Delhi High Court - Orders
Arvind Dham Through Pairokar vs Idbi Bank Limited on 30 May, 2025
$~59
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 11718/2024, CM APPL. 48725/2024, CM APPL.
59510/2024 & CM APPL. 74691/2024
ARVIND DHAM THROUGH PAIROKAR .....Petitioner
Through: Mr. Sunil Dalal, Sr. Adv. with Mr.
Karan Barua, Mr. Dipanshu Krishna,
Ms. Tanvi Sapra, Mr. Shambhu
Thakur, Mr Krishan Kumar, Mr.
Nikhil Beniwal, Ms. Shipra Bali and
Ms. Riya Rana, Advs.
versus
IDBI BANK LIMITED .....Respondent
Through: Mr. Siddhartha Barua, Mr. Kumar
Arnav Singh Deo, Mr. Praful Jindal
and Mr. Aakash Mohan, Advs.
CORAM:
HON'BLE MR. JUSTICE VIKAS MAHAJAN
ORDER
% 30.05.2025
1. The present petition has been filed inter alia praying for quashing/setting aside of the impugned order dated 05.08.2024 whereby the petitioner has been classified as 'Fraud'.
2. Mr. Sunil Dalal, learned senior counsel appearing on behalf of the petitioner submits that the impugned order is bad in law in as much as the relied upon documents were not provided to the petitioner.
3. Inviting attention of the Court to the petitioner's letter dated 22.02.2024 (Annexure P-8), he submits that the petitioner had sought various documents as enumerated in para 14 of the said letter. However, the respondent bank has rejected the request of the petitioner and has only provided relevant extracts of FAR report vide its letter dated 06.03.2024 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 28/06/2025 at 00:33:17 (Annexure P-9) without any cogent reasons.
4. He further invites attention of the Court to petitioner's letter dated 28.03.2024 to contend that petitioner had specifically solicited a personal hearing. However, the same was denied by the respondent bank vide its letter dated 18.04.2024. The relevant part of the said letter reads thus:
"Sir, Please refer to your letter dated March 28, 2024 in connection to the reply letter dated March 06, 2024 issued by IDBI Bank Ltd. to you in the matter of M/s Metalyst Forging Ltd. In this regard the relevant extracts of the Forensic Audit Report which are being relied by the Bank for declaration of account as fraud has been provided to you vide our letter dated March 06, 2024. We re-iterate that the other documents again sought by you were not relied by the Bank for declaration of the account as fraud and hence we are not liable to provide the same to you. As regard personal hearing sought is concerned, it is requested to put forth your points/submissions alongwith documentary evidence, if any, through written representation."
(emphasis supplied)
5. He, therefore, contends that there is no dispute that the personal hearing has been declined to the present petitioner.
6. Mr. Dalal has also placed reliance upon the decision of Hon'ble Supreme Court in State Bank of India vs. Rajesh Agarwal & Ors., (2023) 6 SCC 1, to contend that it is mandatory for the respondent bank to afford a personal hearing to the person against whom the proceedings have been initiated for declaration of 'Fraud'. The relevant paragraph of the said judgment reads thus:
"55. Classification of the borrower's account as fraud under the Master Directions on Frauds virtually leads to a credit 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 28/06/2025 at 00:33:17 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 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.
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 28/06/2025 at 00:33:17 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 28/06/2025 at 00:33:17 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.
100. Pending application(s), if any, shall stand disposed of."
(emphasis supplied)
7. He further contends that the Division Bench of this Court in IDBI Bank Ltd 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. 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-
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 28/06/2025 at 00:33:17 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.
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. Mr. Dalal also invites attention of the Court to another decision of the Hon'ble Supreme Court in T. Takano vs. Securities and Exchange Board of India and Another, (2022) 8 SCC 162 to contend that not only the documents which have been relied upon in the show cause notice but all other material documents needs to be supplied to the person against whom the proceedings are contemplated. The relevant paragraphs of the said decision reads thus:
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 28/06/2025 at 00:33:17 "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.
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50. The following principles emerge from the above discussion:
50.1. A quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication.
50.2. An ipse dixit of the authority that it has not relied on certain material would not exempt it of its liability to disclose such material if it is relevant to and has a nexus to the action that is taken by the authority. In all reasonable probability, such material would have influenced the decision reached by the authority.
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 28/06/2025 at 00:33:17 50.3. Thus, the actual test is whether the material that is required to be disclosed is relevant for purpose of adjudication. If it is, then the principles of natural justice require its due disclosure."
(emphasis supplied)
9. In the above backdrop, it is urged by Mr. Dalal that the impugned order needs to be stayed.
10. On a specific query posed by the Court to Mr. Barua, learned counsel appearing on behalf of the respondent/IDBI, he fairly concedes that insofar as personal hearing is concerned, the same has not been afforded to the present petitioner. However, he disputes the submission of Mr. Dalal that the relevant documents have not been provided.
11. Referring to the order dated 27.08.2024 in the present writ petition Mr. Barua contends that the contention of the petitioner that all relevant documents were not supplied to him has already been rejected.
12. Be that as it may, there is no dispute that personal hearing has not been afforded to the present petitioner, which is mandatory in terms of the statement of law as noted hereinabove, therefore, the impugned order dated 05.08.2024 classifying the petitioner as 'Fraud' is stayed till the next date.
13. In the meanwhile, let Mr. Barua seek instructions with regard to furnishing of documents, which petitioner claim to be relevant including complete forensic audit report.
14. Re-notify on 20.08.2025.
VIKAS MAHAJAN, J MAY 30, 2025/N.S. ASWAL 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 28/06/2025 at 00:33:17