Case Note & Summary
The Writ Petition challenged a Show Cause Notice dated 6th September 2025 and an Order dated 16th October 2025 passed by Respondent No.1 Bank declaring Respondent No.2 Company as fraud. The Petitioners, erstwhile directors of Respondent No.2, contended that the impugned order was unreasoned and passed in violation of principles of natural justice. At the outset, the High Court expressed serious doubt regarding the maintainability of the Petition since the order only declared the company's account as fraud and did not implead the Petitioners personally. The company had undergone a successful Corporate Insolvency Resolution Process (CIRP) and a Resolution Plan had been approved by the NCLT on 10th September 2025. Nevertheless, to avoid non-suiting the Petitioners, the Court heard the matter on merits.
The background involved Respondent No.1 Bank taking over credit facilities of Rs.23.01 Crores from SBI in June 2020. In November 2022, Respondent No.2 opened an undisclosed account with Nashik Merchant Co-operative Bank (NMCB) and diverted funds, including to Petitioner No.1 and his partnership firm, Mobile N More. After default, the account was declared an NPA and recalled. In March 2024, Respondent No.2 was admitted into CIRP under the IBC. A Transaction Audit Report (TAR) was prepared, highlighting the undisclosed account, diversion of over Rs.6 crores, discrepancies in annual accounts, and related-party transactions. The Petitioners were given multiple opportunities to explain, including CoC meetings and office access, but they failed to provide documents or Tally data. The final TAR was submitted on 26th November 2024. On 28th April 2025, the account was tagged as Red Flagged Account. A Show Cause Notice under the RBI Fraud Master Circular was issued on 6th September 2025, giving 21 days to respond. Petitioner No.1 sought an extension which was refused. On 16th October 2025, the Fraud Identification Council classified the company as fraud. The Petitioners thereafter filed the present Writ Petition on 17th November 2025.
The main legal issues were the maintainability of the writ and whether natural justice was violated. The Petitioners argued that the order was unreasoned, passed without adequate opportunity, and that the Show Cause Notice was based on documents not fully shared. They also highlighted that the company was under CIRP and lacked access to records. The Bank countered that the Petitioners were aware of the audit findings well in advance, had multiple opportunities including CoC meetings, and consistently failed to respond or provide data. The Bank contended that the refusal to grant extension was justified and the order was based on the audit report.
The judgment text ends mid-submission of Respondent No.1 and does not include the Court's analysis, decision, or ratio. Therefore, the final outcome and legal principles remain unavailable from the provided extract.
Issue of Consideration
Whether the Writ Petition is maintainable when the fraud classification order only declares the company (not the petitioners) as fraud, and the company has undergone successful insolvency resolution. Whether the order dated 16th October 2025 violates principles of natural justice and is unreasoned.
Case Details
2026 LawText (BOM) (08) 13
Writ Petition No. 886 of 2026
B. P. Colabawalla, Firdosh P. Pooniwalla
Mr. Nishant Chotani i/b. Ms. Neha Shah, Mr. Satchit Bhogle a/w. Mr. Rajendra Shinde, Mr. Anet Johnson i/b. Svarniti and Associates
Anil Khemania and Another
Axis Bank Ltd. and Another
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Writ Petition under Article 226 of the Constitution of India challenging fraud classification order and Show Cause Notice issued by bank against company account.
Remedy Sought
Petitioners sought quashing of Show Cause Notice dated 06-09-2025 and Order dated 16-10-2025 declaring Respondent No.2 company as fraud.
Filing Reason
Petitioners contended that the Order was unreasoned, passed in violation of principles of natural justice, and based on Transaction Audit Report without providing relevant documents.
Issues
Whether the Writ Petition is maintainable given that the fraud classification order only declared the company as fraud, not the petitioners, and the company has undergone successful insolvency resolution.
Whether the impugned order dated 16-10-2025 violates principles of natural justice for being unreasoned and for not granting sufficient opportunity to respond to Show Cause Notice.
Whether Respondent No.1's refusal to grant extension of time to reply to Show Cause Notice was arbitrary and violated natural justice.
Submissions/Arguments
Petitioners: Impugned order unreasoned, passed in violation of natural justice; Show Cause Notice issued when company under CIRP with no access to records; bank delayed issuing notice for old transactions; documents not provided; extension arbitrarily denied; order presumed petitioners had nothing to say; classification based solely on Transaction Audit Report.
Respondent No.1: Refusal to grant extension did not violate natural justice; petitioner knew the case one year before via draft Transaction Audit Report discussed in CoC meetings; petitioner provided limited information and failed to provide Tally data despite opportunities; 21 days given as per RBI Master Circular; order was reasoned based on audit report; petition should be dismissed with costs.
Judgment Excerpts
This Writ Petition challenges the Show Cause Notice dated 6th September 2025 issued by Respondent No.1 and the Order dated 16th October 2025 passed by Respondent No.1 declaring Respondent No.2 as fraud.
We, therefore, seriously doubt whether the Petitioners can maintain the present Petition in their name when Respondent No.1 Bank has declared the account of Respondent No.2 Company as fraud and when it has already undergone a successful Corporate Insolvency Resolution Process and a Resolution Plan has already been approved for it by the NCLT vide its Order dated 10th September 2025.
Further, as per Clause 2.1.1.2 of RBI Master Directions on Fraud Risk Management in Commercial Banks (including Regional Rural Banks) and All India Financial Institutions dated 15th July 2024, 21 days’ time was given to respond to the Show Cause Notice.
On 28th April 2025, Respondent No.2’s account was tagged as a Red Flagged Account based on the Transaction Audit Report.
By an Order dated 16th October 2025, Respondent No.1’s Fraud Identification Council classified Respondent No.2’s account as fraud.
Procedural History
On 22-06-2020, Respondent No.1 Bank took over credit facilities of Rs.23.01 Crores from SBI granted to Respondent No.2. On 17-11-2022, Respondent No.2 opened an undisclosed account with NMCB. After default, the loan was recalled on 05-05-2023 and 19-05-2023. On 03-03-2024, Respondent No.2 was admitted into CIRP under IBC, with Respondent No.1 as part of the Committee of Creditors (CoC). Auditors were appointed on 18-05-2024, and a draft Transaction Audit Report (TAR) was submitted on 10-09-2024. At the 7th CoC meeting on 16-09-2024, discrepancies were noted, including the undisclosed NMCB account and diversion of funds. Despite opportunities, including office access on 01-10-2024 and 02-10-2024, and an 8th CoC meeting on 11-10-2024 noting non-compliance, the Petitioners failed to provide necessary documents or Tally data. A final draft TAR was prepared on 30-10-2024. At the 9th CoC meeting on 06-11-2024, Petitioner No.1 undertook to respond by 20-11-2024 but did not. The final TAR dated 26-11-2024 detailed the undisclosed account, diversion of over Rs.6 crores, and related-party transactions. The account was tagged as Red Flagged on 28-04-2025. A Show Cause Notice under the RBI Fraud Master Circular was issued on 06-09-2025, giving 21 days to reply. The NCLT approved a Resolution Plan for Respondent No.2 on 10-09-2025. Petitioner No.1 sought extension on 24-09-2025, which was refused on 14-10-2025. On 16-10-2025, the Fraud Identification Council declared the account fraud. Petitioner No.1 sent an email with documents on 23-10-2025, and the Bank filed a criminal complaint on 27-10-2025. The Writ Petition was filed on 17-11-2025.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016:
- RBI Master Directions on Fraud Risk Management in Commercial Banks (including Regional Rural Banks) and All India Financial Institutions, dated 15th July 2024: Clause 2.1.1.2
