Natural Justice Before Fraud Tags: SBI v. Amit Iron and What It Means for Promoters
Date Published
When a bank classifies a borrower's account as "fraud" under the RBI Master Directions, it triggers cascading consequences — not least, disqualification under Section 29A of the IBC from submitting any resolution plan. In State Bank of India v. Amit Iron (P) Ltd. (2026 SCC OnLine SC 538), the Supreme Court has now read meaningful procedural protections into this process.
The core issue
Can a bank classify an account as "fraud" without sharing the underlying forensic audit report with the borrower? And if it can, what happens when that fraud tag bars the promoter from participating in CIRP under Section 29A?
The holding
Justices J.B. Pardiwala and K.V. Viswanathan held unequivocally: banks must furnish the forensic audit report and provide a meaningful opportunity of hearing before classifying an account as fraud. A narrow exception, grounded in T. Takano v. SEBI, was carved out for protecting third-party or commercially sensitive information that does not form the basis of the adverse decision.
Why this matters for IBC practitioners
The fraud tag has become the single most decisive bar to promoter participation in resolution plans. Before this decision, banks often classified accounts as fraud unilaterally, leaving promoters to discover their Section 29A ineligibility only after a resolution plan was already submitted. This ruling creates a procedural checkpoint — and an avenue for challenge — before the tag takes effect.
For promoters contemplating resolution plans, this changes the calculus. A fraud classification challenged on natural-justice grounds may now be stayed or set aside, reopening the door to Section 29A eligibility.