$~7 * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 1518/2024 & CM APPL. 6332-6333/2024, CM APPL.

6395/2024 ADITYA MALHOTRA & ANR. ..... Petitioners Through: Mr. Dayan Krishnan, Sr. Advocate with Ms. Shraddha Deshmukh, Mr. Sukrit Seth and Mr. Shreedhar, Advocates. Mob: 9871167778 versus CANARA BANK & ANR. ..... Respondents Through: Ms. Manisha Singh, Mr. Ashu Pathak, Mr. George Pothan Poothicote, Ms. Jyoti Singh, Advocates for R-1 (M:9910518386, email:ashu030295@gmail.com)

Ms. Tanya Chowdhary, Advocate for Mr. Ramesh Babu, Advocate, Ms. Manisha Singh, Advocate for R-

2/RBI. Mob: 9971671294 % Date of Decision: 07^th February, 2024 CORAM:

HON'BLE MS. JUSTICE MINI PUSHKARNA

J U D G M E N T

MINI PUSHKARNA, J: (ORAL)

CM APPL. 6395/2024 & CM APPL. 6333/2024 (For Exemptions)

1. Exemptions allowed, subject to just exceptions.

2. Applications are disposed of.

Signature Not Verified Digitally Signed By:CHARU W.P.(C) 1518/2024 Page 1 of 8 W.P.(C) 1518/2024 & CM APPL. 6332/2024

3. The present petition has been filed challenging the action of respondent no. 1-Canara Bank to declare the account of the petitioners as „fraud‟ purportedly in terms of the Master Directions on Frauds- Classification and Reporting by commercial banks and select FIs dated 01^st July, 2016 issued by the Reserve Bank of India (“RBI”), respondent no. 2.

4. Learned senior counsel appearing for the petitioners submits that the Principles of Natural Justice, as has been directed to be read in Master Circular by Supreme Court in the judgment of State Bank of India & Ors Vs. Rajesh Aggarwal & Ors, 2023 SCC OnLine SC 342, has not been followed in the present case. He further submits that no Show Cause Notice or opportunity of giving any representation or any hearing was afforded to the petitioners.

5. When the present matter was listed for hearing on 2^nd February, 2024, learned counsel appearing for respondent no. 1-Bank had sought time to seek instructions. Today, learned counsel appearing for the respondent no. 1- Bank submits that the account of the petitioner has already been declared as „fraud‟ on 12^th October, 2022.

6. Learned counsel for respondent no. 1-Bank admits to the fact that no Show Cause Notice was issued to the petitioners. She further submits that since the aforesaid declaration of „fraud‟ of the petitioners‟ account was made on 12^th October, 2022, i.e., much prior to the judgment of the Supreme Court in the case of Rajesh Aggarwal (Supra), which was pronounced only on 27^th March, 2023, therefore, no opportunity of hearing was granted to the petitioners.

Signature Not Verified Digitally Signed By:CHARU W.P.(C) 1518/2024 Page 2 of 8

7. Having heard learned counsels for the parties, it is clear that the declaration of „fraud‟ by the respondent no. 1-bank of the petitioners‟ account is clearly in violation of the judgment passed by the Supreme Court in the case of Rajesh Aggarwal (Supra). Supreme Court has categorically held in the aforesaid judgment that Principles of Natural Justice, particularly the Rule of audi alteram partem, has to be necessarily read into the Master Directions on „Fraud‟ to save it from the vice of arbitrariness. It has categorically been held that classification of „fraud‟ entails serious civil consequences for the borrower, therefore, a reasonable opportunity has to be granted to the concerned persons. The relevant findings by the Supreme Court are as under:

“xxx xxx xxx

67. The Master Directions on Frauds do not expressly exclude a right of hearing to the borrowers before action to class their account as frauds is initiated. The principles of natural justice can be read into a statute or a notification where it is silent on granting an opportunity of a hearing to a party whose rights and interests are likely to be affected by the orders that may be passed.

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70. In Mangilal v. State of M.P. [Mangilal v. State of M.P., (2004) 2 SCC 447 : 2004 SCC (Cri) 1085] , a two-Judge Bench of this Court held that the principles of natural ju