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The Supreme Court through its judgement dated 07.04.2026 in State Bank of India v Amit Iron Private Limited & Others1 held that there is no right for borrowers to seek personal hearing before classification as fraud, however furnishing Forensic Audit Reports (“FAR”) is mandatory.
The Court observed that the classification of fraud under the Master Directions on Fraud Risk Management in Commercial Banks (including Regional Rural Banks) and All India Financial Institutions, 2024 dated 15.07.2024 (“Fraud Master Directions, 2024”) was intended to be a swift administrative process, based on documentary evidence such as financial statements, transactions records etc., and mandatorily providing an oral hearing would provide the recalcitrant borrowers with an opportunity to dissipate assets, destroy evidence, abscond etc.
The Court while holding that disclosure of FARs is mandatory noted that, the right to disclosure is not absolute if the disclosure of any part affects third party interest and the same should be communicated to the borrower so that the borrower could be provided with an opportunity to respond and explain as to why the information in the report is necessary.
The Court further held that the supply of FAR is the rule and since in the preparation of a FAR, the borrower is associated at the stage of making the FAR, the claim of any third party being affected from the same would rarely arise. It also observed that only parts/ extracts of the FAR will not satisfy the principles of natural justice, since the reasoning on findings and conclusion of the FAR are in the body of the FAR, hence the whole FAR should mandatorily be supplied.
Footnote
1. Civil Appeal NOS.4243-4244 of 2026 arising out of SLP (C) Nos. 20618-20619 of 2025.
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