwal, (supra) has clearly upheld the directions issued by the Hon'ble High Court of Telangana (2020 SCC OnLine TS 2021) regarding providing opportunity of personal hearing in the proceedings drawn under the RBI Directions, it is not open to this Court to read the application of principle of audi alteram partem in any other manner. 23. The submission of learned counsel for the appellant that in the conclusion drawn by the Hon'ble Supreme Court in Rajesh Agarwal, (supra), the word 'hearing' did not qualify the word 'personal', while reading the principle of audi alteram partem in the procedure to be adopted under the RBI Directions, such opportunity of personal hearing is not mandatory is not tenable in the instant matter for the reasons given above, specially for the reason that the Hon'ble Supreme Court has upheld the directions issued by Hon'ble High Court of Telangana which clearly provided for opportunity of personal hearing to the borrower. 24. As regards the reliance placed by learned counsel for the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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