Rajesh Agarwal & Ors …Respondents With Civil Appeal No. 7301 of 2022 With Civil Appeal No. 7302 of 2022 With Civil Appeal No. 7303 of 2022 With Civil Appeal No. 7304 of 2022 With Signature Not Verified Civil Appeal No. 7305 of 2022 Digitally signed by Sanjay Kumar With Date: 2023.03.27 14:35:20 IST Reason: Civil Appeal No. 7306 of 2022 1 With Civil Appeal No. 7307 of 2022 And With Writ Petition No. 138 of 2022 2 JUDGMENT Dr Dhananjaya Y Chandrachud, CJI A. Background .............................................................................................................. 4 B. Facts ......................................................................................................................... 5 C. Submissions ............................................................................................................ 10 D. Analysis .................................................................................................................. 15 D.1 Regulatory Framework..................................................................................................... 15 D.2 Audi Alteram Partem ....................................................................................................... 25 D.3 No implied exclusion of audi alteram partem ................................................................... 39 D.4 Challenge to constitutional validity .................................................................................. 48 E. Conclusion .............................................................................................................. 57 3 A. Background 1. The civil appeals arise out of a challenge to the Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions 2016. 1 Issued by the Reserve Bank of India2, these directions were challenged before different High Courts primarily on the ground that no opportunity of being heard is envisaged to borrowers before classifying their accounts as fraudulent. The High Court of Telangana has held in the impugned judgment 3 that the principles of natural justice must be read into the provisions of the Master Directions on Frauds. The decision has been assailed by the RBI and lender banks through these civil appeals. 2. In this background the court has to consider whether the principles of natural justice should be read into the provisions of the Master Directions on Frauds. For the reasons to follow, 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. 1 “Master Directions on Frauds” 2 “RBI” 3 Writ Petition No. 19102 of 2019 4 B. Facts I. SLP (C) No. 3931 of 2021; SLP (C) No. 4922 of 2021; SLP (C) No. 5056 of 2021 3. B S Limited is a company engaged in the business of power transmission and distribution, passive telecom infrastructure, renewable energy, and mineral resources. It availed loans amounting to Rs. 1406 crores from various banks. The company failed to meet its payment obligations