Fraud classification under RBI directions requires disclosure and response, but no absolute right to personal oral hearing.

In fraud-classification proceedings under RBI directions, natural justice requires prior notice, disclosure of the material relied upon, an opportunity to respond, and a reasoned order, but it does not create an absolute right to a personal oral hearing. The borrower must be given the forensic audit report or the substantive basis of the adverse material so that an effective representation can be made; furnishing only conclusions is insufficient. Disclosure may be limited by narrow redaction in exceptional cases where third-party rights or confidentiality would be prejudiced. The directions for personal hearing were set aside, while disclosure of the forensic audit reports and opportunity to respond before fresh consideration were sustained.

---

---

Issues: (i) Whether the borrower has a right to a personal hearing before an account is classified as fraud under the RBI Master Directions; (ii) Whether the borrower is entitled to disclosure of the forensic audit report or only its conclusions before fraud classification.

Issue (i): Whether the borrower has a right to a personal hearing before an account is classified as fraud under the RBI Master Directions.

Analysis: The procedure in the governing directions and the earlier decision reading natural justice into the fraud-classification framework required notice, opportunity to respond, consideration of the reply, and a reasoned order. The right of hearing recognised in that framework was not a mandatory oral or personal hearing. The flexible content of natural justice depends on the statutory scheme, the nature of the decision, the urgency of the process, and the regulatory objective of prompt fraud detection and reporting. A compulsory oral hearing was held to be unnecessary and impracticable in this context.

Conclusion: No right to a personal hearing exists before fraud classification.

Issue (ii): Whether the borrower is entitled to disclosure of the forensic audit report or only its conclusions before fraud classification.

Analysis: The material relied upon to classify an account as fraud is part of the basis of the adverse decision and must be disclosed to enable an effective representation. Furnishing only the conclusions would not sufficiently satisfy fairness because the findings and reasons are embedded in the report itself. The duty of disclosure is not absolute and may yield to limited redaction where disclosure would prejudice third-party rights or confidentiality, but such withholding is exceptional. The audit report, including the forensic audit report, is therefore the rule of disclosure.

Conclusion: The borrower is entitled to disclosure of the forensic audit report, subject to narrow redaction in exceptional cases.

Final Conclusion: The appeals were allowed only in part: the directions for personal hearing were set aside, while the direction to furnish the forensic audit reports and permit response before fresh consideration was sustained.

Ratio Decidendi: In fraud-classification proceedings under the RBI directions, natural justice requires prior notice, disclosure of the material relied upon, an to respond, and a reasoned order, but it does not confer an absolute right to personal oral hearing.

---