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Judgment
HON’BLE MR. JUSTICE DEVASHIS BARUAH
Heard Mr. A. H. M. R. Choudhury, the learned counsel appearing on behalf of the Petitioner and Mr. P. Hazarika, the learned counsel appearing on behalf of the Respondent No.2. I have also heard Mr. A. Chetia, the learned counsel appearing on behalf of the Respondent Nos. 4 to 7.
The present writ petition has been filed by the Petitioner primarily challenging the fraud report which has been submitted to the Reserve Bank of India by the Respondent Nos. 4 to 7 as well as freezing the Petitioner's Savings Bank Account bearing No.9200100534763571 maintained in the Branch of the Respondent No.4 at Dhubri arrayed as the Respondent No.7.
The case of the Petitioner herein is that the Petitioner is a registered valuer under the Chief Commissioner of Income Tax, Guwahati and in that regard, he is Registered vide a letter dated 11.09.2008 issued by the Chief Commissioner of Income Tax, Guwahati for valuation of immovable properties, (other than Agricultural land, Plantations, Forests, Mines, and Quarries).
The Respondent No.4 Bank executed an agreement with the Petitioner on 30.05.2019 whereby the Petitioner was engaged as a Service Provider to perform function as valuer of non-agricultural property. The period of the agreement was for 3 (three) years, which was renewed in the year 2022.
The Petitioner has a Savings Bank Account maintained with the Respondent Bank bearing No.9200100534763571 in the Dhubri Branch of the Respondent No.4 Bank. It is the case of the Petitioner that all of a sudden, on 02.11.2023, the Respondent Bank terminated the engagement of the Petitioner as Service Provider by alleging negligence and deficiency of service. The Petitioner was also given 7 (seven) days' time to submit all the pending dues/bills, which shall be paid by the Respondent Bank upon submission of the bills.
The Petitioner's Savings Bank Account which was maintained in the Respondent No.7's Branch was made non-functional. Under such circumstances, the Petitioner submitted an application on 01.05.2024 requesting to make the Bank Account functional. Nothing happened for which the Petitioner was compelled to issue a legal notice on 11.06.2024. The Respondent Bank replied to the legal notice on 04.07.2024, stating that the Respondent Bank was examining the matter.
It is the further case of the Petitioner that thereupon also, there was no response for which the Petitioner submitted yet another representation on 31.08.2024, requesting the Respondent Bank to defreeze the Petitioner's Account. The Respondent Bank thereupon issued a communication to the Petitioner on 06.09.2024 informing him to contact with the Respondent Nos. 5 and 6 for unblocking his Savings Bank Account. When the Petitioner approached the Respondent Nos. 5 & 6, the Petitioner was informed that a fraud report had been submitted by the Respondent Bank through the Respondent No. 2 which led to a registration of a Fraud Case No.UTIB2402-10276 under the Central Fraud Registry, Reserve Bank of India. It is under such circumstances, the Petitioner has approached this Court seeking the reliefs of setting aside and quashing the Fraud Case No.UTIB2402-10276 as well as for defreezing the Petitioner's Bank Account.
The learned counsel appearing on behalf of the Petitioner submitted that the Petitioner is not challenging the termination in the present proceedings.
Upon filing of the instant writ petition, the learned Coordinate Bench of this Court on 28.10.2024 issued notice.
The Respondent Nos. 4 to 7 filed an affidavit-in-opposition justifying the reasons as to why the Petitioner's services were terminated; as to why the bank account of the Petitioner was frozen as well as why steps have been taken for initiation of a fraud case against the Petitioner before the Reserve Bank of India.
It is the specific case of the Respondents that the said fraud report was made in terms with the RBI circular dated 01.07.2016 and more particularly Clause 3.2.6, which mandates that when a case of a fraud of ₹50 million and above is involved, within a week of such fraud coming to the notice of the Bank, a Flash Report has to be made in the form of a DO letter addressed to the PCGM/CGM-in Charge, DBS, RBI, Central Office, Mumbai with a copy to CFMC, Bangaluru. It is therefore the case of the Respondent Nos. 4 to 7 that on account of a fraud having been committed by the Petitioner, the Flash Report was submitted immediately on coming to learn.
It is relevant to take note of that the Petitioner had filed an affidavit-in-reply whereby another circular of the Reserve Bank of India dated 15.07.2024 was brought on record.
This Court finds it relevant to take note of that vide an order dated 24.06.2026, this Court sought for instructions from the learned counsel representing the Respondent Nos. 4 to 7 on two specific queries i.e.
Whether it was permissible on the part of the Respondent Axis Bank to terminate the contract with a stigma attached thereto upon the Petitioner without giving the Petitioner an opportunity to show cause?
Whether the account of the Petitioner which is maintained in the Axis Bank could have been frozen by the Axis Bank unilaterally without the intervention of the Court or the Authorities who are empowered to do so?
The writ petition was listed on 27.07.2026 when Mr. P. Hazarika, the learned counsel appearing on behalf of the Reserve Bank of India placed the Circular of the Reserve Bank of India dated 15.07.2024 which stipulates the manner in which a report of fraud has to be intimated to the Reserve Bank of India. The said document was kept on record and marked with the letter “X”.
In the backdrop of the above, this Court has heard the learned counsels appearing on behalf of the parties and has also perused the materials on record.
From the materials on record, it is seen that the Respondent Nos. 4 to 7 in their affidavit-in-opposition have made various serious allegations against the Petitioner and it is claimed by the Respondent Nos. 4 to 7 that in view of such seriousness of the allegations coupled with the confession of the Petitioner, which have been enclosed to the affidavit-in-opposition, steps have been taken against the Petitioner for termination as well as the consequential action of freezing the Petitioner's Bank Account and the initiation of the fraud case. It is also relevant to take note of that Clause 3.2.6 of the RBI circular dated 01.07.2016 mandates the reporting of a fraud of ₹50 million and above within 7 (seven) days from the date of coming to notice of the bank officials about the fraud.
This Court now finds it very relevant to take note of that in terms with Clause 3.2.6 of the RBI circular dated 01.07.2016, the period mentioned of one week is too less a time to comply with the principles of natural justice. Under such circumstances, the circular dated 01.07.2016 issued by the Reserve Bank of India was put to challenge before the various High Courts on the ground of not affording an opportunity of hearing to the affected person upon a Flash Report of fraud being initiated.
The said dispute travelled to the Supreme Court in various civil appeals which were filed by the Banks and the lead matter being State Bank of India and others Vs. Rajesh Agarwal and Others reported in (2023) 6 SCC 1. The conclusions of the said judgment are relevant for the purpose of deciding the present dispute which is contained in Paragraph No.98, and as such, the same is reproduced herein under.
“98.The conclusions are summarised below:
98.1.No opportunity of being heard is required before an FIR is lodged and registered.
98.2.Classification of an account as fraud not only results in reporting the crime to the investigating agencies, but also has other penal and civil consequences against the borrowers.
98.3.Debarring the borrowers from accessing institutional finance under Clause 8.12.1 of the Master Directions on Frauds results in serious civil consequences for the borrower.
98.4.Such a debarment under Clause 8.12.1 of the Master Directions on Frauds is akin to blacklisting the borrowers for being untrustworthy and unworthy of credit by banks. This Court has consistently held that an opportunity of hearing ought to be provided before a person is blacklisted.
98.5.The application of audi alteram partem cannot be impliedly excluded under the Master Directions on Frauds. In view of the time-frame contemplated under the Master Directions on Frauds as well as the nature of the procedure adopted, it is reasonably practicable for the lender banks to provide an opportunity of a hearing to the borrowers before classifying their account as fraud.
98.6.The principles of natural justice demand that the borrowers must be served a notice, given an opportunity to explain the conclusions of the forensic audit report, and be allowed to represent by the banks/JLF before their account is classified as fraud under the Master Directions on Frauds. In addition, the decision classifying the borrower’s account as fraudulent must be made by a reasoned order.
98.7.Since the Master Directions on Frauds do not expressly provide an opportunity of hearing to the borrowers before classifying their account as fraud, audi alteram partem has to be read into the provisions of the directions to save them from the vice of arbitrariness.”
From the perusal of the above quoted paragraph, it is seen that the Supreme Court observed that the principles of natural justice demand that the borrowers must be served a notice, thereby giving an opportunity to explain the conclusions of the forensic audit report and be allowed to represent by the banks of its JLF before their account is classified as fraud under the Master Directions on Fraud. In addition to that, the decision classifying the borrowers account as fraudulent must be made by a reasoned order.
It may not be out of place to mention that the Master Circular dated 01.07.2016 primarily relating to frauds committed by the borrowers. Be that as it may, in view of the judgment passed by the Supreme Court in the case of State Bank of India (supra), the Master Circular dated 01.07.2016 was replaced by the Circular dated 15.07.2024. It is very pertinent to mention that the Circular dated 15.07.2024 not only is confined to borrowers but also includes persons, entities and its promoters/whole-time and executive directors against whom allegations of fraud are to be examined. There is a complete framework provided in the Master Circular dated 15.07.2024 by which a Show Cause notice would be issued giving at least an opportunity of not less than 21 days and thereupon a reasoned order has to be passed.
This Court further takes note of the submission of the learned counsel appearing on behalf of the Petitioner whereby he submitted that insofar as the termination of the Petitioner's agreement, he would not like to press the said before this Court, and if necessary, avail appropriate remedies before the competent Court of Civil Jurisdiction. However, the Petitioner's limited challenge in the writ petition is as regards the initiation of the fraud report, which have resulted in the Petitioner not being able to carry out any business with any banks or institutions. The further grievance of the Petitioner is that the Petitioner's Bank Account has been frozen by the Respondent Nos. 4 to 7 without the intervention of any court order or orders of the authorities concerned.
In the backdrop of the above, this Court finds it very pertinent to observe that initiation of a fraud case and reporting to the Reserve Bank of India entails drastic consequences and it is in the form of a blacklisting. Under such circumstances, the minimum requirement was that the Petitioner should have been issued a show cause and thereupon, after giving the Petitioner an opportunity of hearing, action could have been taken for reporting it to the Reserve Bank of India. Insofar as the freezing of the Petitioner's Bank Account is concerned, the Respondent Bank cannot be permitted to carry out such action without the intervention of a Court or orders from the authorities concerned.
Considering the above, the instant writ petition therefore stands disposed of with the following observations and directions:
The initiation of the fraud case by a Flash Report registered as Fraud Case No. UTIB2402-10276, thereby informing the Reserve Bank of India is in violation of the principles of natural justice which is a facet of Articles 14 and 21 of the Constitution and accordingly set aside and quashed. The Respondent No.2 as well as the Respondent Nos. 4 to 7 are jointly and severally directed to remove the fraud report from the website of the Respondent No.2.
The quashing of the said Flash Report which led to the registration of Fraud Case No. UTIB2402-10276 would not come in the way of the Respondent Nos. 4 to 7 to initiate a proceedings de novo against the Petitioner by issuance of a Show Cause Notice as per the stipulations contained in the RBI's Master Circular dated 15.07.2024 and thereupon pass a reasoned order after giving the Petitioner an opportunity of hearing.
The freezing of the Petitioner's Bank Account bearing No.9200100534763571 maintained in the Dhubri Branch of the Respondent No.4 Bank is interfered with and the Respondent No.7 is directed to forthwith defreeze the Petitioner's Bank Account.
It is, however, observed that the defreezing of the Petitioner's Bank Account vide the present judgment shall not come in the way of the Courts or the authorities to pass appropriate directions for freezing of the Petitioner's Bank Account, if the circumstances exist.
This Court grants leave to the Petitioner to assail the Termination Notice dated 02.11.2023 before the competent Court of Civil Jurisdiction.