Summary
In a batch of appeals by the CBI and lender banks, the Supreme Court held that High Courts erred in quashing FIRs and criminal proceedings merely because the banks' administrative action of classifying borrower accounts as fraud under the RBI Master Directions on Frauds had been set aside for breach of natural justice; administrative action and criminal proceedings stand on different footings, no hearing is required before an FIR is registered, and the banks remain free to proceed afresh after hearing the borrowers.
Issues
- Whether the quashing of an administrative decision classifying a borrower's account as fraud under the RBI Master Directions on Frauds, for want of a hearing, entails quashing of the FIR and criminal proceedings founded on the same facts.
- Whether the High Courts correctly applied the ratio of State Bank of India v. Rajesh Agarwal, (2023) 6 SCC 1, in quashing the criminal proceedings.
- Whether the High Courts could quash FIRs that were not challenged before them, or in proceedings where the CBI was not heard or not impleaded.
- Whether setting aside the administrative action for violation of natural justice bars the RBI or the banks from proceeding afresh.
Provisions considered
- Framework for classifying accounts as fraud and reporting to the police or CBI, Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs, 2016 (Reserve Bank of India)The classification of an account as fraud and the consequent reporting is an administrative action within the domain of the RBI and the banks, attracting audi alteram partem as held in Rajesh Agarwal; it is distinct from the criminal proceedings that lie within the CBI's domain, and its invalidation for want of hearing does not nullify the FIR. The RBI and banks may proceed afresh after complying with natural justice. (¶¶ 2, 6, 10, 12)
Held
- An administrative action under the Master Directions on Frauds and a criminal proceeding stand on different footings: the former lies within the domain of the RBI and the complainant banks, the latter within that of the investigating agency; the scope and role of the two are distinct even when the facts are the same or similar. (¶¶ 6, 7)
- An FIR merely sets the law in motion on the existence of a cognizable offence; the absence or invalidity of an administrative action does not mean that a cognizable offence cannot be registered, so an FIR is maintainable even if no administrative action is forthcoming. (¶ 7)
- Even where an FIR is registered on the basis of an administrative action, setting aside that action on a technical or legal ground does not ipso facto nullify the FIR; the facts recorded in the administrative order may still found the registration of an FIR, which remains a matter for investigation. (¶ 8)
- Rajesh Agarwal holds that principles of natural justice do not apply at the stage of reporting a criminal offence and that no opportunity of hearing is required before an FIR is lodged or registered; the High Courts quashed the FIRs on an erroneous reading of that decision. (¶¶ 9, 10)
- The High Courts exceeded their jurisdiction by quashing FIRs and criminal proceedings that were not under challenge, and erred in doing so where the CBI was not heard or had not even been impleaded as a party-respondent. (¶ 11)
- Where an administrative action is set aside only for non-adherence to audi alteram partem and not on merits, there is no final decision; the authorities are not barred from proceeding afresh in compliance with natural justice. (¶ 12)
- The batch was disposed of by categories: petitions where the FIR was challenged and quashed are restored and remitted to the High Court for fresh consideration on all issues except the one decided, with a request to dispose of them within four months; where the FIR was quashed without challenge, respondents have two weeks to pursue remedies and must implead the CBI; interim orders of the High Court continue till disposal; where none exist, no coercive steps for two weeks; ongoing investigations continue without coercive steps, and where investigation is complete the accused are not to be arrested; the CBI is impleaded suo motu where it was not a party. (¶¶ 13, 13.1, 13.2, 13.3, 13.4, 13.5, 13.6, 13.7)
Result
Appeals allowed; impugned High Court judgments set aside; quashed FIRs and criminal proceedings restored; matters in which the FIR was challenged remitted to the High Courts for fresh consideration (requested to be disposed of within four months); other respondents given two weeks to pursue remedies with the CBI impleaded; interim protection and no-coercive-steps directions as per the categories in the judgment; RBI and banks free to proceed afresh in compliance with natural justice; pending applications disposed of.