Natural justice in fraud classification requires notice and disclosure, but not necessarily a personal hearing before adverse action.

A clarificatory fraud-management regime did not wipe out a pending show-cause notice issued under the earlier directions, so the fraud-determination process could continue if natural justice was observed. The governing standard was audi alteram partem: notice, disclosure of the material relied upon, and an opportunity to file a written response were required before an adverse fraud classification. A personal hearing was not treated as mandatory in every case unless expressly provided. The article also notes that where a company's account is classified as fraud, persons in control may face consequential action even without a separate specific allegation against them, if their control is otherwise established.

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Issues: (i) whether the show-cause notice issued under the earlier fraud-management directions became non-est upon notification of the revised directions and could not sustain the subsequent fraud classification; (ii) whether the revised directions and the governing law required a mandatory personal hearing before an account could be classified as fraud, and whether the fraud declaration against the petitioner was invalid for want of specific allegations.

Issue (i): whether the show-cause notice issued under the earlier fraud-management directions became non-est upon notification of the revised directions and could not sustain the subsequent fraud classification.

Analysis: The revised directions were held to be issued in conformity with the Supreme Court's earlier ruling and to incorporate the requirement of compliance with natural justice. The earlier show-cause notice was not treated as obliterated by the later directions merely because the revised regime stated that it superseded the earlier one. The later directions were treated as clarificatory in nature, and the pending process initiated under the earlier notice was held to continue, provided natural justice was observed and the borrower was given an opportunity to respond.

Conclusion: The challenge based on supersession failed, and the earlier show-cause notice remained valid for continuation of the fraud-determination process.

Issue (ii): whether the revised directions and the governing law required a mandatory personal hearing before an account could be classified as fraud, and whether the fraud declaration against the petitioner was invalid for want of specific allegations.

Analysis: The governing principle was held to be audi alteram partem, which required notice, disclosure of the material relied upon, and an opportunity to submit a written representation before an adverse fraud classification. It was held that this safeguard did not extend, as a matter of right, to an oral or personal hearing in every case. The Court also held that once a company's account is classified as fraud, promoters or persons in control may be subjected to the attendant penal consequences, and a separate specific allegation in the notice against such person is not indispensable where the person's control over the company is otherwise shown. On the facts, the petitioner had been afforded sufficient opportunity to respond, and the record supported his status as a person in control.

Conclusion: No mandatory personal hearing was required, and the fraud classification against the petitioner was upheld.

Final Conclusion: The petition failed on all material grounds, and the fraud classification and consequential reporting against the petitioner were sustained.

Ratio Decidendi: In fraud-classification proceedings, the requirements of natural justice are satisfied by notice, disclosure of the material relied upon, and a fair opportunity to make a written representation; a personal hearing is not mandatory unless expressly provided, and a clarificatory subsequent regulatory direction does not invalidate a pending proceeding lawfully commenced earlier.

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