JUDGEMENT

MINI PUSHKARNA, J: (ORAL) CM APPL. 66872/2023

1. The present application has been filed for restoration of the present petition, which had been dismissed in default and for non-prosecution on 01st September, 2023.

2. Considering the submissions made in the present application, the same is allowed. The writ petition is restored to its original number. The application is disposed of.

3. Learned counsel appearing for respondent no.2 – Reserve Bank of India has brought to the notice of this court the judgment dated 02nd November, 2023 passed in W.P.(C) No. 3191/2022.

4. It is submitted that the present matter is squarely covered by the aforesaid judgment passed by the Division Bench of this court.

5. The present petition has been filed seeking to challenge the action of the respondent no.1 in declaring the petitioner’s account as ‘fraud’. It is the case of the petitioner that the said action is arbitrary and that the account of the petitioner has been declared as ‘fraud’ without affording any opportunity of being heard. Thus, prayer has been made for quashing the letter dated 07th September, 2021 issued by the respondent no.1, to the extent the same communicates that the account of the petitioner has been declared as ‘fraud’.

6. It is to be noted that Division Bench of this court in the case of Boom Agro India Pvt. Ltd. & Anr. Versus Reserve Bank of India and Anr., vide its judgment dated 02nd November, 2023 has passed the following order:

“1. At the outset, Learned Counsel for the Reserve Bank of India has stated before this Court that the issue involved in the present matter is already covered by a judgment delivered by the Hon‟ble Supreme Court in Civil Appeal No. 7300/2022 titled State Bank of India & Others Vs. Rajesh Agarwal & Others.

2. The aforesaid judgement of the Hon‟ble Supreme Court arose out of a challenge to the Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select Financial Institutions) Directions 2016 (hereinafter, „Master Directions on Frauds’) on grounds that it did not grant an opportunity of hearing to borrowers before classifying their accounts as fraudulent.

3. It was held by the Hon‟ble Supreme Court that the principles of natural justice, particularly the rule of audi alteram partem, has to be necessarily read into the Master Directions on Frauds to save it from the vice of arbitrariness. It was so held that as the classification of an account as fraud entails serious civil consequences for the borrower, the directions must be construed reasonably by reading into them the requirement of observing the principles of natural justice. It was held that the administrative proceedings which entail significant civil consequences must be read consistent with the principles of natural justice to meet the requirement of Article 14. Where possible, the rule of audi alteram partem ought to be read into a statutory rule to render it compliant with the principles of equality and non-arbitrariness envisaged under Article 14. The Master Directions on Frauds did not expressly provide the borrowers an opportunity of being heard before classifying the borrower‟s account as fraud. The Hon‟ble Supreme Court, therefore, held that the principle of audi alteram partem must then be read into the provisions of the Master Directions on Frauds.

4. The relevant paragraphs of the judgement passed by the Hon‟ble Supreme Court read as under:

“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;

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