Authority: High Court at Calcutta (Constitutional Writ Jurisdiction)
Order Date: 15 July 2026
Case Overview
- Petitioners: VFS Capital Limited (Petitioner No.1) and others; Respondents: Small Industries Development Bank of India (SIDBI) (Respondent No.1) and others.
- The dispute originates from SIDBI’s Show Cause Notice dated 20 November 2025 and its order dated 11 March 2026 classifying VFSCL’s account as a “fraud account” under RBI Master Directions on Fraud Risk Management (dated 15 July 2024).
- Under a Partnership Agreement dated 18 January 2024, VFSCL was appointed to implement the “Prayaas Scheme 2.0” for direct credit to micro‑enterprises, collecting repayments from borrowers and remitting them to SIDBI’s designated collection account.
- SIDBI’s inspection on 29‑30 October 2025 revealed a portfolio discrepancy: VFSCL reported outstanding Rs 56.87 crore, SIDBI’s books showed Rs 74.63 crore, creating a shortfall of Rs 17.00 crore.
- At a personal hearing on 5 January 2026, VFSCL’s Managing Director, Shri Kuldip Maity, admitted that collections were not transferred within the stipulated timelines and were used to service other debt obligations; the admission is recorded in an audio file held by SIDBI.
- VFSCL contended that the Show Cause Notice lacked the specific transaction details required by RBI Circular Clause 2.1.1.1 and that any delay did not constitute fraud, citing operational lapses, manpower shortages, and a 5 % First Loss Default Guarantee (FLDG) security.
- SIDBI argued that the delay and alleged misappropriation justified the fraud classification, asserting that the notice complied with natural‑justice requirements and RBI Master Directions.
Final Outcome
- The Court dismissed WPA 12897 of 2026, upheld SIDBI’s classification of VFSCL’s account as a fraud account under RBI Master Directions, and rejected the petitioners’ claims of procedural impropriety.
Topics: Banking Fraud, Microfinance Regulation, Judicial Review