The Supreme Court's first major pronouncement on the 2024 RBI Master Directions on Fraud Risk Management. A 2-judge bench held three things: there is no inherent right to a personal or oral hearing before fraud classification because the determination is grounded in objective documentary evidence and a written show-cause-and-reply procedure satisfies natural justice; banks must furnish the full Forensic Audit Report to the borrower as the rule, with only narrow exceptions for genuinely third-party sensitive material; and the doctrinal distinction between fraud — which carries criminality — and wilful default — which does not — justifies the differentiated procedural protections under the two regulatory regimes.
A 2-judge bench of the Supreme Court — *Dr D.Y. Chandrachud, C.J.* and *Hima Kohli, J.* — held in March 2023 that the principle of audi alteram partem must be read into Clauses 8.9.4 and 8.9.5 of the *Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions 2016*. Classification of a borrower's account as 'fraud' by a Joint Lenders' Forum carries the consequences of civil death — credit-access debarment, reputational harm, director-disqualification fallout — and engages Articles 14, 19(1)(g) and 21. The borrower is entitled to notice, to supply of the forensic audit report (or its conclusions), to an opportunity to be heard and to a reasoned order before classification. No prior hearing is required before the lodging of an FIR under *Section 154* of the *Code of Criminal Procedure*, which is a separate criminal-law step.