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Natural Justice Principles must be read into RBI Master Circular on Frauds: Telangana High Court

The Telangana High Court has ruled that before an account/borrower is declared fraudulent on applying the RBI’s 2016 Master Circular on the classification of accounts as frauds, an opportunity of hearing must be given to the account holder, considering the principle of natural justice, lest the circular be unconstitutional (Rajesh Agarwal v. RBI and ors).

An order to this effect was passed earlier this month by a Bench of Chief Justice RS Chauhan and Justice B Vijaysen Reddy on a plea moved by Rajesh Agarwal, the former Chairman and Managing Director of BS Limited.

The principles of natural justice, especially the principles of audi alteram partem (opportunity of hearing) would have to be read into Clauses 8.9.4 and 8.9.5 of the Master Circular,” the Court said.

Before a person or entity is obliterated, or is subjected to civil and penal consequences, the person or entity must be given an opportunity of hearing. Without giving an opportunity of hearing, without giving an opportunity to explain the intricacies of the accounts, or of the business dealings, to denounce a person is to act unfairly, unjustly, unreasonably, and arbitrarily, the Court added.

“Even in an administrative action, justice should not only be done, but also must appear to be done to the satisfaction of all the parties. Therefore, the principles of audi alteram partem, howsoever short, must be applied before declaring a party as ‘a fraudulent borrower’, or as ‘a holder of fraudulent account’,” the judgment said.

In rendering its verdict, the Court also waxed eloquent about the significance of natural justice principles, terming them as “clear sunshine which pervade and permeate into the deepest dark corners, and kill the germs of injustice.

The Bench proceeded to cull out the following principles to be borne in mind when it comes to the application of the principles of natural justice.

  • Principles of natural justice have brooding omnipresence.
  • Although the principles of natural justice are not codified, nonetheless, they are applicable both to administrative and quasi-judicial decisions.
  • They do not supplant the law, but merely supplement the law.
  • Unless expressly ousted by a legislation, or by a circular, invariably they will have to be read into the provisions of the law, especially where a decision, administrative or otherwise, would have civil consequence.
  • To see whether the principles of natural justice are impliedly ousted or not, certain factors would have to be kept in mind, namely the language and the basic scheme of the provision conferring the power, the nature of the power, purpose for which it is conferred, and the effect of the exercise of the power; and
  • The principles of natural justice may be impliedly ousted in cases of urgency where obligation to give notice and an opportunity of personal hearing would obstruct the taking of appropriate action, or a preventive, or remedial nature. The purpose of provision would need to be examined. But while seeing the existence of urgency, the Court is required to balance between ‘hurry’ and ‘hearing’.
  • Since the principles of natural justice are not contained in a straight­ jacket formula, they can be adapted to urgent situations. In an urgent situation, it is not necessary to give an elaborate hearing to the affected person. The hearing can be short but substantive, prompt but effective. But it is imperative to bear in mind that even the administrative bodies must act in a just, fair and a reasonable manner. For, fair play in administrative action is the heartbeat of good governance.


Via Bar & Bench
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