NDLI: State Bank of India & Ors Vs. Rajesh Agarwal & Ors

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Reserve Bank of India Act 1934
Content Type	Text
Resource Type	Law Order
Jurisdiction	India
Act(s) Referred	Banking Regulation Act (10 of 1949) Reserve Bank of India Act, 1934 (2 of 1934)
Case(s) Referred	Referred Case 0 Referred Case 1 Referred Case 2 Referred Case 3 Referred Case 4 Referred Case 5 Referred Case 6 Referred Case 7 Referred Case 8 Referred Case 9 Referred Case 10 Referred Case 11 Referred Case 12 Referred Case 13 Referred Case 14 Referred Case 15 Referred Case 16 Referred Case 17 Referred Case 18 Referred Case 19 Referred Case 20 Referred Case 21 Referred Case 22 Referred Case 23 Referred Case 24 Referred Case 25 Referred Case 26 Referred Case 27 Referred Case 28 Referred Case 29 Referred Case 30 Referred Case 31 Referred Case 32 Referred Case 33
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Disposed Off
Headnote	Reserve Bank of India Act, 1934 – Banking Regulation Act,1949 – Reserve Bank of India (Frauds Classification and Reportingby Commercial Banks and Select FIs) Directions 2016 – MasterDirections on Frauds – Principle of Natural Justice – Rule of AudiAlteram Partem – The civil appeals arise out of a challenge to theReserve Bank of India (Frauds Classification and Reporting byCommercial Banks and Select FIs) Directions 2016 – Thesedirections were challenged before different High Courts primarilyon the ground that no opportunity of being heard is envisaged toborrowers before classifying their accounts as fraudulent – Whetherthe principles of natural justice should be read into the provisionsof the Master Directions on Frauds – Held : The principles of naturaljustice demand that the borrowers must be served a notice, givenan opportunity to explain the conclusions of the forensic auditreport, and be allowed to represent by the banks/ JLF before theiraccount is classified as fraud under the Master Directions on Frauds– In addition, the decision classifying the borrower’s account asfraudulent must be made by a reasoned order; and since the MasterDirections on Frauds do not expressly provide an opportunity ofhearing to the borrowers before classifying their account as fraud,audi alteram partem has to be read into the provisions of thedirections to save them from the vice of arbitrariness.Reserve Bank of India Act, 1934 – Banking Regulation Act,1949 – Reserve Bank of India (Frauds Classification and Reportingby Commercial Banks and Select FIs) Directions 2016 – Principleof Natural Justice – Civil consequences to borrowers – Whetherthe classification of a borrower’s account as fraudulent under theMaster Directions on Frauds entails civil consequences toborrowers – Held: Clause 8.12 of the Master Directions on Frauds deals with the penal measures for borrowers – Clause 8.12.1provides that penal provisions as applicable to wilful defaulterswould apply to fraudulent borrowers, including the promoters anddirectors of the borrower company – In addition, borrowers arealso liable to suffer the following consequences under the MasterDirections on Frauds : a) No restructuring may be made in the caseof an RFA or fraud accounts (clause 8.12.2); b) No compromise onsettlement involving a fraudulent borrower is allowed unless theconditions stipulate that the criminal complaint will be continued(clause 8.12.3) – The classification of a borrower’s account as fraudunder the Master Directions on Frauds has difficult civi lconsequences for the borrower – Classification of the borrower’saccount as fraud under the Master Directions on Frauds virtuallyleads to a credit freeze for the borrower, who is debarred from raisingfinance from financial markets and capital markets – The bar fromraising finances could be fatal for the borrower leading to its ‘civildeath’ in addition to the infraction of their rights under Article19(1)(g) of the Constitution – Since, debarring disentitles a personor entity from exercising their rights and/or privileges, it is elementarythat the principles of natural justice should be made applicableand the person against whom an action of debarment is soughtshould be given an opportunity of being heard.Reserve Bank of India Act, 1934 – Banking Regulation Act,1949 – Reserve Bank of India (Frauds Classification and Reportingby Commercial Banks and Select FIs) Directions 2016 – No impliedexclusion of audi alteram partem – The RBI and the lender bankshave contended that the Master Directions on Frauds impliedlyexclude the right to be heard – Held: The Master Directions onFrauds do not expressly exclude a right of hearing to the borrowersbefore action to class their account as frauds is initiated – Theprinciples of natural justice can be read into a statute or anotification where it is silent on granting an opportunity of a hearingto a party whose rights and interests are likely to be affected by theorders that may be passed.Principles/Doctrines – Principles of natural justice – Twofundamental principles of natural justice are entrenched in Indianjurisprudence: (i) nemo judex in causa sua, which means that noperson should be a judge in their own cause; and (ii) audi alterampartem, which means that a person affected by administrative, judicial or quasi-judicial action must be heard before a decision istaken – The courts generally favor interpretation of a statutoryprovision consistent with the principles of natural justice becauseit is presumed that the statutory authorities do not intend tocontravene fundamental rights.
Judge	N/A
Neutral Citation	2023 INSC 303
Petitioner	State Bank Of India & Ors
Respondent	Rajesh Agarwal & Ors
SCR	[2023] 7 S.C.R. 476
Judgement Date	2023-03-27
Case Number	7300

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