SCI (2026.04.07) in State Bank of India Vs. Amit Iron Private Limited & Ors. [2026 INSC 323, CIVIL APPEAL NOS.4243-4244 OF 2026 (@ Special Leave Petition (C) Nos. 20618-20619 of 2025)] held that;-
We are persuaded to accept the stand of the RBI that the procedure of issuing a show cause notice, furnishing of the evidentiary material, eliciting a reply and the obligation to pass a reasoned order will meet the requirements of fairness and also thwart mis-carriage of justice.
The procedure set out in Rajesh Agarwal (supra) which has been incorporated in the Master Directions of 2024 strikes a fair balance between promptitude and fairness and duly comports with the principles of natural justice ensuring fairness to the borrower whose account is likely to be classified as a fraud account.
Wherever audit reports are available, including forensic audit reports, the same shall be furnished to the borrower and their representation on the report, including on the findings and conclusions be elicited, in case the banks consider the audit report relevant for classifying the account as fraud account. In view of the same, disclosure by furnishing copies of the audit report, including the forensic audit report to the borrower is mandatory. Supply of reports in digital form will be valid compliance;
We reiterate that the rule is to supply the audit reports, including the forensic audit reports since even under Clause 4 of Chapter IV of the 15.07.2024 Master Directions post the red-flagging of the account banks use the audit mechanism for further investigation.
Blogger's Comments: As the committee, constituted by the lender, will consist of the officials/employees of the lender, there will be conflict of interest. Hon’ble Supreme Court in State Bank of India Vs. M/s.Jah Developers Pvt. Ltd. & Ors. (Civil Appeal No. 4776 of 2019) had observed that;
“# 21. . . . . . . .However, we are of the view that Article 19(1)(g) is attracted in the facts of the present case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate. . . . ”
As the fraud declaration of an account places similar restrictions, in my opinion, “A decision or conduct of a purely commercial (private) entity cannot, by itself, serve as a valid constitutional basis for imposing restrictions on fundamental rights; only the State, through law, can impose such restrictions, and even then only if they are “reasonable” and fall within the grounds specified in the Constitution.”
Accordingly, Hon’ble Supreme Court could have also examined the following question;
“Whether restrictions can be placed on Fundamental Rights of a citizen without judicial sanctions/scrutiny, specifically based on the decisions of a commercial entity.
As such, the concerned Committee constituted by the bank should consist of independent persons, better it will be if the functions of the Committee are entrusted to a Judicial Forum i.e. NCLT (NationalCompany Law Tribunal) in case of Companies & their promoters/directors/guarantors or DRT for partnership firms/individuals.
Excerpts of the Order;
# 1. Six decades ago, it was aptly proclaimed that principles of natural justice cannot be cut and dried or nicely weighed and measured (Ridge vs. Baldwin, 1964 AC 40). This Court rightly described it as a flexible concept, to be adapted to circumstances. Its elasticity, however, has been tested to its limits in several cases. We are here confronted with one such. While the Reserve Bank of India (for short “RBI”) and the appellant-Banks contend that a notice, an opportunity to reply, and a reasoned order should serve the ends of justice, the borrowers implore that they are entitled to a “personal hearing” before classifying their account as a “fraud account.” The other issue that arises is the “borrowers” entitlement to the Forensic Audit Reports.
# 2. Leave granted.
# 3. The core issue that arises in the case revolves around the Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions, 2016 (hereinafter referred to as the “Master Directions 2016”) and the Reserve Bank of India (Fraud Risk Management in Commercial Banks (including Regional Rural Banks) and All India Financial Institutions Directions, 2024 (hereinafter referred to as the “Master Directions-2024”).
# 11. In the above background, the questions that arise for consideration are –
(a) Does the decision in Rajesh Agarwal (supra) recognize a right inhering in the account holder/borrower to a personal/oral hearing before the account is declared/classified as “fraud” under the Master Directions of the RBI?
(b) Whether the issuance of a show cause notice, the consideration of the reply filed by the borrower and the obligation to pass a reasoned order setting out the relevant facts/circumstances relied upon, the submissions made in response to the show cause notice and the reasons for classification of account as “fraud” would satisfy the principles of natural justice?
(c) Whether there is an obligation on the banks to furnish the entire Forensic Audit Report to the borrowers before declaration of the account as “fraud”?’ If not, whether the furnishing of the conclusions of the Forensic Audit Report would serve the ends of justice?
# 21. Rajesh Agarwal (supra) was occasioned because the Master Directions-2016 were silent about any opportunity of hearing being afforded to the borrower before declaring the account as “fraud” account. Before we deal with Rajesh Agarwal (supra), it should be pointed out that in the Master Directions-2024, in Chapter-II, Clause 2.1.1.1 to 2.1.1.4 set out the procedure through which an account is classified as “fraud”. The Master Directions-2024 in the footnote refers to the judgment of this Court in Rajesh Agarwal (supra). Clause 2.1 which consists of four sub-paras is extracted hereinbelow:-
“2.1 Governance Structure in banks for Fraud Risk Management
2.1.1 There shall be a Board approved Policy on fraud risk management delineating roles and responsibilities of Board / Board Committees and Senior Management of the bank. The Policy shall also incorporate measures for ensuring compliance with principles of natural justice in a time-bound manner which at a minimum shall include:
2.1.1.1 Issuance of a detailed Show Cause Notice (SCN) to the Persons, Entities and its Promoters /Whole-time and Executive Directors against whom allegation of fraud is being examined. The SCN shall provide complete details of transactions / actions / events basis which declaration and reporting of a fraud is being contemplated under these Directions.
2.1.1.2 A reasonable time of not less than 21 days shall be provided to the Persons / Entities on whom the SCN was served to respond to the said SCN.
2.1.1.3 Banks shall have a well laid out system for issuance of SCN and examination of the responses / submissions made by the Persons / Entities prior to declaring such Persons / Entities as fraudulent.
2.1.1.4 A reasoned Order shall be served on the Persons / Entities conveying the decision of the bank regarding declaration / classification of the account as fraud or otherwise. Such order(s) must contain relevant facts / circumstances relied upon, the submission made against the SCN and the reasons for classification as fraud or otherwise.”
# 22. The contention of the respondents before us is that Rajesh Agarwal (supra) read into Master Directions-2016 an opportunity to grant a personal hearing and not just the need for issuance of show cause notice, consideration of a reply and the passing of a reasoned order. This has been the main bone of contention between the parties. The High Courts in both the matters before us have accepted this interpretation. There is no dispute that in both the cases before us notice was issued, reply elicited and reasoned orders made. It is not disputed that in both cases personal/oral hearing was not given. Were the banks obliged to grant a personal/oral hearing to the borrower is the significant issue before us. No doubt, there is no challenge to the validity of the Master Directions-2024. However, the learned counsel for the respondents contended that if Rajesh Agarwal (supra) did, in fact, mandate the grant of a personal hearing, it is only fair that Chapter-II, Clause 2.1 of the Master Directions-2024 also be understood to encompass an oral/personal hearing.
# 27. Learned senior counsel, submitted that the 2024 Master Directions mandates detailed show cause notice, reasonable time for reply, an examination of the response and the making of a reasoned order. According to the learned senior counsel, Rajesh Agarwal (supra) did not, by any measure, mandate a personal/oral hearing. On the contrary, according to the learned senior counsel, Rajesh Agarwal (supra) made it explicit that personal/oral hearing was not mandatory and that the principle of audi alteram partem is sufficiently met if the written/documentary response of the borrower/noticee is duly considered and a speaking order passed.
# 28. Learned senior counsel submits that “opportunity of a hearing” or “opportunity of being heard” contemplated in Rajesh Agarwal (supra) is not a “personal/oral” hearing. Learned senior counsel submitted that since unlike the 2024 directions, the 2016 directions did not have explicit clauses providing for notice, reply and the making of a reasoned order, the challenge to the 2016 directions were on not being given an opportunity to present a defence. Learned senior counsel relies on State Bank of India vs. Jah Developers Private Limited and Others , and Gorkha Security Services vs. Government (NCT of Delhi) and Others , which, in turn, were relied on in Rajesh Agarwal (supra) to contend that oral hearing is not an absolute requirement of the principle of natural justice and that a consideration of a written representation would suffice. Dealing with Para seventy-five of Rajesh Agarwal (supra), learned senior counsel, contends that the hearing contemplated was not an oral/personal hearing.
# 29. According to the learned senior counsel, if there was any doubt whether Rajesh Agarwal (supra) intended to the contra, the same was brought to a quietus by the clarification issued by this Court on 12.05.2023 in M.A. No. 810 of 2023.
PRINCIPLES OF NATURAL JUSTICE – OBJECTIVES AND CONTOURS:-
# 76. The ultimate objective of the principles of natural justice is to ensure fairness in action and prevent miscarriage of justice. It has always been held to be a flexible concept. As to what rule of natural justice should apply was to depend, to a great extent, on the facts and circumstances of the case, the framework of the law under which the enquiry is held and the constitution of the tribunal or the body of persons appointed for that purpose. In A.K. Kraipak and others v. Union of India and others [(1969) 2 SCC 262] , this Court held as follows:-
“20. The aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law of the land but supplement it. The concept of natural justice has undergone a great deal of change in recent years. In the past it was thought that it included just two rules namely: (1) no one shall be a judge in his own case (Nemo debet esse judex propria causa) and (2) no decision shall be given against a party without affording him a reasonable hearing (audi alteram partem). Very soon thereafter a third rule was envisaged and that is that quasi-judicial enquiries must be held in good faith, without bias and not arbitrarily or unreasonably. But in the course of years many more subsidiary rules came to be added to the rules of natural justice. Till very recently it was the opinion of the courts that unless the authority concerned was required by the law under which it functioned to act judicially there was no room for the application of the rules of natural justice. The validity of that limitation is now questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Often times it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far reaching effect than a decision in a quasi-judicial enquiry. As observed by this Court in Suresh Koshy George v. University of Kerala [1968 SCC OnLine SC 9] the rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of that case, the framework of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose. Whenever a complaint is made before a court that some principle of natural justice had been contravened the court has to decide whether the observance of that rule was necessary for a just decision on the facts of that case.” (Emphasis supplied)
# 77. In Natwar Singh v. Directorate of Enforcement and Another [(2010) 13 SCC 255] , quoting with approval the judgment of the House of Lords in Lloyd v. McMahon [(1987) 1 All ER 1118 (HL) ] and reiterating the fundamental principle that canons of natural justice have to be adapted to the circumstances, this Court held as under:-
“26. Even in the application of the doctrine of fair play there must be real flexibility. There must also have been caused some real prejudice to the complainant; there is no such thing as a merely technical infringement of natural justice. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject-matter to be dealt with and so forth. Can the courts supplement the statutory procedures with requirements over and above those specified? In order to ensure a fair hearing, courts can insist and require additional steps as long as such steps would not frustrate the apparent purpose of the legislation.
27. In Lloyd v. McMahon, Lord Bridge observed: “My Lords, the so-called rules of natural justice are not engraved on tablets of stone. To use the phrase which better expresses the underlying concept, what the requirements of fairness demand when any body, domestic, administrative or judicial, has to make a decision which will affect the rights of individuals depends on the character of the decision-making body, the kind of decision it has to make and the statutory or other framework in which it operates. In particular, it is well established that when a statute has conferred on any body the power to make decisions affecting individuals, the courts will not only require the procedure prescribed by the statute to be followed, but will readily imply so much and no more to be introduced by way of additional procedural safeguards as will ensure the attainment of fairness.”
28. As Lord Reid said in Wiseman v. Borneman: “… For a long time the courts have, without objection from Parliament, supplemented procedure laid down in legislation where they have found that to be necessary for this purpose.” 29. It is thus clear that the extent of applicability of the principles of natural justice depends upon the nature of inquiry, the consequences that may visit a person after such inquiry from out of the decision pursuant to such inquiry.” (Emphasis supplied)
# 78. The flexibility in the concept of natural justice is inevitable as it encompasses different layers and as to which one would be applicable would, as held in A.K. Kraipak (supra), depend on the nature of the enquiry and the framework of the law under which it is held. For example, an opportunity to be served with a show cause notice and eliciting a reply with an obligation to pass a reasoned order is one facet of natural justice. Another facet is the grant of an interview to the noticee whereby he is personally heard by virtue of an oral hearing. A yet higher facet is where in the said process of a personal hearing he is given the facility of cross-examination of witnesses. To top it all, could be such cases where the opportunity to be represented by a lawyer or a legally trained mind is guaranteed.
RIGHT TO PERSONAL HEARING VIS-À-VIS DISCRETION OF THE AUTHORITY:-
# 79. In the absence of any rule being prescribed in the statute or rule or in regulations or in any policy, what would meet the requirements effectively would depend on the circumstances and the nature of the enquiry. One cannot start with the assumption that as of right, a noticee is entitled to personal hearing. In Madhya Pradesh Industries Ltd. v. Union of India And Others [(1966) 1 SCR 466] , K. Subba Rao J., as the learned Chief Justice then was, felicitously explained the situation thus:-
“ As regards the second contention, I do not think that the appellant is entitled as of right to a personal hearing. It is no doubt a principle of natural justice that a quasi-judicial tribunal cannot make any decision adverse to a party without giving him an effective opportunity of meeting any relevant allegations against him. Indeed Rule 55 of the Rules, quoted supra, recognizes the said principle and states that no order shall be passed against any applicant unless he has been given an opportunity to make his representations against the comments, if any, received from the State Government or other authority. The said opportunity need not necessarily be by personal hearing. It can be by written representation. Whether the said opportunity should be by written representation or by personal hearing depends upon the facts of each case and ordinarily it is in the discretion of the tribunal. The facts of the present case disclose that a written representation would effectively meet the requirements of the principles of natural justice…. .” (Emphasis supplied)
# 80. Elucidating on the difference between a right to a personal hearing in the noticee and the discretion of the authority to grant one in a given case and further explaining how it was not an incident of natural justice that personal hearing must be given (except in proceedings in courts of law) a Constitution Bench of this Court in Union of India v. Jyoti Prakash Mitter [(1971) 1 SCC 396], speaking through Chief Justice J.C. Shah observed as under:-
“26. Article 217(3) does not guarantee a right of personal hearing. In a proceeding of a judicial nature, the basic rules of natural justice must be followed. The respondent was on that account entitled to make a representation. But it is not necessarily an incident of the Rules of natural justice that personal hearing must be given to a party likely to be affected by the order. Except in proceedings in Courts, a mere denial of opportunity of making an oral representation will not, without more, vitiate the proceeding. A party likely to be affected by a decision is entitled to know the evidence against him, and to have an opportunity of making a representation. He however cannot claim that an order made without affording him an opportunity of a personal hearing is invalid. The President is performing a judicial function when he determines a dispute as to the age of a Judge, but he is not constituted by the Constitution or a court. Whether in a given case the President should give a personal hearing is for him to decide. The question is left to the discretion of the President to decide whether an oral hearing should be given to the Judge concerned. The record amply supports the view that the President did not deem it necessary to give an oral hearing. There were no complicated questions to be decided by the President…...” (Emphasis supplied)
# 81. In the same vein are the observations of another Constitution Bench of this Court in State of Maharashtra And Another v. Lok Shikshan Sansatha And Others [(1971) 2 SCC 410] wherein it was held:-
“24. From the mere fact that there is no right provided for the applicant being heard before his application is rejected, it cannot be held that there is a violation of the principles of natural justice. On the other hand, it is seen that the District Committees have considered the claims of the writ petitioners as well as of the respective third respondents therein and recommended to the educational authorities that the claims of the latter are to be accepted. The reasons for rejection of the applications have also been given in the orders passed by the educational authorities.
25. When all the relevant circumstances have been taken into account by the District Committee and the educational authorities, there is no violation of any principle of natural justice merely for the reason that the applicants were not given a hearing by the educational authorities before their applications were rejected. The particulars which have to be mentioned in the prescribed application form are very elaborate and complete. The provisions in the Code read along with the instructions given by the State in the circular letter, dated October 5, 1965, refer to various relevant and material factors that had to be taken into account for the purpose of deciding whether the application is to be granted or not. As we have already pointed out it is not the case of any of the writ petitioner that these relevant factors have not been considered by the District Committees. Nor is it their case that the reasons given for rejection of the applications are not covered by the provisions contained in the Code. Clauses (1) and (2) of Rule 3 are not to be read in isolation as has been done by the High Court. On the other hand, they must be read along with the other various clauses contained in the same rule as well as the detailed instructions given by the Government in the circular letter, dated October 5, 1965. It follows that the reasoning of the High Court that these two sub-clauses violate Article 14 cannot be accepted.” (Emphasis supplied)
# 82. In Union of India and Another v. Jesus Sales Corporation [(1996) 4 SCC 69] , this Court emphasizing how it is up to the authority to decide in a given case on special facts if a personal hearing is warranted and how the noticees cannot insist and courts cannot invalidate orders for want of a personal hearing where the points raised in the representation are duly considered, observed as under:-
“5. ……It need not be pointed out that under different situations and conditions the requirement of compliance of the principle of natural justice vary. The courts cannot insist that under all circumstances and under different statutory provisions personal hearings have to be afforded to the persons concerned. If this principle of affording personal hearing is extended whenever statutory authorities are vested with the power to exercise discretion in connection with statutory appeals, it shall lead to chaotic conditions. Many statutory appeals and applications are disposed of by the competent authorities who have been vested with powers to dispose of the same. Such authorities which shall be deemed to be quasi-judicial authorities are expected to apply their judicial mind over the grievances made by the appellants or applicants concerned, but it cannot be held that before dismissing such appeals or applications in all events the quasi-judicial authorities must hear the appellants or the applicants, as the case may be. When principles of natural justice require an opportunity to heard before an adverse order is passed on any appeal or application, it does not in all circumstances mean a personal hearing. The requirement is complied with by affording an opportunity to the person concerned to present his case before such quasi-judicial authority who is expected to apply his judicial mind to the issues involved. Of course, if in his own discretion if he requires the appellant or the applicant to be heard because of special facts and circumstances of the case, then certainly it is always open to such authority to decide the appeal or the application only after affording a personal hearing. But any order passed after taking into consideration the points raised in the appeal or the application shall not be held to be invalid merely on the ground that no personal hearing had been afforded. ……” (Emphasis supplied)
# 83. Emphasizing that just results can be achieved on written representation and due consideration, this Court reiterating the holding in Gorkha Security Services (supra) held as under in Jah Developers (Supra).
“15. The next question that arises is whether an oral hearing is required under the Revised Circular dated 1-7- 2015. We have already seen that the said circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. It is even more difficult to state that in all cases oral hearings must be given, or else the principles of natural justice are breached. A number of judgments have held that natural justice is a flexible tool that is used in order that a person or authority arrive at a just result. Such result can be arrived at in many cases without oral hearing but on written representations given by parties, after considering which, a decision is then arrived at. Indeed, in a recent judgment in Gorkha Security Services v. State (NCT of Delhi) this Court has held, in a blacklisting case, that where serious consequences ensue, once a show-cause notice is issued and opportunity to reply is afforded, natural justice is satisfied and it is not necessary to give oral hearing in such cases (see para 20). 16. When it comes to whether the borrower can, given the consequences of being declared a wilful defaulter, be said to have a right to be represented by a lawyer, the judgments of this Court have held that there is no such unconditional right, and that it would all depend on the facts and circumstances of each case, given the governing rules and the fact situation of each case. Thus, in Mohinder Singh Gill v. Chief Election Commr., (1978) 1 SCC 405] , in the context of election law, this Court held: (SCC p. 439,
“63. In Wiseman v. Borneman, 1968 Ch 429 : (1968) 2 WLR 320 : (1967) 3 All ER 1045 (CA)] there was a hint of the competitive claims of hurry and hearing. Lord Reid said: ‘Even where the decision has to be reached by a body acting judicially, there must be a balance between the need for expedition and the need to give full opportunity to the defendant to see material against him’ (emphasis added). We agree that the elaborate and sophisticated methodology of a formalised hearing may be injurious to promptitude so essential in an election under way. Even so, natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances. To burke it altogether may not be a stroke of fairness except in very exceptional circumstances. Even in [Wiseman v. Borneman, 1971 AC 297 : (1969) 3 WLR 706 (HL)] where all that was sought to be done was to see if there was a prima facie case to proceed with a tax case where, inevitably, a fuller hearing would be extended at a later stage of the proceedings, Lord Reid, Lord Morris of Borth-y-Gest and Lord Wilberforce suggested ‘that there might be exceptional cases where to decide upon it ex parte would be unfair, and it would be the duty of the tribunal to take appropriate steps to eliminate unfairness’ (Lord Denning, M.R., in Howard v. Borneman (2), 1975 Ch 201 : (1974) 3 WLR 660 (CA)] summarised the observations of the Law Lords in this form). No doctrinaire approach is desirable but the court must be anxious to salvage the cardinal rule to the extent permissible in a given case. After all, it is not obligatory that counsel should be allowed to appear nor is it compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgent meeting with the parties concerned summoned at an hour's notice, or in a crisis, even a telephone call, may suffice.” (Emphasis in original)
# 93. We are persuaded to accept the stand of the RBI that the procedure of issuing a show cause notice, furnishing of the evidentiary material, eliciting a reply and the obligation to pass a reasoned order will meet the requirements of fairness and also thwart mis-carriage of justice. The RBI considering the fact that frauds in accounts are of various hues has opined that granting a right of personal hearing to each and every borrower would be practically inexpedient considering a large volume of cases that have already arisen. Independent of this, as rightly contended by the RBI, the classification of fraud is predominantly based on documentary evidence such as financial statements, transaction records, stock statements and security valuations and other documentary evidence. Oral hearing is bound to convert an administrative process which was intended to be swift, into a protracted one, defeating the very purpose of the exercise. It would also cause significant logistical and infrastructural burden apart from providing opportunity to recalcitrant borrowers who are in possession of the money of the depositors to dissipate assets, destroy evidence or even abscond causing enormous prejudice to public interest. It will also put public money in jeopardy as borrowers will continue to enjoy exposures from banks. Logistically also, it will seriously encumber the working hours of the bank officials. While consideration of the representation and the making of a reasoned order could be made by the committee even beyond banking hours, a personal hearing would mean that it will have to be held during office hours. This will also cause enormous inconvenience to public interest.
CONCLUSIONS: -
# 126. In view of the discussion hereinabove, we hold:
a) Rajesh Agarwal (supra) did not recognize any right in the borrower to a personal hearing by the banks before classifying their account as a fraud account;
b) The RBI in its Master Directions of 15.07.2024 correctly understood the scope of Rajesh Agarwal (supra) and incorporated Clause 2.1.1.1, 2.1.1.2, 2.1.1.3, and 2.1.1.4 as the procedure to be followed before classifying an account as a fraud account;
c) The procedure set out in Rajesh Agarwal (supra) which has been incorporated in the Master Directions of 2024 strikes a fair balance between promptitude and fairness and duly comports with the principles of natural justice ensuring fairness to the borrower whose account is likely to be classified as a fraud account.
d) Wherever audit reports are available, including forensic audit reports, the same shall be furnished to the borrower and their representation on the report, including on the findings and conclusions be elicited, in case the banks consider the audit report relevant for classifying the account as fraud account. In view of the same, disclosure by furnishing copies of the audit report, including the forensic audit report to the borrower is mandatory. Supply of reports in digital form will be valid compliance;
e) As held in T. Takano (supra), if the banks, for reasons to be recorded establish that the disclosure of any part of the report would effect the privacy of third parties, in that exceptional situation banks would be justified to withhold those portions of the report which concern third party rights;
f) We reiterate that the rule is to supply the audit reports, including the forensic audit reports since even under Clause 4 of Chapter IV of the 15.07.2024 Master Directions post the red-flagging of the account banks use the audit mechanism for further investigation. Even in the exceptional cases we hope and expect that the banks will not unreasonably use the power of redaction since that will only end up delaying the culmination of proceedings. Clause 4.1.4 also reiterates that banks shall ensure the principles of natural justice. That this was the legal position even under the 2016 Master Directions is clear from para 95 of Rajesh Agarwal (supra);
g) The judgments of the High Courts which have taken a contrary view to what we have held hereinabove would stand overruled.
DIRECTIONS: -
# 127. In view of what we have held hereinabove,
i) Civil Appeal @ SLP (C) Nos. 20618-20619 of 2025 is partly allowed. While we set aside that part of the order of the Division Bench in F.M.A. 1201 of 2024 dated 12.03.2025 which upheld the learned Single Judge’s order directing grant of personal hearing to the respondent-herein, we uphold the order of the Division Bench insofar as it held that the respondentherein was entitled the copies of the forensic audit reports. Consequently, the Fraud Identification Committee of the appellant-Bank shall furnish the forensic audit reports and after granting an opportunity to the respondent to file its reply proceed in accordance with the Master Directions of the RBI, and pass fresh orders depending on the conclusion they arrive at.
ii) Insofar as Civil Appeal @ Special Leave Petition Diary No. 55628 of 2025 is concerned, the appeal is partly allowed. While the direction of the learned Single Judge as confirmed by the Division Bench in LPA 472 of 2025 dated 29.07.2025 to grant a personal hearing to the respondent is set aside, the directions insofar as they mandate the furnishing of the forensic audit reports are upheld. Consequently, the appellantBanks shall furnish the forensic audit reports and after granting an opportunity to file a representation proceed in accordance with the Master Directions of the RBI, and pass fresh orders depending on the conclusion they arrive at.
# 128. There will be no order as to costs in both the appeals.
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