The central legal point established in the judgment is the requirement to afford an opportunity to be heard before classifying an account as fraud under the Master Directions on Frauds, emphasizing the principles of natural justice and the need for a reasoned order in making such a decision.

JUDGMENT

Vibhu Bakhru, J. (Oral)

1. The appellants have filed the present appeal impugning an order dated 26.07.2019 (hereafter `the impugned order') delivered by the learned Single Judge in W.P.(C) 8092/2019 captioned Uday J Desai & Ors. v. Union of India & Ors., whereby the said Writ Petition preferred by the appellants was rejected. The appellants had preferred the aforesaid Writ Petition seeking several reliefs but had confined the same to prayer clauses D & F. The relevant prayer clauses are set out below:

"In the circumstances, it is therefore most respectfully prayed that this Hon'ble Court may graciously be pleased to:

** ** ** **

D. Pass a writ of certiorari or any other writ, direction or order in the nature of a writ of certiorari for quashing and setting aside the decision taken by the Respondent Banks at the consortium meeting held on 07.01.2019 allowing the individual banks to decide on the course of action basis the forensic audit, and

** ** ** **

F. Pass a writ of certiorari or any other writ, direction or order in the nature of a writ of certiorari for quashing and setting aside the declaration of the Petitioner No.5 as Fraud contained in lA filed by Respondent No. 6 before the Hon'ble Supreme Court in Writ Petition [Civil] No 1316 of 2018, on the basis of the Haribhakti Report dated 05.01.2019 and its addendum."

2. As is apparent from the above, the appellants had confined their petition to, essentially, assail the decision of the consortium of respondent banks taken in the meeting held on 07.01.2019 without affording the appellants any opportunity to be heard. According to the appellants, the said decision of the consortium of banks has wide ramifications as it permitted the lending banks to proceed on the basis of the Forensic Audit Report submitted by M/s Haribhakti & Co. LLP. It further declared appellant no. 5's account as a fraud account, thus, adversely affecting the ability of the appellants (who were guarantors/borrowers) to raise any funds from the banks in the future. According to the appellants, the impugned decision is erroneous on several grounds. However, the appellants had confined their challenge to the said decision of the banks, on the sole ground that it was made in violation of the principles of natural justice.

3. According to the appellants, it was necessary for the respondent banks to have provided a copy of the Forensic Audit Report to the appellants and also afford them an opportunity to be heard before taking any adverse decision. This contention was stoutly resisted on behalf of the respondents. According to them, the banks had acted in accordance with the Master Circular issued by the Reserve Bank of India and the said circular did not provide for any such procedure of hearing the borrowers before taking a decision to declare their account as `Fraud'.

4. It was also contended on behalf of the respondent banks that sufficient opportunity was granted to the appellants to respond to the observations made by the Forensic Auditors (M/s Haribhakti & Co. LLP). Thus, the Forensic Audit Report had also taken into consideration the response of the appellants to various audit observations.

5. In view of the rival contentions, the learned Single Judge observed that "the only issue, which arises for consideration is whether principles of natural justice need to be followed before declaring the account of respondent No. 5 as fraud."

6. The learned Single Judge answered the said question in the negative. The learned Single Judge referred to paragraphs 8.9.4 - 8.9.6 of the Master Circular dated July 3, 2017 and has observed that the aforesaid paragraphs of the Circular do not stipulate issuance of a Show Cause Notice or sharing of the Forensic Report with a concerned entity. Accordingly, the Court proceeded to reject the stand of the appellants that they were required to be heard by the concerned banks before any adverse decision was taken holding the account in question to be a fraud account.

7.