Inclusion in the Central Fraud Registry without adherence to natural justice principles is invalid, highlighting the necessity of timely notice and an opportunity to be heard.

ORDER :

1. Heard the learned counsel for the parties.

2. We issue Rule. The Rule is made returnable immediately, at the request of and with the consent of the learned counsel for the parties.

3. The Petitioner, objects to the inclusion of his name in the Central Fraud Registry maintained by the Reserve Bank of India. The learned counsel for the Petitioner submits that such inclusion visits the Petitioner with serious civil consequence, and therefore, the same should have been preceded by at least the minimal compliance with the principles of natural justice and fair play.

4. He states that there was no such compliance and on this ground itself, the inclusion warrants interference.

5. Mr. Bhatiya, the learned counsel for the Petitioner relies on State Bank of India and Ors. Vs. Rajesh Agarwal and Ors. 2023 (6) SCC 1 and submits that the Hon’ble Supreme Court has also held that principles of natural justice have to be followed before any person is included in the Central Fraud Registry maintained by the RBI.

6. The learned counsel for the Respondents submit that the Petitioner’s name was included in the Central Fraud Registry way back in 2018 and this Petition has been filed only in 2024. Further, they point out that under the Master Circular, there was no requirement of issuing any show cause notice to any person before such inclusion. Accordingly, they submit that this Petition may not be entertained.

7. The learned counsel for the Respondents point out that after the decision of the Hon’ble Supreme Court in the case of Rajesh Agarwal (supra) the RBI has issued a new Master Circular dated July 15, 2024, superseding the earlier Master Circular and incorporating therein the requirement of a show cause notice.

8. The rival contentions now fall for our determination.

9. The inclusion of any person’s name in the Central Fraud Registry maintained by the RBI, undoubtedly visits such person on entity with serious civil consequences, not to mention that it raises reputational issues.

10. Accordingly, at least a minimal compliance with principles of natural justice and fair play was imperative before such inclusion.

11. In Rajesh Agarwal (supra), the Hon’ble Supreme Court, after considering the law on the subject, including the Master Circulars, has held that a debarment under clause 8.12.1 on the Master Directions on frauds is akin to blacklisting the borrowers for being untrustworthy and unworthy of credit by banks. In such circumstance, the Courts have consistently held that an opportunity of hearing ought to be provided before a person is blacklisted.

12. The Hon’ble Supreme Court has also held that merely because there may be no provision under the Master Circular for issue of a show cause notice or compliance with principles of natural justice, such principles, cannot be implied in the excluded under the master direction of fraudes. In Insitiute of Charted Accountants of India Vs. L.K. Ratna & Ors. 1986 INSC 215 the Hon’ble Supreme Court has held that the principles of natural justice must be read into the unoccupied interstices of the statue and there is no question of any implied exclusion.

13. In Rajesh Agarwal (supra) the Hon’ble Supreme Court has held that the principles of natural justice demand that borrowers must be served with the notice, given an opportunity to explain the conclusions of the forensic audit report, if any, and be allowed to represent before their account classified as fraud under the Master Directions of Frauds. In addition, the decisio