Fraud classification requires disclosure of relied-upon material and reasons; undisclosed lender consensus could not sustain the order.

A fraud classification based on audit material and lender consensus cannot be sustained unless the borrower is given the relied-upon material and a meaningful opportunity to respond. Here, the show cause notice did not disclose the Joint Lenders Meeting material or the fact that a majority of lenders had reported fraud, so the borrowers were denied an effective defence. The impugned order also lacked independent reasons or findings, and later reliance on the FIR could not cure defects because it was not part of the notice or the challenged order. The notice and fraud declaration were therefore set aside for breach of natural justice and non-supply of material.

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Issues: Whether the show cause notice and the order declaring the account as fraud were liable to be quashed for breach of natural justice, non-supply of relied-upon material, and absence of reasons.

Analysis: The account had earlier been the subject of proceedings founded on the same transaction audit report, and the Tribunal had found that the report by itself did not establish fraudulent, preferential, or undervalued transactions. That view had attained finality and the bank had previously withdrawn the wilful defaulter proceedings. The impugned fraud declaration, however, introduced reliance on the Joint Lenders Meeting and the fact that a majority of lenders had reported fraud, but those materials were neither disclosed in the show cause notice nor supplied to the petitioners. The petitioners were therefore deprived of an effective opportunity to answer the material forming the basis of the adverse action. The order also did not record independent reasons or findings, and the later reliance on the FIR could not sustain the impugned action because it was not part of the notice or the order under challenge.

Conclusion: The show cause notice and the fraud declaration were unsustainable and were set aside for violation of natural justice and failure to furnish the material relied upon.

Ratio Decidendi: An adverse fraud classification based on audit material or lender consensus cannot stand unless the borrower is supplied the relied-upon material and given a meaningful opportunity to respond, and the final order must disclose reasons independently supporting the conclusion.

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