Full Text
HIGH COURT OF DELHI
Date of Decision: 21st November, 2025
ASM TRAXIM PRIVATE LIMITED & ORS. .....Petitioners
Through: Mr. Amit Sibal, Senior Advocate
Through: Mr. Santosh Kumar Rout, Standing Counsel for PNB.
JUDGEMENT
JYOTI SINGH, J. (ORAL)
JUDGMENT
1. This writ petition is filed on behalf of the Petitioners seeking the following reliefs:- “a. Issue a writ of certiorari or other appropriate writ for setting aside/ quashing the order dated 11.02.2025 passed by the Respondent bank (while adjudicating the show cause notice dated 19.06.2024), thereby arbitrarily declaring the account of the Petitioner as ‘fraud’ under the Reserve Bank of India Master Directions on Fraud Risk Management in Commercial Banks dated 15.07.2024; b. Issue a writ of certiorari or other appropriate writ for setting aside/ quashing the notice bearing date 11.10.2024 (sent on 04.12.2024) issued by the Respondent bank under Section 13(2) of the SARFAESI Act, 2002; c. Issue a writ of mandamus directing the Respondent bank to disclose all the proceedings initiated against the Petitioners and to comply with the directions passed by this Hon'ble Court vide order dated 08.07.2024 in W.P. (C) No.8995 of 2024 titled as “ASM Traxim Pvt Ltd & Ors. Vs. Punjab National Bank”; d. Issue a writ of mandamus thereby directing the respondent bank to consider the settlement proposal of the petitioners herein in accordance with the rules and regulations applicable to the nonperforming assets (NPAs); e. pass any other Order that this Hon’ble Court may deem fit and proper in the interest of equity, justice and fair play.”
2. To the extent relevant, case of the Petitioners is that Petitioner No. 1 is a Company engaged in business of trading and for carrying out its business activities, it availed credit facilities to the extent of Rs. 45 crores (fund based) and Rs. 5 crore (non-fund based), sanctioned vide Sanction Letter dated 01.05.2013. Petitioners No. 2, 3 and 4 stood as Guarantors to the facility granted by the Respondent Bank and Petitioner No. 5 created a security interest in the form of equitable mortgage over two immovable properties. The credit facility was also secured by creating first charge on the current assets of Petitioner No. 1 Company and Fixed Deposit of Rs. 5 crores.
3. It is stated in the petition that Petitioner No. 1 was regularly repaying the loan till December, 2021. In March, 2020, there was an outbreak of COVID-19, whereby business of Petitioner No. 1 came to a grinding halt, severely crippling its ability to maintain regular servicing of the loan account albeit to show its bona fide intention even in these hard times, at the request of the Respondent, Petitioner No. 1 reduced the working capital limits from Rs. 45 crores to Rs. 35 crores in August, 2020. Respondent on the other hand charged penal interest even during this period, contrary to RBI Guidelines and orders of the Supreme Court and the issue of penal interest at exorbitant rates was separately contested by Petitioner No. 1. Situation worsened with the second wave of COVID-19 in the year 2021 and business operation of Petitioner No. 1 closed for about two months.
4. It is stated that entire interest and other charges upto November, 2021 were duly paid by Petitioner No. 1 by December, 2021 and as a matter of record, vide e-mail dated 27.01.2022 Respondent asked Petitioner No. 1 to clear the overdue amount of Rs. 46,64,751/- for December, 2021, which indicates that as on 27.01.2022, this was the overdue amount. However, arbitrarily and unlawfully, Respondent declared the account of Petitioner No. 1 as NPA in contravention of RBI Guidelines. As a further coercive measure, Respondent recalled the facility, vide Loan Recall Notice dated 09.02.2022 and served notices dated 14.02.2022 and 25.02.2022 invoking guarantees furnished by the guarantors. On 26.02.2022, Petitioner No. 1 wrote to the Respondent expressing its intention to resolve the matter and requested to adjust the FDR amount against the dues and reduce the interest from 16.25% to 8.25% per annum.
5. It is averred that thereafter a Demand Notice dated 22.03.2022, issued under Section 13(2) of SARFAESI Act, 2002, was served on the Petitioners by the Respondent, demanding an amount of Rs. 32,32,47,029/- allegedly outstanding as on 19.03.2022, to which objections were raised on 09.05.2022 by the Petitioners. Petitioner No. 1 also requested Respondent on 28.05.2022 to restructure the account and proposed to make immediate payment of Rs. 1 crore. On 31.05.2022, Petitioners filed W.P.(C) NO. 9326/2022, seeking stay of Demand Notice dated 22.03.2022 as also for direction to the Respondent to consider the representation for restructuring of debt afresh and grant further time for re-payments. On 06.06.2022, One Time Settlement (OTS) proposal was sent by the Petitioners, followed by several such letters. On 18.07.2022, Court directed the Respondent to take a decision on the proposal within 10 days. On 15.09.2022, another OTS proposal was sent by the Petitioners offering to make upfront payment of Rs. 3,17,00,000/-, however, the proposal was rejected on 17.09.2022. Respondent thereafter sent a notice dated 12.10.2022 issued under Section 13(4) of SARFAESI Act, 2002 for taking symbolic possession of mortgaged properties and pursuant to this, Petitioners filed an application to withdraw the writ petition with liberty to take recourse to statutory remedies under Section 17 of the said Act and petition was disposed of as withdrawn.
6. It is stated that Petitioners approached DRT and filed SA NO. 511/2022 seeking quashing of possession notices and restraint order against the Respondent from taking possession, which was rejected on 05.07.2023. Review petition against the said order was allowed on 02.08.2023 and possession notices were quashed, with liberty to the Respondent to take fresh action, in accordance with law. Neither the said order was assailed by the Respondent nor the OTS proposal was considered and suddenly on 19.06.2024, show cause notice was issued calling upon Petitioner No. 1 to show cause as to why the account be not categorized and reported as ‘fraud’ to RBI as per extant guidelines. Petitioners responded to the notice on 22.06.2024 and also filed W.P.(C) No. 8995/2024 in which, vide order dated 08.07.2024 Court directed the Respondent to provide the Petitioners complete forensic audit report and documents relied upon in the show cause notice. On 29.10.2024, relying on the assurance given by the Respondent that the pending OTS proposal will be considered and withdrawal of show cause notice was also under consideration, Petitioners withdrew the writ petition.
7. It is averred that on 04.12.2024, Petitioners received notice under 13(2) of SARFAESI Act, 2002 from the Respondent which was antedated to 11.10.2024, to which response was sent by the Petitioners. Thereafter, impugned order was passed on 11.02.2025, declaring Petitioners’ account as ‘fraud’ based solely on allegation of diversion of funds regarding dealings with Agson Global Pvt. Ltd. Petitioner No. 1 sent a letter dated 15.02.2025 to the Respondent objecting to the allegations in the order and highlighting violations of principles of natural justice as also factual inaccuracies therein.
8. Mr. Amit Sibal, learned Senior Counsel for the Petitioners lays a siege to impugned order dated 11.02.2025 primarily on ground of violation of principles of natural justice. It is urged that Petitioners were not given personal hearing before passing the order, in violation of audi alteram partem principle and to support the plea relies on the judgment of the Supreme Court in State Bank of India and Others v. Rajesh Agarwal and Others, (2023) 6 SCC 1 and of the Division Bench of this Court in IDBI Bank Ltd. v. Gaurav Goel and Others, 2025 SCC OnLine Del 935 as also of the learned Single Judge in Rajiv Gupta v. Indian Bank Limited & Ors., W.P.(C) 15172/2024, decided on 24.09.2025.
9. It is further argued that the show cause notice was based on forensic audit report of M/s Komandoor & Co. LLP, however, only pages 16 to 38 of the said report were furnished, resulting in non-disclosure of relevant material relied upon. To compound the illegality, impugned order dated 11.02.2025 was passed on the basis of forensic audit report given by M/s Pawan Puri & Associates, which was not referred to in the show cause notice and therefore, Petitioners had no chance to respond to the same. The argument is that material referred to and relied upon in the show cause notice was not supplied and material not forming part of the show cause notice was taken into consideration while passing the impugned order. Reliance is placed on the judgment in T. Takano v. Securities and Exchange Board of India and Another, (2022) 8 SCC 162, where the Supreme Court held that it is not only the relied upon material during investigation which is required to be disclosed but the rule of disclosure requires that all relevant material must be disclosed. It is also argued that impugned order introduces fresh allegations concerning transactions with Agson Global Pvt. Ltd., which was not even mentioned in the show cause notice dated 19.06.2024. This constitutes gross violation of Clause 2.[1] of RBI Master Directions on Frauds, which mandates that show cause notice must specify all transactions and actions forming the basis of fraud classification. By introducing new allegations at this stage of final adjudication and that too without affording opportunity to respond to the Petitioners, Respondent has acted in bad faith and in complete disregard of procedural requirements and fairness.
10. Learned counsel appearing for the Respondent submits that all documents relied upon in the show cause notice, including forensic audit report of M/s Komandoor & Co. LLP were supplied to the Petitioners before the impugned order was passed. Relying on the judgment of the Bombay High Court in Anil D. Ambani v. State Bank of India and Another, W.P. 3037/2025, decided on 03.10.2025, it is argued that principles of natural justice only contemplate hearing and not personal hearing, which means that calling for reply is sufficient compliance of principles of natural justice and no grievance can be raised by the Petitioners that personal hearing was not granted.
11. Heard learned Senior Counsel for the Petitioners and learned counsel for the Respondent.
12. Having perused the impugned order and other document on record, this Court finds merit in the submissions made by Mr. Sibal. As a matter of fact and record, no personal hearing was granted to the Petitioners before the impugned order dated 11.02.2025 was passed declaring the account in question as ‘fraud’. It is no longer res integra that even in the realm of administrative action, it is mandatory to provide an opportunity of being heard when the administrative action results in civil consequences against an individual or an entity. The nature of procedure to be adopted under RBI directions relating to classification of an account of a borrower as ‘fraud’, including the applicability of principle of audi alteram partem, came up for consideration before the Supreme Court in Rajesh Agarwal (supra) and it was held that the application of audi alteram partem cannot be impliedly excluded under the Master Directions on Frauds. Principles of natural justice demand that borrowers must be served a notice, given an opportunity to explain the conclusions of the forensic audit report and be allowed to represent before their accounts are classified as ‘fraud’. Since the Master Directions on Frauds do not expressly provide an opportunity of hearing to the borrowers before classifying their account as ‘fraud’, audi alteram partem has to be read into the provisions of the directions to save them from the vice of arbitrariness. Following this judgment, the Division Bench of this Court in IDBI Bank Ltd. (supra), held that the contention of the Bank that opportunity of hearing would not include opportunity of personal hearing is untenable. It was also observed that the submission of the Bank that proceeding consequent upon show cause notice under RBI Directions are administrative proceedings and process of fair hearing will not be as the standard of judicial proceedings, can have no bearing in light of the judgment in Rajesh Agarwal (supra), where the Supreme Court reiterated that even in administrative action, principles of audi alteram partem are to be observed. Relevant passages from the judgment of the Division Bench are as follows:-
based on misreading of the judgment of the Hon'ble Supreme Court in State Bank of India v. Rajesh Agarwal, (2023) 6 SCC 1 (hereinafter referred to as ‘Rajesh Agarwal’) inasmuch as, that in the said judgment what all has been provided by the Hon'ble Supreme Court is that an opportunity of hearing to the borrowers should be provided before passing an order declaring the account of the borrower as fraud, however, which should not be construed as opportunity of personal hearing.
3. It has further been argued that proceedings drawn consequent upon a show cause notice issued under the Reserve Bank of India (Master Directions on Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions 2016. (hereinafter referred to as the ‘RBI Directions’) are administrative proceedings and, therefore, the process of fair hearing need not be at the standard of a judicial proceeding and, consequently, opportunity of personal hearing in such proceedings is not available. In this view, the submission is that the impugned direction issued by the learned Single Judge that petitioners - respondents herein will be at liberty to make request for personal hearing is not lawful.
4. Drawing our attention to an order passed by Hon'ble Supreme Court on a Miscellaneous Application No. 810 of 2023 in Civil Appeal No. 7300 of 2022 in State Bank of India v. Rajesh Agarwal, dated 12.05.2023 which was filed by the State Bank of India, expressing certain apprehensions to the effect that the judgment in Civil Appeal No. 7300 of 2022 may be interpreted to mean that ground of personal hearing is mandatory, though it has not been so directed in the conclusions set out in the said judgment, it has been argued that the said order dated 12.05.2023 makes the legal position clear that in the proceedings drawn under the RBI Directions, there is no scope of providing the borrowers a personal hearing.
5. Submission, thus, is that the learned Single Judge has misread the judgment of the Hon'ble Supreme Court in the case of Rajesh Agarwal, (supra) and has also not taken into account the order dated 12.05.2023 passed by the Hon'ble Supreme Court while issuing the impugned direction.
6. Opposing the appeal, it has been contended by learned counsel representing the respondents that there is no illegality or irregularity in the impugned direction issued by the learned Single Judge by means of the judgment dated 22.05.2024 for the reason that the judgment of the Hon'ble Supreme Court in Rajesh Agarwal, (supra) has correctly been applied and relied upon to conclude that the proceedings drawn under the RBI Directions require that application of the principle of audi alteram partem cannot be impliedly excluded under the RBI Directions on frauds and that what has been held by Hon'ble Supreme Court in the said judgment is that under the RBI Directions on frauds as well as keeping in mind the nature of procedure adopted, it is reasonably practicable for the lender bank to provide an opportunity of hearing to the borrowers before classifying their account as fraud, which would include providing opportunity of personal hearing.
7. It has also been argued on behalf of the respondents that since the Hon'ble Supreme Court in Rajesh Agarwal, (supra) upheld the judgment of Hon'ble High Court of Telangana in Rajesh Agarwal v. RBI, 2020 SCC OnLine TS 2021, wherein it was clearly directed that an opportunity of personal hearing shall be given to the borrower, the very basic premise of this appeal is based on a complete misreading of the judgment of the Hon'ble Supreme Court in Rajesh Agarwal, (supra).
8. In substance, the submission on behalf of the respondents is that once the Hon'ble Supreme Court in Rajesh Agarwal, (supra) upheld the judgment of the Hon'ble High Court of Telangana which provided for opportunity of personal hearing, the instant appeal is highly misconceived which is liable to be dismissed. xxx xxx xxx
10. The only issue which arises for our consideration for appropriate adjudication of this appeal is as to whether the principle of audi alteram partem which has been read to have not been excluded by the Hon'ble Supreme Court in Rajesh Agarwal (supra) in respect of the proceedings drawn under the RBI Directions would mean providing right of personal hearing as well or it would only mean permitting the borrower to file reply to the show cause notice and making representation in writing without any personal hearing thereupon.
11. The nature of procedure to be adopted under the RBI Directions and the consequences of passing final order under the said Directions classifying account of a borrower as fraud, as also the extent of application of principle of audi alteram partem in such proceedings have been discussed at length by the Hon'ble Supreme Court in Rajesh Agarwal, (supra).
12. In Rajesh Agarwal, (supra), the Hon'ble Supreme Court has considered, inter alia, the consequences of classification of an account as fraud and has discussed the application of the rule of audi alteram partem even in administrative actions. The Hon'ble Supreme Court has reiterated the settled principle of law that rule of audi alteram partem applies to administrative actions as well, apart from judicial and quasi-judicial functions. Another important principle reiterated in the said judgment by the Hon'ble Supreme Court is that it is also a settled position in administrative law that it is mandatory to provide for an opportunity of being heard when an administrative action results in civil consequences to a person or entity. The Hon'ble Supreme Court has further observed that that every authority which has the power to take punitive or damaging action has a duty to give a reasonable opportunity to be heard and that administrative action involving civil consequences must be made consistent with the rules of natural justice.
13. Paragraph 40 and 41 of the said judgment in Rajesh Agarwal, (supra) are relevant to be extracted here, which run as under: “40. The process of forming an informed opinion under the Master Directions on Frauds is administrative in nature. This has also been acceded to by RBI and lender banks in their written submissions. It is now a settled principle of law that the rule of audi alteram partem applies to administrative actions, apart from judicial and quasijudicial functions. [A.K. Kraipak v. Union of India, (1969) 2 SCC 262; St. Anthony's College v. Rev. Fr. Paul Petta, 1988 Supp SCC 676: 1989 SCC (L&S) 44; Uma Nath Pandey v. State of U.P., (2009) 12 SCC 40: (2010) 1 SCC (Cri) 501.] It is also a settled position in administrative law that it is mandatory to provide for an opportunity of being heard when an administrative action results in civil consequences to a person or entity.
41. In State of Orissa v. Binapani Dei [State of Orissa v. Binapani Dei, AIR 1967 SC 1269], a two-Judge Bench of this Court held that every authority which has the power to take punitive or damaging action has a duty to give a reasonable opportunity to be heard. This Court further held that an administrative action which involves civil consequences must be made consistent with the rules of natural justice: (AIR p. 1271, para 9) “9. … The rule that a party to whose prejudice an order is intended to be passed is entitled to a hearing applies alike to judicial tribunals and bodies of persons invested with authority to adjudicate upon matters involving civil consequences. It is one of the fundamental rules of our constitutional set-up that every citizen is protected against exercise of arbitrary authority by the State or its officers. Duty to act judicially would therefore arise from the very nature of the function intended to be performed: it need not be shown to be super-added. If there is power to decide and determine to the prejudice of a person, duty to act judicially is implicit in the exercise of such power. If the essentials of justice be ignored and an order to the prejudice of a person is made, the order is a nullity. That is a basic concept of the rule of law and importance thereof transcends the significance of a decision in any particular case.””
14. On an elaborate discussion on the issue which had arisen in Rajesh Agarwal, (supra), which centered around the issue relating to application of principle of audi alteram partem in respect of the proceedings drawn under the RBI Directions, the Hon'ble Supreme Court in paragraph 98 has concluded as under:
98.2. Classification of an account as fraud not only results in reporting the crime to the investigating agencies, but also has other penal and civil consequences against the borrowers.
98.3. 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.
98.4. Such a debarment under Clause 8.12.[1] of the Master Directions on Frauds is akin to blacklisting the borrowers for being untrustworthy and unworthy of credit by banks. This Court has consistently held that an opportunity of hearing ought to be provided before a person is blacklisted.
98.5. The application of audi alteram partem cannot be impliedly excluded under the Master Directions on Frauds. In view of the timeframe contemplated under the Master Directions on Frauds as well as the nature of the procedure adopted, it is reasonably practicable for the lender banks to provide an opportunity of a hearing to the borrowers before classifying their account as fraud.
98.6. The principles of natural justice demand that the borrowers must be served a notice, given an opportunity to explain the conclusions of the forensic audit report, and be allowed to represent by the banks/JLF before their account is classified as fraud under the Master Directions on Frauds. In addition, the decision classifying the borrower's account as fraudulent must be made by a reasoned order.
98.7. Since the Master Directions on Frauds do not expressly provide an opportunity of hearing to the borrowers before classifying their account as fraud, audi alteram partem has to be read into the provisions of the directions to save them from the vice of arbitrariness.”
15. Underlying the fact that classification of account of a borrower as fraud results in civil consequences against the borrower, it has thus, been concluded in Rajesh Agarwal, (supra) that application of principle of audi alteram partem cannot be excluded under the RBI Directions on fraud and that it is reasonably practicable for lender banks to provide for an opportunity of hearing to the borrowers before classifying their accounts as fraud.
16. In paragraph 99, the Hon'ble Supreme Court in Rajesh Agarwal, (supra) has clearly upheld the judgment of the Division Bench of the Hon'ble High Court of Telangana dated 10.12.2020 (2020 SCC OnLine TS
2021) and other such judgments. Paragraph 99 of Rajesh Agarwal (supra) is quoted below:—
Telangana dated 22-12-2021 [Shree Saraiwwalaa Agrr Refineries Ltd. v. Union of India, 2021 SCC OnLine TS 1816] and 31-12- 2021 [Yashdeep Sharma v. RBI, 2021 SCC OnLine TS 1852], and of the High Court of Gujarat dated 23-12-2021 [Mona Jignesh Acharya v. Bank of India, 2021 SCC OnLine Guj 2811] are accordingly set aside. The civil appeals are disposed of. Writ Petition
(C) No. 138 of 2022 is also disposed of in the above terms. There shall be no order as to costs.”
17. It is noticeable, at this juncture, that Rajesh Agarwal, (supra) had emanated from the judgment of the Hon'ble High Court of Telangana (2020 SCC OnLine TS 2021). While allowing the writ petition filed by the petitioner, the Hon'ble High Court of Telangana in paragraph 76 had issued certain directions. Paragraph 76 of the judgment of the Hon'ble High Court of Telangana is extracted herein below:
18. From a perusal of the afore-quoted extracts of the judgment rendered by the Hon'ble High Court of Telangana what we find is that one of the directions issued, as embodied in paragraph 76.[4] of the judgment, was to give opportunity of ‘personal hearing’ both to the petitioner in the said writ petition and also to the Official Liquidator before taking any decision on the issue whether the account should be classified as fraud or not.
19. Since, in paragraph 99, the Hon'ble Supreme Court has upheld the said decision of the Hon'ble High Court of Telangana (2020 SCC OnLine TS 2021), in our considered opinion, reading the conclusion in Rajesh Agarwal, (supra), as can be found in paragraph 98.4, to mean that in proceedings under the RBI Directions, opportunity of hearing would not include opportunity of personal hearing, is untenable. Once, the Hon'ble Supreme Court upheld the judgment of the Hon'ble High Court of Telangana which clearly had directed for providing an opportunity of personal hearing as well, to conclude that opportunity of hearing would not include opportunity of personal hearing, in our opinion, will be erroneous.
20. The submission made by learned counsel representing the appellant that the proceedings consequent upon the show cause notice under the RBI Directions are administrative proceedings as such the process of fair hearing will not be at the standard of a judicial proceeding, in our considered opinion, does not have any bearing to the instant case for the reason that the Hon'ble Supreme Court in Rajesh Agarwal, (supra) has clearly reiterated the well-known principle of law that even in administrative action, the principles of audi alteram partem are to be observed. The extent of application of the principle of audi alteram partem in the proceedings drawn under the RBI Directions has already been explained by the Hon'ble Supreme Court in Rajesh Agarwal, (supra) which has upheld the directions issued by the Hon'ble High Court of Telangana where one of the directions issued was for providing opportunity of personal hearing as well. xxx xxx xxx
22. However, once the Hon'ble Supreme Court in Rajesh Agarwal, (supra) has clearly upheld the directions issued by the Hon'ble High Court of Telangana (2020 SCC OnLine TS 2021) regarding providing opportunity of personal hearing in the proceedings drawn under the RBI Directions, it is not open to this Court to read the application of principle of audi alteram partem in any other manner.
23. The submission of learned counsel for the appellant that in the conclusion drawn by the Hon'ble Supreme Court in Rajesh Agarwal, (supra), the word ‘hearing’ did not qualify the word ‘personal’, while reading the principle of audi alteram partem in the procedure to be adopted under the RBI Directions, such opportunity of personal hearing is not mandatory is not tenable in the instant matter for the reasons given above, specially for the reason that the Hon'ble Supreme Court has upheld the directions issued by Hon'ble High Court of Telangana which clearly provided for opportunity of personal hearing to the borrower.”
13. In Rajiv Gupta (supra), Coordinate Bench of this Court quashed the impugned order, whereby the loan account was classified as ‘fraud’ on the ground that personal hearing was not afforded to the Petitioner. Reliance was placed by the Court on the judgments aforementioned.
14. From a conspectus of the aforesaid judgments, there is no doubt that principle of audi alteram partem will be applicable in respect of proceedings under the Master Directions on Frauds and the requirement of personal hearing cannot be dispensed with before classifying an account of a borrower as ‘fraud’. The argument of the counsel for the Respondent in the present case that principles of natural justice and/or opportunity of hearing does not mean personal hearing, cannot sustain as this very argument was negated by the Supreme Court in Rajesh Agarwal (supra) and the Division Bench of this Court in IDBI Bank Ltd. (supra). The fact that no personal hearing was granted to the Petitioners before passing the impugned order dated 11.02.2025 is enough to quash the said order. However, for the sake of completeness, it be noted that there are two other serious illegalities and infractions of law in the present case.
15. Mr. Sibal pointed out and rightly so, that only pages 16 to 38 of the forensic audit report of M/s Komandoor & Co. LLP, relied upon in the show cause notice, were provided to the Petitioners, thereby depriving them of the opportunity to deal with and respond to the report. Another glaring illegality pointed out is that in the impugned order dated 11.02.2025, reliance is placed on the forensic audit report of M/s Pawan Puri & Associates, however, the report was not a relied upon document in the show cause notice and was not provided to the Petitioners before passing the impugned order. This procedure is unknown to law and is in teeth of the judgement in Rajesh Agarwal (supra), where the Supreme Court observed in paragraph 98 that classification of an account as ‘fraud’ not only results in reporting the crime to the investigating agencies but also has other penal and civil consequences against the borrowers. Such a debarment is akin to blacklisting the borrowers for being untrustworthy and unworthy of credit by banks and therefore, application of audi alteram partem cannot be excluded. It was emphasised that principles of natural justice demand that borrowers are given a notice along with documents such as forensic audit report and allowed to explain the conclusion of the reports.
16. In T. Takano (supra), the Supreme Court held that not only the relied upon material must be disclosed but as a default rule, all relevant material emerging during investigation must be disclosed. The Supreme Court observed that principles of fairness and transparency of adjudicatory proceedings are the corner stones of the principle of open justice. Keeping a party bereft of the information that influenced the decision of an authority undertaking an adjudicatory function also undermines the transparency of the judicial process. It denies the party concerned and the public at large the ability to effectively scrutinize the decision of the authority since it creates an information asymmetry. The purpose of disclosure of information is not merely individualistic, that is to prevent errors in the verdict but is also towards fulfilling the larger institutional purpose of fair trial and transparency. Since the purpose of disclosure of information targets both the outcome (reliability) and the process (fair trial and transparency), it would be insufficient if only the material relied on is disclosed. Such a rule of disclosure, only holds nexus to the outcome and not the process and therefore as a default rule, all relevant material must be disclosed. Relevant paragraphs are as follows:- “C.2. Duty to disclose investigative material
27. While the respondents have submitted that only materials that have been relied on by the Board need to be disclosed, the appellant has contended that all relevant materials need to be disclosed. While trying to answer this issue, we are faced with a multitude of other equally important issues. These issues, all paramount in shaping the jurisprudence surrounding the principles of access to justice and transparency, range from identifying the purpose and extent of disclosure required, to balancing the conflicting claims of access to justice and grounds of public interest such as privacy, confidentiality and market interest.
28. An identification of the purpose of disclosure would lead us closer to identifying the extent of required disclosure. There are three key purposes that disclosure of information serves:
28.1. Reliability: The possession of information by both the parties can aid the courts in determining the truth of the contentions. The role of the court is not restricted to interpreting the provisions of law but also determining the veracity and truth of the allegations made before it. The court would be able to perform this function accurately only if both parties have access to information and possess the opportunity to address arguments and counter-arguments related to the information.
28.2. Fair trial: Since a verdict of the Court has far-reaching repercussions on the life and liberty of an individual, it is only fair that there is a legitimate expectation that the parties are provided all the aid in order for them to effectively participate in the proceedings.
28.3. Transparency and accountability: The investigative agencies and the judicial institution are held accountable through transparency and not opaqueness of proceedings. Opaqueness furthers a culture of prejudice, bias, and impunity—principles that are antithetical to transparency. It is of utmost importance that in a country grounded in the Rule of Law, the institutions adopt those procedures that further the democratic principles of transparency and accountability. The principles of fairness and transparency of adjudicatory proceedings are the cornerstones of the principle of open justice. This is the reason why an adjudicatory authority is required to record its reasons for every judgment or order it passes. However, the duty to be transparent in the adjudicatory process does not begin and end at providing a reasoned order. Keeping a party bereft of the information that influenced the decision of an authority undertaking an adjudicatory function also undermines the transparency of the judicial process. It denies the party concerned and the public at large the ability to effectively scrutinise the decisions of the authority since it creates an information asymmetry.
29. The purpose of disclosure of information is not merely individualistic, that is to prevent errors in the verdict but is also towards fulfilling the larger institutional purpose of fair trial and transparency. Since the purpose of disclosure of information targets both the outcome (reliability) and the process (fair trial and transparency), it would be insufficient if only the material relied on is disclosed. Such a rule of disclosure, only holds nexus to the outcome and not the process. Therefore, as a default rule, all relevant material must be disclosed.
30. It would be fundamentally contrary to the principles of natural justice if the relevant part of the investigation report which pertains to the appellant is not disclosed. The appellant has to be given a reasonable opportunity of hearing. The requirement of a reasonable opportunity would postulate that such material which has been and has to be taken into account under Regulation 10 must be disclosed to the noticee. If the report of the investigating authority under Regulation 9 has to be considered by the Board before satisfaction is arrived at on a possible violation of the regulations, the principles of natural justice require due disclosure of the report.”
17. Therefore, Mr. Sibal is right in his submission that once the Respondent chose to rely on the report of M/s Komandoor & Co. LLP in the show cause notice, the entire report ought to have been furnished to the Petitioners and likewise if the forensic audit report rendered by M/s Pawan Puri & Associates was not a part of the relied upon documents in the show cause notice, the same ought not to have been considered for taking a decision and passing the final order. Mr. Sibal has also substantiated that fresh allegations were introduced in the impugned order albeit not being part of show cause notice dated 19.06.2024 and illustratively, referred to transactions with Agson Global Pvt. Ltd. As rightly flagged, this is in violation of Clause 2.[1] of Master Directions on Frauds as also principles of natural justice and fairness and cannot be sustained.
18. The judgment of the Bombay High Court in Anil D. Ambani (supra) relied upon by the counsel for the Respondent is of no aid in light of judgment of the Supreme Court in Rajesh Agarwal (supra), upholding the judgment of High Court of Telangana, wherein it was held in paragraph 76.[4] that opportunity of personal hearing was required to be granted before taking any decision on classification of the account as ‘fraud’ as also the observations of the Supreme Court in paragraph 98 of the judgment that audi alteram partem requiring opportunity of personal hearing must be read into provisions of Master Directions on Frauds to save them from vice of arbitrariness.
19. Accordingly, the impugned order dated 11.02.2025 as also notice dated 11.10.2024 are quashed and set aside. This will, however, not preclude the Respondent from proceeding afresh from the stage of show cause notice dated 19.06.2024, if so advised and in accordance with law, with a caveat that if the Respondent takes a decision to proceed with the notice, final order shall not be passed without providing all relevant material/documents to the Petitioners and granting personal hearing.
20. Writ petition is allowed and disposed of along with pending application in the aforesaid terms.
JYOTI SINGH, J NOVEMBER 21, 2025/YA/S.Sharma