Natural justice in fraud classification requires personal hearing before an account is tagged as fraud under RBI Directions.

Under the RBI Master Directions on Frauds, the requirement of audi alteram partem includes a personal hearing before an account is classified as fraud. The Delhi HC noted that fraud classification has serious civil consequences and that natural justice applies to this administrative action. Relying on Rajesh Agarwal and the earlier Telangana decision, the Court read a hearing into the process and held that the expression "hearing" is not limited to a written representation where the procedure requires more. The later clarification relied on by the appellant did not dilute that position, and the borrower was held entitled to a personal hearing before fraud classification.

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Issues: Whether, in proceedings under the RBI Master Directions on Frauds, the requirement of audi alteram partem includes an opportunity of personal hearing to the borrower before the account is classified as fraud.

Analysis: The ruling in Rajesh Agarwal recognises that classification of an account as fraud has serious civil consequences and that the principles of natural justice apply to such administrative action. The judgment reads the requirement of hearing into the fraud-classification process and places reliance on the fact that the earlier Telangana decision, which was upheld, had expressly directed that the borrower be given an opportunity of personal hearing before the decision to classify the account as fraud. The later clarification relied upon by the appellant did not dilute that position. On that basis, the Court held that the expression hearing in this context is not confined to a written representation alone and can include personal hearing where the procedure so requires.

Conclusion: The borrower is entitled to an opportunity of personal hearing before the account is classified as fraud under the RBI Directions, and the challenge to the Single Judge's direction fails.

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