[Cites 13, Cited by 0]
Kerala High Court
K.T.Saidalavi vs The Reserve Bank Of India on 9 February, 2026
W.P(c) No. 46033 of 2025
1
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE M.A.ABDUL HAKHIM
MONDAY, THE 9TH DAY OF FEBRUARY 2026 / 20TH MAGHA, 1947
WP(C) NO. 46033 OF 2025
PETITIONER:
K.T.SAIDALAVI
AGED 70 YEARS
S/O.KUNHIKOYA KUNNATHODI, KUNNATHODI HOUSE, PUTHUR,
KOTTAKKAL.P.O, MALAPPURAM DISTRICT., PIN - 676503
BY ADVS.
SHRI.ZAKEER HUSSAIN
SMT.K.A.SANJEETHA
SHRI.ABY GEORGE
SHRI.MUNEER P.M.
RESPONDENTS:
1 THE RESERVE BANK OF INDIA
REPRESENTED BY ITS REGIONAL DIRECTOR, REGIONAL OFFICE,
THIRUVANANTHAPURAM., PIN - 695033
2 IDBI BANK LTD
GHIYATHI TOWER, CHANGUVETTY, KOTTAKKAL, MALAPPURAM DISTRICT.
REP. BY ITS CHIEF MANAGER., PIN - 676501
3 FRAUD EXAMINATION COMMITTEE (FEC)-II
IDBI BANK LTD, IDBI TOWER, WTC COMPLEX, CUFFE PARADE,
MUMBAI. REP. BY ITS EXECUTIVE DIRECTOR, PIN - 400005
BY ADVS.
SRI.C.AJITH KUMAR
SMT.VARSHA S.S.
SMT.R.REMA, SC
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 09.02.2026,
THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
W.P(c) No. 46033 of 2025
2
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CR
JUDGMENT
Dated this the 09th day of February, 2026
1. The Petitioner claims that he is the Chairman of Tip Top
Furniture Group having six business units engaged in the
business of manufacturing, importing, exporting, and trading of
furniture. As per the averments in the Writ Petition, Tip Top
Furniture Group availed loans from the Respondent No.2/Bank
for a total amount of Rs.47.79 Crores against common
securities. Tip Top Furniture Group has repaid more than Rs.11
Crores towards the loans. When the repayments were
defaulted, the Respondent No.2 filed O.A. No.148/2022 before
the Debts Recovery Tribunal (DRT), Ernakulam, for recovery of
an amount of Rs.53,19,81,574/- and interest thereon. The
Respondent No.2 initiated SARFAESI proceedings and
Securitisation Applications are pending before the DRT,
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challenging the same. In SARFAESI proceedings and in
liquidation proceedings initiated against one of the business
units, viz., Tip Top Furniture Private Limited, the Respondent
No.2 has recovered Rs.4,25,39,925/- and Rs.12,77,11,158/-
respectively. The Petitioner claims that the Respondent No.2
has received a total amount of Rs.28,28,06,798/- towards the
loans availed by the Tip Top Furniture Group. Respondent No.2
issued Ext.P5 Show Cause Notice dated 30.05.2024 to Tip Top
Furniture Industries, represented by the Petitioner and its other
partners, asking them to show cause why they should not be
classified as fraud to take action in terms of the Reserve Bank
of India Master Directions on Frauds - Classification and
Reporting by Commercial Banks and Select FI dated
01.07.2016. The Respondent No.3/Fraud Examination
Committee of the Respondent No.2 passed Ext.P6 Order dated
04.01.2025, classifying Tip Top Furniture Industries and its
partners, including the Petitioner, as fraud in terms of Ext.P7
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Master Directions on Fraud Risk Management in Commercial
Banks (including Regional Rural Banks) and All India Financial
Institutions, 2024. Tip Top Furniture Industries and its partners,
including the Petitioner, filed W.P.(C) No.3676/2025 challenging
Ext.P6 Order and this Court disposed of the said Writ Petition
as per Ext. P8 judgment dated 18.03.2025 setting aside Ext.P6
Order, directing the Respondent No.2 to furnish a copy of the
Audit Report of the Competent Authority and finalise the
proceedings as per the procedure laid down in Chapter II of
Ext.P7 RBI Master Directions and in State Bank of India and Others
v. Rajesh Agarwal and Others [(2023) 6 SCC 1]. Thereafter, the
Respondent No.2 issued Ext.P9 Show Cause Notice dated
10.09.2025 and the Petitioner submitted Ext.P10 Reply dated
30.09.2025 for the Tip Top Furniture Group. Respondent No.2
issued Ext.P11 Notice dated 12.11.2025 requesting the
Petitioner to confirm whether he wishes to avail the facility of a
personal hearing and further stating that he has to appear for
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the hearing in person and he will not be permitted to be assisted
by any third party, viz., Lawyers/ Chartered Accountants/
Consultants, Etc. The Petitioner submitted Ext.P12 dated
14.11.2025 to the Respondent Nos.2 and 3 requesting to permit
him to attend the hearing along with his authorised
representatives. Respondent No.2 issued Ext.P13 dated
15.11.2025 directing the Petitioner to appear for a personal
hearing without any authorised expert representative. The
Petitioner submitted Ext.P14 dated 26.11.2025 to the
Respondent Nos.2 and 3 requesting to furnish the Board
Approved Policy on Fraud Risk Management contemplated
under Chapter II of Ext.P7 RBI Master Directions. The
Respondent No.2 issued Ext.P15 dated 28.11.2025 to the
Petitioner stating that the Board Approved Policy on Fraud Risk
Management contemplated under Chapter II of Ext.P7 RBI
Master Directions/Policy is an internal document of the Bank
and is protected under banking confidentiality and risk norms
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and that it is framed in line with extant RBI's Master Directions
and disclosure of such documents to the Petitioner is not
required and it is in no way connected with the Show Cause
Notice issued to the Petitioner. Thereafter, the Petitioner has
filed this Writ Petition challenging Exts.P13 and P15, seeking
direction to the Respondent Nos.2 and 3 to comply with Ext.P7
Mater Directions and to act in accordance with the same, to
provide a copy of the Board Approved Policy on Fraud Risk
Management of the Respondent No.2 and to permit the
Petitioner to be represented by a Competent Representative
along with the Petitioner at the time of hearing.
2. The Respondent Nos. 2 and 3 have filed Counter Affidavit dated
06.01.2026 contending, inter alia, that the Writ Petition under
Article 226 of the Constitution of India is not maintainable
against the Respondent No.2 as the Respondent No.2 is not a
'State' within the meaning of Article 12 of the Constitution of
India; that the question whether a person who is to be declared
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as wilful defaulter under RBI Directions, is entitled to be
represented by a lawyer is covered by the decision of the
Hon'ble Supreme Court in State Bank of India v. Jah Developers
Private Limited and Others [(2019) 6 SCC 787]; that the said principle
is squarely applicable to the case of the Petitioner; that the
principles of natural justice is satisfied when the Petitioner was
issued with Ext.P9 Show Cause Notice and the Petitioner was
afforded an opportunity to submit Ext.P10 Reply and there is no
necessity for further hearing; that the Board Approved Policy is
an internal document of the Respondent No.2 and is protected
under banking confidentiality and risk norms and it is not in any
way connected with the issuance of Ext.9 Show Cause Notice
and hence there is no illegality in issuing Ext.P15 denying the
same; that Ext.P5 Show Cause Notice was issued by the
Respondent No.2 on the basis of the finding in a Forensic Audit
Report with respect to the accounts of the Tip Top Group by a
Chartered Accountant; that the explanations tendered by the
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Petitioner in Ext.P10 itself is sufficient for the Respondent Nos.2
and 3 to proceed with the matter; that the Respondent Nos.2
and 3 would be in a position to adjudicate and enter into findings
on the explanation offered without there being any necessity of
oral hearing; that even then the Respondent No.2 issued
Ext.P11 to the Petitioner giving an opportunity of personal
hearing specifically stating that the Petitioner to attend the
hearing-in-person and not to be assisted by the third party,
namely, Lawyers/ Chartered Accountants/ Consultants, etc; that
the Petitioner was directed to confirm his attendance for
personal hearing on or before 15.11.2025 but he did not provide
any intimation; that only on 26.11.2025 the Petitioner issued
Ext.P14 with the request for providing the Board Approved
Policy on Fraud Risk Management as contemplated under
Chapter II of Ext.P7 RBI Master Directions; that it shows the
deliberate attempt on the part of the Petitioner to avoid personal
hearing; that the decision of the Hon'ble Supreme Court in
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Rajesh Agarwal (supra) and Ext.P7 does not envisage a right of
personal hearing to the Petitioner and hence the Writ Petition is
liable to be dismissed.
3. I heard Smt. K.A. Sanjeetha, the learned Counsel for the
Petitioner, and Sri. C. Ajith Kumar, learned Counsel for
Respondent Nos.2 and 3.
4. The learned Counsel for the Petitioner contended that the Writ
Petition is clearly maintainable against Respondent Nos.2 and
3 since the Respondent No.3 is charged with the duty of
deciding a matter. In such case, if there is a violation of
principles of natural justice, this Court can interfere, exercising
the jurisdiction under Article 226 of the Constitution of India
even though the Respondent Nos.2 and 3 do not strictly come
within the definition of 'State' under Article 12. This Court set
aside Ext.P6 Order passed by the Respondent No.3 classifying
Tip Top Furniture Industries and its partners, including the
Petitioner, as fraud in Ext.P8 judgment directing the
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Respondent No.2 to furnish a copy of the Audit Report and
finalise the proceedings as per the procedure laid down in
Chapter II of Ext.P7 RBI Master Directions and in Rajesh
Agarwal's case (supra). The RBI Master Directions, which were
considered in Rajesh Agarwal's case (supra), was of the year 2016
which did not provide compliance with principles of natural
justice. Ext.P7 RBI Master Directions is framed and issued by
the Respondent No.1 on 15.07.2024, superseding the earlier
RBI Master Directions of the year 2016. Clause 2.1 of Chapter
II of the Ext.P7 RBI Master Directions specifically provides for
compliance with the principles of natural justice. The Petitioner
submitted Ext.P10 Reply to the Respondent Nos.2 and 3
explaining each and every allegation in the Show Cause Notice
issued on the basis of the Forensic Audit Report. The Petitioner
submitted Ext.P10 with the assistance of legal and accounting
experts. Ext.P10 can be explained before Respondent No.3
only by those experts. That apart, the Petitioner does not know
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any other language other than Malayalam and hence the
Petitioner will not be able to present his case against Ext.P9
effectively without the assistance of those experts. If the
assistance of legal and accounting experts is not permitted to
present the case of the Petitioner before the Respondent No.3,
it would not be in full compliance with the principles of natural
justice. The decision in Rajesh Agarwal (supra) clearly mandates
providing an opportunity of personal hearing to the borrower in
the proceedings under the RBI Master Directions on Fraud. The
said decision is followed by the High Court of Delhi in IDBI Bank
Ltd. v. Gaurav Goel and Others [2025 SCC OnLine Del 935], in which it
is specifically held that the opportunity of hearing directed to be
provided as per Paragraph No.81 of Rajesh Agarwal (supra)
includes the opportunity of personal hearing as well. The
Respondent No.2 Bank framed a Board Approved Policy on
Fraud Risk Management in view of Clause 2.1 of Chapter II of
Ext.P7 RBI Master Directions. Clause 2.1 specifically provides
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that the Policy shall also incorporate measures for ensuring
compliance with the principles of natural justice in a time-bound
manner and include the provisions for the matters included
therein. In such cases, such Board Approved Policy could not
be a confidential document, and without furnishing a copy of the
said Board Approved Policy to the Petitioner, the Petitioner will
not be in a position to ascertain whether the Respondent Nos.2
and 3 have completed the proceedings in compliance with the
said Board Approved Policy.
5. Per contra, the learned Counsel for the Respondent Nos.2 and
3 cited the decision of the Hon'ble Supreme Court in Federal Bank
Ltd. v. Sagar Thomas and Others [(2003) 10 SCC 733] to substantiate
the point that the Writ Petition is not maintainable against a
private Bank. The learned Counsel contended that the
Respondent Nos.2 and 3 are not imparting any public duty while
exercising their powers under Ext.P7 RBI Master Directions to
classify a borrower as fraud. In the Ext.P8 judgment, the
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direction of this Court is to provide the Forensic Audit Report on
the basis of which the Show Cause Notice was issued and to
finalise the proceedings as per the procedure laid down in
Chapter II of Ext.P7 RBI Master Directions and the decision in
Rajesh Agarwal (supra). The Respondent No.2 has furnished a
copy of the Forensic Audit Report to the Petitioner with Ext.P9
Show Cause Notice detailing the specific allegations against the
borrower establishment and its partners, including the
Petitioner. As per Clause 6.1 of Ext.P7 RBI Master Directions,
misappropriation of funds and criminal breach of trust is an
incident of fraud to invoke the power under Ext.P7 RBI Master
Directions to classify a borrower as fraud. The Petitioner has
fully understood the allegations against him and has submitted
Ext.P10 Reply running to 33 Pages with the assistance of the
experts. When the Petitioner has elaborately stated his
objections in Ext.P10, the Respondent No.3 can very well
understand the objections of the Petitioner from Ext.P10 and
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there is no need to give any personal hearing to explain Ext.P10.
Even then, a personal hearing was offered as per Ext.P11,
which was not availed by the Petitioner by confirming the same
within time. If the Petitioner is not familiar with the English
language, the Respondents are prepared to provide every
assistance for translating his contentions during the personal
hearing. The Hon'ble Supreme Court in Rajesh Agarwal (supra)
has not laid down a law that a personal hearing is to be given to
the borrower before classifying him as fraud. It only provides
that an opportunity of hearing is to be granted to the borrower.
Opportunity of hearing does not include personal hearing as
explained by the Bombay High Court in Anil D. Ambani v. State
Bank of India and Another [2025 SCC OnLine Bom 3755] after
considering the decision in Rajesh Agarwal (supra). That apart, the
Hon'ble Supreme Court clarified the judgment in Rajesh Agarwal
(supra) in the Order dated 12.05.2023 in Miscellaneous
Application No.810/2023 in Civil Appeal No.7300/2022
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clarifying that while upholding the judgment of the High Court of
Telangana dated 10.12.2022, the operative directions of the
Hon'ble Supreme Court are those which are summarised in
paragraph No.81 in Section 'E' of the said judgment. In such
case, the judgment does not lay down any law to hold that a
personal hearing is mandatory for the borrower before
classifying him as fraud as per the Ext.P7 RBI Master
Directions. The Hon'ble Supreme Court in Gorkha Security
Services v. Government of NCT of Delhi and Others [2014 Supreme (SC)
558] is cited to substantiate the point that even in the case of
blacklisting, an oral hearing is not necessary. The learned
Counsel cited the decision of the Hon'ble Supreme Court in Jah
Developers Private Limited (supra) to substantiate the point that in
the proceedings before the in-house committees, the borrower
is not entitled to be represented by a lawyer. The learned
Counsel further contended that the Board Approved Policy on
Fraud Risk Management formulated by the Respondent No.2 is
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a confidential document which could not be provided to the
Petitioner. The said Policy has no relevance to the proceedings
as Ext.P9 Show Cause Notice is issued not with reference to
the said Policy. The learned Counsel concluded his arguments,
praying to dismiss the Writ Petition as it is not a fit case to invoke
the jurisdiction of this Court under Article 226 of the Constitution
of India at the instance of the Petitioner who is in default of
repayment of huge amounts of loans to the Respondent No.2
and who has been taking all dilatory tactics to delay the
recovery.
6. In the light of the contentions advanced before me, the
questions that arise for consideration in this Writ Petition are:
1. Whether this Writ Petition is maintainable under Article 226 of
the Constitution of India as the Respondent No.2 is a private
Bank?
2. Whether the borrower is entitled to a personal hearing in the
proceedings initiated under Ext.P7 RBI Master Directions to
classify his account as fraud?
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3. If the borrower is entitled to such personal hearing, whether
he is entitled to be represented by another person who is
having legal and accounting expertise?
4. Whether the Petitioner is entitled to get a copy of the Board
Approved Policy on Fraud Risk Management formulated by
the Respondent No.2?
Question No.1:
7. It is well settled by the decision of the Hon'ble Supreme Court
in Federal Bank Ltd. (supra) that a Writ Petition is not maintainable
against a private company carrying on banking business as a
scheduled bank and that a private body or a person may be
amenable to writ jurisdiction only where it may become
necessary to compel such body or association to enforce any
statutory obligations or such obligations of public nature casting
positive obligation upon it. Learned Counsel for the Petitioner
tried to distinguish the said decision on the ground that the said
decision arose from disciplinary proceedings and that in the
case on hand, Respondent No.3 is vested with the power of
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adjudication. In such case, if the said authority proceeds with
the matter in violation of the principles of natural justice, this
Court can perfectly interfere under Article 226 of the
Constitution of India. In Union of India and Others v. Tulsiram Patel
and Others [(1985) 3 SCC 398] followed in Rajesh Agarwal (supra), the
Constitutional Bench of the Hon'ble Supreme Court held that
violation of a rule of natural justice results in arbitrariness, which
is the same as discrimination under Article 14 of the Constitution
of India; that where the discrimination is the result of State
action, it is a violation of Article 14; that the principles of natural
justice applies not only to legislation and State action but also
where any tribunal, authority or body of men, not coming within
the definition of State under Article 12, is charged with the duty
of deciding a matter and that in such a case, the principles of
natural justice require that it must decide such matter fairly and
impartially. In Rajesh Agarwal (supra), the Hon'ble Supreme Court
held that the process of forming an informed opinion under the
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Master Directions on Frauds is administrative in nature and that
it is 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. When a body is legally entrusted with the power of
adjudication involving serious civil consequences on the
affected parties, it could be said that such adjudication involves
an element of public nature at the least for the limited extent of
satisfying that the principles of natural justice are complied with
by such authority. When such a body decides the dispute in
violation of the principles of natural justice, this Court can
definitely interfere with such a decision under Article 226 of the
Constitution of India for the limited purpose of ensuring that the
principles of natural justice are complied with. The Respondent
No.3 is entrusted with the power to take a decision
declaring/classifying the account as fraud as per Clause 2.1 of
Chapter II of Ext.P7 RBI Master Directions. Ext.P7 RBI Master
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Directions is having statutory force as it is issued by the Reserve
Bank of India in exercise of the power conferred under Chapter
IIIA and Chapter IIIB of the Reserve Bank of India Act, 1934,
and Sections 21 & 35A of the Banking Regulation Act, 1949.
The allegation in the Writ Petition is that the Respondent No.3
has been conducting the proceedings in violation of the principle
of natural justice. In such case, the Writ Petition is perfectly
maintainable if the Petitioner is able to substantiate such an
allegation. That apart, this Court had entertained the Writ
Petition filed by the Petitioner challenging the earlier Order of
the Respondent No.3 and passed Ext.P8 judgment setting aside
the said Order. The Respondent Nos.2 and 3 did not raise any
question of maintainability in the said Writ Petition. Hence, I hold
that this Writ Petition is maintainable in view of the averments in
the Writ Petition with respect to the violation of principles of
natural justice.
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Question No.2:
8. The Respondent Nos.2 and 3 have offered a personal hearing
to the Petitioner. The Respondent Nos.2 and 3 have no case
that they will not give any personal hearing to the Petitioner.
Hence, this question does not arise for consideration in a normal
case. But the stand of the Respondent Nos. 2 and 3 is that they
are offering a personal hearing to the Petitioner by way of their
concession. There will be a lot of difference in the treatment of
a person when he appears for a personal hearing by way of his
established right, compared to his appearance for a personal
hearing by way of concession. In the Counter affidavit, the
Respondent Nos.2 and 3 have stated that the explanations
tendered in Ext.P10 itself is sufficient for them to proceed in the
matter. The said averment would show that Respondent Nos.2
and 3 have misunderstood the purpose of giving personal
hearing to the Petitioner. The purpose of personal hearing is to
enable the Petitioner to present his case against the allegations
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in Ext.P9 and the findings in Forensic Audit Report and not to
enable the Respondent Nos.2 and 3 to obtain additional
materials to support the proceeding in the matter. Of course, the
Respondent Nos.2 and 3 can rely on any material favourable to
them found in the enquiry, but the object could not be for that.
Hence, I am compelled to examine whether the Petitioner is
having a right to personal hearing before the Respondent No.3.
9. Ext.P7 RBI Master Directions as such do not provide for
ensuring the principles of natural justice in the proceedings
under Clause 2.1 therein to declare/classify an account as
fraud. It mandates the Bank to frame a Policy approved by its
Board on fraud risk management and that such Policy shall
incorporate measures for ensuring compliance with the
principles of natural justice. The Respondent No.2/Bank has not
produced the said Policy before this Court, taking an adamant
stand that it is a confidential document. The Counsel for the
Respondent Nos.2 and 3 could not substantiate the nature of
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confidentiality of the Policy and risk exposure of the Bank in
producing the said Policy before this Court. The details of such
Board Approved Policy are also not disclosed in the Counter
Affidavit filed by the Respondent Nos.2 and 3. At the least, the
relevant provision in such Policy regarding the principles of
natural justice incorporated therein could have been extracted
in the Counter Affidavit. This Court seriously doubts whether the
Respondent No.2 has formulated such Board Approved Policy
mandated under Ext.P7 RBI Master Directions. This Court is not
in a position to verify whether the said Policy has incorporated
measures for ensuring compliance with the principles of natural
justice, what are the measures incorporated for ensuring
compliance with the principles of natural justice and whether the
proceedings initiated by the Respondent Nos.2 and 3 are in
compliance with the provisions in the said Policy. Clause 2.1.1.1
of Ext.P7 provides for the issuance of a Show Cause Notice with
complete details of the transactions. Clause 2.1.1.2 of Ext.P7
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provides to give a reasonable time of not less than 21 days to
the borrower. Clause 2.1.1.4 of Ext.P7 mandates the passing of
a reasoned Order. Clause 2.1.1.3 of Ext.P7 mandates that the
Bank shall have a well laid out system for issuance of Show
Cause Notice and examination of responses prior to the
declaration of a person/entity as fraudulent. Clauses 2.1.1.1,
2.1.1.2 and 2.1.1.4 do not contemplate any personal hearing
before passing the Order. But Clause 2.1.1.3 indicates that the
provisions in Clauses 2.1.1.1, 2.1.1.2 and 2.1.1.4 are not
exhaustive. The adjudication for declaring a person/entity as
fraudulent is governed by Clause 2.1 of Ext.P7 and the Board
Approved Policy of the Bank mandated therein. Since the Board
Approved Policy is not produced by the Respondent No.2, it is
not clear whether the Respondent No.2 has a well laid out
system for the issuance of Show Cause Notice and examination
of responses prior to the declaration of a person/entity as
fraudulent. When a party to the litigation deliberately refuses to
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produce a material document which is relevant for adjudication,
without any reasonable excuse, an adverse inference has to be
drawn against such party. In this case, an adverse inference has
to be drawn against the Respondent Nos.2 and 3 to the extent
required in the facts and circumstances of the case.
10. In Ext.P8, this Court has specifically directed to finalise the
proceedings as per the procedure laid down in Chapter II of
Ext.P7 and in Rajesh Agarwal (supra). The contention of the
learned Counsel for the Respondent Nos.2 and 3 is that the
directions in the said decision are not applicable since the said
decision is rendered ineffective by the clarificatory Order of the
Hon'ble Supreme Court dated 12.05.2023 in Miscellaneous
Application No.810/2023 (supra). It appears from the said Order that
the said Order was passed on an Application filed by the
Solicitor General of India expressing an apprehension that the
judgment of the Hon'ble Supreme Court may be interpreted in
the future to mean that the grant of a personal hearing is
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mandatory though it has not been so directed in the conclusions
set out in paragraph No.81 of the judgment. The Hon'ble
Supreme Court clarified that the operative directions are those
which are summarised in paragraph No.81 in Section E of the
judgment. Paragraph No.81 in Section E of the judgment is
extracted hereunder:
"E. Conclusion
81. The conclusions are summarized below
i. No opportunity of being heard is required before an FIR is
lodged and registered;
ii. Classification of an account as fraud not only results in
reporting the crime to investigating agencies, but also has
other penal and civil consequences against the borrowers;
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iii. 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;
iv. 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;
v. 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;
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vi. 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/JLF before their account is classified
as fraud under the Master Directions on Frauds. In addition,
the decision classifying the borrower's account as fraudulent
must be made by a reasoned order; and
vii. Since the Master Directions on Frauds do not expressly
provide an opportunity of hearing to the borrowers before
classifying their account as fraud, audi alteram partem has to
be read into the provisions of the directions to save them from
the vice of arbitrariness.
11. In the directions of the Hon'ble Supreme Court in Paragraph
No.81, the Hon'ble Supreme Court has stated that the
opportunity of hearing has to be granted to the borrowers before
classifying their accounts as fraud. It is true that the Hon'ble
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Supreme Court has not specifically held that the opportunity of
personal hearing is to be granted to the borrower before
classifying their account as fraud. The question to be
considered is whether such an opportunity of hearing includes
an opportunity of personal hearing. Going by the aforesaid
directions, it is not clear whether the Hon'ble Supreme Court
intended to grant an opportunity of personal hearing to the
borrowers before classifying their accounts as fraud. There are
divergent views expressed by the Bombay High Court and the
Delhi High Court with respect to the said directions. The
Bombay High Court in Anil D. Ambani (supra) held that in Rajesh
Agarwal (supra) the Hon'ble Supreme Court has not held that an
opportunity of being heard necessarily includes and means an
opportunity of personal hearing; that grant of personal hearing
is not a matter of right in every case unless specifically
mandated by the statute or rules; and that so long as the
Petitioner was afforded an adequate opportunity to submit his
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objections in writing, the requirement of fairness and
compliance with the principle of natural justice, stood satisfied.
The Delhi High Court in Gaurav Goel (supra) held that the extent
of application of the principle of audi alteram partem in the
proceedings drawn under the RBI Directions has already been
explained by the Hon'ble Supreme Court in Rajesh Agarwal
(supra), which has upheld the directions issued by the High Court
of Telangana where one of the directions issued was for
providing opportunity of personal hearing as well. It is further
held that once the Hon'ble Supreme Court in Rajesh Agarwal
(supra) has clearly upheld the directions issued by the High
Court of Telangana providing an opportunity of personal hearing
in the proceedings drawn under the RBI Directions, it is not open
to read the application of the principle of audi alteram partem in
any other manner. I am in respectful agreement with the view
expressed by the Delhi High Court. The Hon'ble Supreme Court
in Rajesh Agarwal (supra) had been considering the legality of the
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directions of the High Court of Telangana which includes
granting of personal hearing to the borrower. The Interim Order
of the Hon'ble Supreme Court specifically stated that the High
Court insofar as it observed that a personal hearing be given is
stayed. In final judgment, the Supreme Court upheld the
judgment of the High Court of Telangana and held that an
opportunity of hearing is to be given to the borrowers before
classifying their accounts as fraud. In such case, the opportunity
of hearing expressed by the Hon'ble Supreme Court in
Paragraph No.81 would mean an opportunity of personal
hearing and not a mere right to represent against the Show
Cause Notice alone.
12. The decision in Rajesh Agarwal (supra) was rendered by the
Hon'ble Supreme Court after considering its earlier decisions in
Gorkha Security Services (supra) and Jah Developers Private Limited
(supra) cited by the learned Counsel for the Respondent Nos.2
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and 3, and hence there is no need to consider these decisions
while answering this Question.
13. In Rajesh Agarwal (supra), the Hon'ble Supreme Court, after
following its own various decisions, reiterated that classification
of the borrower's account does not simpliciter lead to reporting
of criminal complaint with the enforcement authorities; it also
entails penal consequences for the borrowers; that there is a
consistent pattern of judicial thought that civil consequences
entail infractions not merely of property or personal rights, but
also of civil liberties, material deprivations, and non - pecuniary
damages; and that every order or proceeding which involves
civil consequences or adversely affects a citizen should be in
accordance with the principles of natural justice. It is further held
that consequences under Master Directions on Frauds show
that the classification of a borrower's account as fraud has
difficult civil consequences for the borrower and that the
classification of an account as fraud not only results in reporting
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the fact to investigating agencies, but has other penal and civil
consequences. Under Clause 4.4 of Ext.P7 RBI Master
Directions on the classification of persons as fraud, he shall be
debarred from raising funds and/or seeking additional credit
facilities from financial entities regulated by RBI for a period of
five years from the date of full payment of the defrauded
amount/settlement amount agreed upon in case of a
compromise settlement. It is held in Rajesh Agarwal (supra) that
the bar from raising finances could be fatal for the borrower
leading to its 'civil death' in addition to the infraction of their
rights under Article 19(1)(g) of the Constitution. The Order to be
passed by the Respondent may end in serious civil
consequences to the Petitioner, if it is against the Petitioner.
Considering the facts and circumstances of the case, the
compliance of the principles of natural justice would be met only
if the Petitioner is given a personal hearing. Hence, I hold that
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the Petitioner is entitled to a personal hearing as of right under
Ext.P7 RBI Master Directions.
Question No.3:
14. I have already held that the Petitioner is entitled to get a
personal hearing. Then the further question is whether the
Petitioner is entitled to get assistance of a Lawyer and
Chartered Accountant before the Respondent No.3. The
concept of natural justice is elastic and flexible and not static. It
is based on the principle of audi alteram partem. It is designed
to avoid arbitrariness in the adjudication process and
miscarriage of justice. Its application depends on the facts and
circumstances and the nature of the rights affected in each
case. The affected person should be given an adequate
opportunity to present his case before deciding the matter. The
extent of opportunity depends on the facts and circumstances
of the case. When the statute or rules provide for a procedure
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for compliance of natural justice, it must be mandatorily
followed. In the absence of any rule with respect to the same, it
is for the adjudicating body to ensure that there is due
compliance with principles of natural justice. Ext.P7 RBI Master
Directions mandates Respondent No.2/Bank to frame a Board
Approved Policy on Fraud Risk Management incorporating the
measures for ensuring compliance with principles of natural
justice. Even though the Respondent No.2 claims that it has
formulated such a policy, nothing is produced before this Court
taking a stand that it is a confidential document. In such case,
this Court has to decide the matter, considering that the said
Policy does not lay down any specific procedure for compliance
with the principles of natural justice. In compliance with Ext.P8
judgment of this Court, the Respondent No.2 has issued Ext.P9
Show Cause Notice detailing the grounds for initiating the action
for classifying the account of the Petitioner as fraud. Ext.P9 has
specifically alleged misappropriation and criminal breach of trust
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as a ground for initiating the action, which is recognised in
Clause 6.1 of Ext.P7 RBI Master Directions. The Petitioner was
furnished with a copy of the Forensic Audit Report also, along
with Ext.P9. The Petitioner submitted Ext.P10 Reply to Ext.P9
explaining the allegations in detail. A perusal of Ext.P10 would
reveal that the Petitioner has prepared Ext.P10 after taking
assistance from the experts. In such case, it is for the
Respondent No.3 to consider the contentions raised in Ext.P10
and to pass a reasoned order in the matter. There is no need of
a Lawyer or Chartered Accountant to the Petitioner while
exercising his right of personal hearing. It does not require any
detailed adjudication taking elaborate evidence in the matter.
The Hon'ble Supreme Court in Jah Developers Private Limited
(supra) considered the question whether the borrower is entitled
to be represented by a lawyer before an In-House Committee
deciding whether the borrower is a wilful defaulter or not. The
Hon'ble Supreme Court specifically held that In-House
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Committees are not vested with any judicial power at all, their
powers being administrative powers given to In-House
Committees to gather facts and then arrive at a result, and
hence there is no right to be represented by a lawyer in the In-
House proceedings. The same principle is applicable to the
case of classifying the account of the borrower as fraud. That
apart, the members of the Respondent No.3 Committee are not
having any legal expertise. Hence, I hold that the Petitioner is
not having any right to be represented by a Lawyer or other
expert in the personal hearing. The Petitioner has a contention
that he does not know any other language other than
Malayalam. If the members of the Respondent No.3 Committee
are not well versed in Malayalam, of course, the Petitioner is to
be permitted to take the assistance of a translator, but such
translator should not be a Lawyer or Chartered Accountant.
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Question No.4:
15. I have already held that the Board Approved Policy formulated
by the Respondent No.2 under Ext.P7 RBI Master Directions is
a material document in the adjudication whether the account of
the Petitioner is to be classified as a fraud or not. The
Respondent No.2 could not attribute any kind of confidentiality
with respect to the said document. Going by the nature of the
document, it could not be said that the said document is
confidential in nature. When Ext.P7 RBI Master Directions
mandates incorporation of measures to comply with the
principles of natural justice, it is to be ensured that said Policy
contains provisions incorporating the principles of natural justice
and the same have been followed by Respondent No.3. The
Petitioner as a borrower has a right to ensure that the procedure
adopted by the Respondent No.3 is in full compliance with such
Policy. In order to ensure the same, the Respondent No.2 is
bound to provide a copy of such Policy to the Petitioner. When
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an action would result in serious civil consequences for the
affected person, strict compliance with the procedure is
mandatory and the theory of substantial compliance is not
sufficient. When wide and drastic powers are given to a body for
taking decisions on questions involving serious civil
consequences, it has to be ensured that the procedure
prescribed for the same is scrupulously followed. Hence, I hold
that the Respondent No.3 has no right to deny a copy of the
Board Approved Policy formulated by the Respondent No.2
under Clause 2.1 of the Ext.P7 RBI Master Directions to the
Petitioner.
16. In view of the answers to the aforesaid questions, I allow this
Writ Petition in part by issuing a Writ of Mandamus compelling
the Respondent No.3 to complete the proceedings initiated as
per Ext.P9 Show Cause Notice after providing a copy of the
Board Approved Policy formulated under the Ext.P7 RBI Master
Directions and further providing an opportunity of personal
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hearing and permitting the Petitioner to take the assistance of a
Translator, if necessary.
Sd/-
M.A.ABDUL HAKHIM
JUDGE
Shg/jma
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APPENDIX OF WP(C) NO. 46033 OF 2025
PETITIONER EXHIBITS
Exhibit.P1 TRUE COPY OF THE REPRESENTATION SUBMITTED BY THE
PETITIONER DATED 30/10/2024.
Exhibit.P2 TRUE COPY OF THE JUDGMENT IN WRIT PETITION
NO.40370/2024 DATED 15/11/2024.
Exhibit.P3 TRUE COPY OF THE REPRESENTATION DATED 22/11/2024
SUBMITTED BY THE PETITIONER.
Exhibit.P4 TRUE COPY OF THE REPLY DATED 27/11/2024 ISSUED BY
THE 2ND RESPONDENT BANK.
Exhibit.P5 TRUE COPY OF THE SHOW CAUSE NOTICE DATED 30/05/2024
ISSUED BY THE BRANCH HEAD OF THE 2ND RESPONDENT
BANK.
Exhibit.P6 TRUE COPY OF THE ORDER DATED 04/01/2025 OF THE 3RD
RESPONDENT.
Exhibit.P7 TRUE COPY OF THE RBI MASTER DIRECTIONS DATED
15/07/2024 FOR FRAUD DECLARATION.
Exhibit.P8 TRUE COPY OF JUDGMENT DATED 18/03/2025 IN WRIT
PETITION NO.3676/2025 OF THIS HON'BLE COURT.
Exhibit.P9 TRUE COPY OF THE SHOW CAUSE NOTICE DATED 10/09/2025
ISSUED BY THE 2ND RESPONDENT.
Exhibit.P10 TRUE COPY OF THE REPLY DATED 30/09/2025 ISSUED BY
THE PETITIONER.
Exhibit.P11 TRUE COPY OF THE LETTER DATED 12/11/2025 ISSUED BY
THE 2ND RESPONDENT.
Exhibit.P12 TRUE COPY OF THE REPLY/REPRESENTATION DATED
14/11/2025 SUBMITTED BY THE PETITIONER.
Exhibit.P13 TRUE COPY OF THE REPLY DATED 15/11/2025 SENT BY
THE 2ND RESPONDENT BY E-MAIL.
Exhibit.P14 TRUE COPY OF THE REPRESENTATION DATED 26/11/2025
SUBMITTED BY THE PETITIONER.
Exhibit.P15 TRUE COPY OF THE REPLY DATED 28/11/2025 ISSUED BY
THE 2ND RESPONDENT BANK.
