Supreme Court: Setting Aside Administrative Action On Grounds Of Violation Of Natural Justice Principles Doesn’t Bar Authorities From Proceeding Afresh

The Supreme Court held that setting aside of an administrative action on the grounds of violation of the principles of natural justice does not bar the administrative authorities from proceeding afresh.

The Court held thus in a batch of Criminal Appeals preferred against the Orders of the High Courts which quashed the administrative actions initiated in pursuance of the Master Directions as well as FIRs and subsequent criminal proceedings.

The two-Judge Bench comprising Justice M.M. Sundresh and Justice Rajesh Bindal observed, “It is pertinent to mention that the administrative actions initiated in pursuance of the RBI’s Master Directions were set aside only on the ground of non adherence to the principle of Audi Altarem Partem and not on merits. Setting aside of an administrative action on the grounds of violation of the principles of natural justice does not bar the administrative authorities from proceeding afresh. … Hence, we clarify that there is no bar on the RBI or the Complainant-Banks to proceed afresh, by adhering to the principles of natural justice.”

The Bench reiterated that an administrative action and a criminal proceeding stand on different footings.

Solicitor General (SG) Tushar Mehta, Additional Solicitor Generals (ASGs) Aishwarya Bhati, Vikramjeet Banerjee, Suryaprakash V Raju, and Senior Advocate Nachiketa Joshi represented the Appellant while Senior Advocates Gaurav Agarwal, Anand Chibbar, S. Nagamuthu, and Siddhartha Dave represented the Respondents.

Brief Facts

The Reserve Bank of India (RBI) issued the Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs in the year 2016. The Master Directions were formulated with the objective of providing a framework for banks, to enable early detection and reporting of frauds, and consequently taking actions in a timely manner. In view of the same, the Banks initiated administrative actions that affected the Respondents, by declaring the companies’ bank accounts as fraudulent - an action which had significant civil consequences delineated in the Master Directions. The Banks also initiated criminal proceedings against the Respondents, with respect to fraudulent activity that was detected, as the Master Directions require the Banks to refer certain categories of cases to the State Police or the Central Bureau of Investigation (CBI), as a general rule.

Aggrieved by the same, the Respondents approached different jurisdictional High Courts, challenging the validity of the Master Directions, and the actions taken consequently. The High Courts quashed not only the administrative actions initiated in pursuance of the Master Directions, but also the FIRs registered and the subsequent criminal proceedings initiated against the Respondents. The administrative actions were quashed primarily on the ground of non-adherence to the principles of natural justice, more specifically the principle of Audi Altarem Partem. The High Courts consequently quashed the criminal proceedings initiated against the Respondents, holding that they are a natural corollary to the administrative action of declaring the bank accounts as fraudulent. These Orders were challenged before the Apex Court.

Reasoning

The Supreme Court in view of the above facts, noted, “Having heard the respective contentions of the parties, the question before us pertains to the nature and scope of administrative actions initiated in pursuance of the Master Directions vis-à-vis criminal proceedings initiated, against the respondents. We clarify that there is an apparent distinction between the two. The former is within the domain of the RBI and the Complainant-Banks, while the latter is within the domain of the Appellant-CBI.”

The Court enunciated that an FIR, by taking cognizance of an offence, merely sets the law into motion and this has nothing to do with a decision on the administrative side, made by a different authority.

“Merely because the facts are same or similar, one cannot say that in the absence of a valid administrative action, no offence which is otherwise cognizable, can be registered. At that stage, one only has to see the existence of a cognizable offence, based on the FIR registered. Therefore, even assuming that there is no action forthcoming on the administrative side, an FIR can be held to be maintainable. The scope and role of both the actions are totally different and distinct, more so when undertaken by different statutory/public authorities”, it added.

The Court further said that even in a case where an FIR is registered based on an administrative action, setting aside the latter on a technical or a legal premise would not ipso facto nullify the former.

“It is ultimately a matter for investigation by the appropriate authority. When an administrative order is set aside on the ground of non-compliance of a legal necessity or mandate, the facts mentioned thereunder could still be the basis for the registration of an FIR. Hence, the High Courts have clearly failed to take note of the same”, it remarked.

The Court observed that the principles of natural justice are not applicable at the stage of reporting a criminal offence. It also reiterated that providing an opportunity of being heard prior to the commencement of a criminal action (i.e. registration of an FIR), would frustrate the very purpose of initiating a criminal proceeding, which is to meet the ends of justice.

“More specifically, para 98.1 of Rajesh Agarwal’s case (supra) explicitly states that no opportunity of being heard is required before an FIR is lodged or registered”, it noted.

The Court, therefore, requested the High Courts to make an endeavour to dispose of the matters being remitted within a period of 4 months, after affording an opportunity of hearing to all the concerned parties

“In the aforementioned cases and in any other case being dealt with in the instant appeals, where the Appellant-CBI has not been added as a party-Respondent before the High Court despite being a necessary party, we direct that they be impleaded before the High Court by way of a suo moto order being passed by this Court, since these matters are being remitted for fresh consideration. We also make it clear that the permission to file the Special Leave Petitions in the aforementioned cases stands granted”, it directed.

Accordingly, the Apex Court allowed the Appeals and set aside the impugned Judgments.

Cause Title- Central Bureau of Investigation v. Surendra Patwa & Ors. (Neutral Citation: 2025 INSC 572)

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