Delhi High Court - Orders
Arvind Dham Through Pairokar vs Idbi Bank Limited & Anr on 3 July, 2025
$~51
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 8955/2025 & CM APPL. 38280/2025
ARVIND DHAM THROUGH PAIROKAR .....Petitioner
Through: Mr. Krishan Kumar, Mr. Shivam
Bedi, Mr. Shambhu Thakur, Mr.
Shobh Maurya, Mr. Karan Batura,
Mr. Dipanshu Krishna and Ms. Tanvi
Sapra, Advs.
versus
IDBI BANK LIMITED & ANR. .....Respondents
Through: Mr. Sidhartha Barua and Mr. Kumar
Arnav Singh Deo, Advs. for R-
1/IDBI.
CORAM:
HON'BLE MR. JUSTICE VIKAS MAHAJAN
ORDER
% 03.07.2025 CM APPL. 38281/2025 (exemption)
1. Allowed, subject to all just exceptions.
2. Application stands disposed of.
W.P.(C) 8955/2025
3. The present petition has been filed praying inter alia for the quashing/setting aside of impugned decision taken by the respondent no.1 bank in its meeting held on 28.10.2024, which was communicated to the petitioner under the cover of respondent no.1 bank's letter dated 20.11.2024, whereby the petitioner has been classified as fraud.
4. Mr. Krishan Kumar, learned counsel for the petitioner submits that the impugned order is not legally tenable inasmuch as no personal hearing was afforded to the petitioner.
5. Inviting attention of the Court to the impugned order whereby the This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/07/2025 at 21:51:48 respondent no.1 bank has declared the petitioner as fraud, he submits that though, there is reference to the reply to the show cause notice having been submitted by the petitioner but there is no reference to any personal hearing having been granted.
6. He places reliance upon the decision of the Hon'ble Supreme Court in State Bank of India vs. Rajesh Agrawal & Ors., (2023) 6 SCC 1 to contend that it is mandatory for the respondent bank to afford personal hearing to the person against whom proceedings have been initiated for declaration of fraud. The relevant paragraph from the said decision read thus:
"55. Classification of the borrower's account as fraud under the Master Directions on Frauds virtually leads to a credit freeze for the borrower, who is debarred from raising finance from financial markets and capital markets. The bar from raising finances could be fatal for the borrower leading to its "civil death" in addition to the infraction of their rights under Article 19(1)(g) of the Constitution. Since debarring disentitles a person or entity from exercising their rights and/or privileges, it is elementary that the principles of natural justice should be made applicable and the person against whom an action of debarment is sought should be given an opportunity of being heard.
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.
xxx xxx xxx
E. Conclusion
98. The conclusions are summarised below:
98.1. No opportunity of being heard is required before an FIR is lodged and registered.
98.2. Classification of an account as fraud not only results in This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/07/2025 at 21:51:48 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 time-frame 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.
99. In the result, the judgment of the Division Bench of the High Court of Telangana dated 10-12-2020 [Rajesh Agarwal v. RBI, 2020 SCC OnLine TS 2021] is upheld. The judgments of the High Court of 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 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/07/2025 at 21:51:48 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."
(emphasis supplied)
7. He further contends that the Hon'ble Division Bench of this Court in IDBI Bank Limited vs. Gaurav Goel & Ors., 2025 SCC OnLine Del 935, has also clarified that Rajesh Agarwal (supra) lays down that granting of personal hearing is mandatory before declaring the person as fraud. The relevant paragraph from the said decision reads thus:
"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 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/07/2025 at 21:51:48 High Court of Telangana where one of the directions issued was for providing opportunity of personal hearing as well.
21. It is trite in law that there is no straight jacketed formula to ensure observance of principles of justice for the reason that the extent and width of application of this principle depends on the nature of proceedings and the provisions under which such proceedings are drawn as also on the consequences which such proceedings entail.
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."
(emphasis supplied)
8. In view of the above, issue notice. Mr. Sidhartha Barua, learned counsel for the respondent no.1/IDBI accepts notice.
9. On a query posed by the court, Mr. Barua fairly states that no personal hearing was afforded to the petitioner in the present petition. However, he prays for time to file counter-affidavit.
10. Let counter-affidavit be filed within a period of four weeks. Rejoinder thereto, if any, be filed within a period of two weeks thereafter.
11. List on 20.08.2025.
12. In the meanwhile, it is directed that the operation of the impugned order dated 20.11.2024 classifying the petitioner as "fraud" shall remain stayed.
VIKAS MAHAJAN, J JULY 3, 2025/dss This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/07/2025 at 21:51:48