Hail! Principles Of Natural Justice!

The Hon’ble Chief Justice of THE SUPREME COURT OF INDIA under CIVIL APPELLATE / ORIGINAL JURISDICTION Civil Appeal No. 7300 of 2022 in the matter of State Bank of India & Ors (Appellants) Versus Rajesh Agarwal & Ors (Respondents) along with other appeals delivered an historical judgment which may open up a Pandora’s Box with regard to the implications of principles of natural justice. The issue involved in the appeal was whether the principles of natural justice should be incorporated while considering RBI direction on dealing with ‘FRAUD’ (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions 2016. The Hon’ble Apex Court believes, “we hold that the principles of natural justice, particularly the rule of audi alteram partem, has to be necessarily read into the Master Directions on Frauds to save it from the vice of arbitrariness. Since the classification of an account as fraud entails serious civil consequences for the borrower, the directions must be construed reasonably by reading into them the requirement of observing the principles of natural justice” The operational part of the order is, “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”

The judgment raises a pertinent point whether it is time to review of the bank recovery Acts to judge how the principles of natural justice is being implemented and make changes, if necessary, as has been done in the aforesaid judgment.

The basic two most important tenets of the principles of natural justice are “No one can be a judge in his own cause (‘Nemo debet essa judex in propria cause’) and “Hear the other side.” (‘Audi Alteram Partem’). Section 22 of RDB Act states DRT and DRAT are guided by principles of natural justice but are they being followed really? There are very many instances where the said principles are thrown in to the dustbin.

Who is the authorised officer under SARFAESI Act? The authorised officer {Refer section 2 (a) of The Security Interest (Enforcement) Rules, 2002)  is constitutionally created post even though he is an employee of the secured creditor to hear the representation and objections submitted by the aggrieved borrower of his bank under section 13 (3A) of SARFAESI Act. Is it not a contravention of the principles of natural justice as per the tenet “No one can be a judge in his own cause (‘Nemo debet essa judex in propria cause’)?

Who is the ‘resolution professional’ under IBC? Section 9 (4) of IBC states, “An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional” and under section 17 of IBC states that management of affairs of corporate debtor is to be managed by interim resolution professional until a regular resolution professional is appointed. .  Is it not an infringement of the principles of natural justice?

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