Authority: High Court at Calcutta (Constitutional Writ Jurisdiction)

Order Date: 12 August 2026

Case Overview

  • Parties: Petitioners – Natraj Rice Mill Private Limited & Ors.; Respondents – Bank of India (Respondent No.1) and M/s. N H Agarwal and Associates (Respondent No.2, forensic auditor).
  • Nature of Proceeding: Writ petition (W.P.A. No. 13553 of 2026) challenging the bank’s classification of the petitioner’s account as fraud and alleged violations of RBI Master Directions dated 15 July 2024.
  • Key Dates:
  • 24 June 2025 – Bank classified the petitioner’s account as NPA.
  • 25 June 2025 – Recall notice demanding Rs 20,00,19,764 issued.
  • 22 November 2025 – Forensic Audit Report dated.
  • 26 November 2025 – Show‑cause notice issued (15‑day reply period).
  • 11 December 2025 – Petitioners submitted reply to show‑cause notice.
  • 5 August 2025 – Bank appointed Respondent No.2 to conduct forensic audit for FY 1‑Apr‑2013 to 31‑Mar‑2025 (12 years).
  • 9 March 2026 – Impugned order classifying the account as fraud.
  • 12 August 2026 – Judgment delivered.
  • Allegations by Petitioners: The forensic audit report was “incomplete, incorrect and inconclusive”; the bank violated RBI guidelines by classifying the account as fraud without proper hearing; the recall notice and show‑cause period were irregular; the Red Flag Procedure under the Master Directions was not followed; the audit team did not meet the directors or conduct on‑site verification.
  • Bank’s Defence (as per Respondent counsel): The forensic audit, conducted by N H Agarwal and Associates, concluded diversion of funds; the bank issued a show‑cause notice with a 15‑day reply window; the petitioners’ reply was unsatisfactory; the bank acted in accordance with the Master Directions; all required documents were supplied to the auditor; the audit team visited the company’s registered office (found closed due to Durga Puja) but did not meet directors, which was disclosed in the report.
  • Court’s Observations:
  • The forensic audit was commissioned by the bank and the audit report, though limited in interaction, was the basis for the fraud classification.
  • Petitioners did not produce any documents contradicting the audit findings despite being asked to submit lists of debtors, creditors, borrowers, electricity bills, PF/ESIC details.
  • The court referred to Supreme Court judgments (State Bank of India v. Rajesh Agarwal, 2023 SCC 1 and State Bank of India v. Amit Iron Private Ltd, 2026 SCC OnLine SC 538) affirming that the Master Directions provide sufficient time and opportunity for hearing before fraud classification.
  • The court noted that the petitioners’ reply to the show‑cause notice did not request a personal hearing nor contest the audit methodology; therefore, no breach of natural justice was established.
  • The court examined the Red Flag allegation: receivables rose from ~Rs 5.5 crore to Rs 11.73 crore in FY 2022‑23 while revenue grew only 8 %; the petitioners attributed this to COVID‑19 impacts, but the court found no evidence that the bank ignored the Red Flag Procedure.
  • The audit period covered audited financial statements (FY 2013‑18, FY 2021‑24), bank statements for multiple accounts, loan sanction letters (dated 01‑Aug‑2024), stock audit reports, and inspection reports, all of which were considered by the auditor.
  • The court concluded that the respondents complied with the RBI Master Directions dated 15 July 2024 and did not violate principles of natural justice.

Final Outcome

  • The writ petition (WPA No. 13553 of 2026) is dismissed.
  • No violation of RBI Master Directions or natural justice is found.
  • The bank’s classification of the petitioner’s account as fraud remains valid.
  • Parties may obtain a certified copy of the judgment from the court website.

Topics: Bank Fraud Classification, RBI Master Directions, Court Judgment