CENTRAL BUREAU OF INVESTIGATION Vs. SURENDRA PATWA

JUDGEMENT

(1.) Leave granted.

(2.) The Reserve Bank of India (hereinafter referred to as the "RBI") issued the Master Directions on Frauds - Classification and Reporting by commercial banks and select FIs, dtd. 1/7/2016 (hereinafter referred to as "Master Directions"). The Master Directions had been formulated with the objective of providing a framework for banks, to enable early detection and reporting of frauds, and consequently taking actions in a timely manner. In view of the same, the Appellant-Banks initiated administrative actions that affected the respondents, by declaring the companies' bank accounts as fraudulent - an action which had significant civil consequences delineated in the Master Directions. The Appellant-Banks also initiated criminal proceedings against the respondents, with respect to fraudulent activity that was detected, as the Master Directions require the Banks to refer certain categories of cases to the State Police or the Central Bureau of Investigation (hereinafter referred to as "CBI"), as a general rule. Aggrieved by the same, the respondents approached different jurisdictional High Courts, challenging the validity of the Master Directions, and the actions taken consequently.

(3.) The High Courts, vide the impugned orders, have quashed not only the administrative actions initiated in pursuance of the Master Directions, but also the First Information Reports (FIRs) registered and the subsequent criminal proceedings initiated against the respondents. Placing reliance upon the ratio of the judgment of this Court in State Bank of India and Others v. Rajesh Agarwal and Others, (2023) 6 SCC 1 (hereinafter referred to as "Rajesh Agarwal's case"), the administrative actions were quashed primarily on the ground of non-adherence to the principles of natural justice, more specifically the principle of Audi Altarem Partem, as the concerned respondents were not given an opportunity of being heard before the companies' bank accounts were declared as fraudulent/blacklisted. The High Courts consequently quashed the criminal proceedings initiated against the respondents, holding that they are a natural corollary to the administrative action of declaring the aforementioned bank accounts as fraudulent.