Classification of accounts as 'fraud' requires adherence to procedural fairness, including consideration of responses from affected parties, as mandated by RBI Master Directions.

JUDGMENT :

1. Rule. Rule made returnable forthwith. Heard by consent of parties.

2. By this Writ Petitions the Petitioners are seeking a declaration that the acts of the Respondent Nos. 1 and 2 of declaring / classifying the accounts of the Petitioners as “fraud” and the impugned order dated 19^th September 2025 in terms of the Reserve Bank of India (Fraud Risk Management in Commercial Banks including Regional Rural Banks) and All India Financial Institutions) Directions, 2024 (“RBI Master Directions”) as being illegal, null and void, and ultra vires the RBI Master Directions. Consequential prayers have also been sought.

3. The Respondent – Union Bank of India (“Bank”) had commissioned a Forensic Audit Report of Backbone Tarmat Alfaraa JV (BTA) which was completed on 5^th December 2019. The Report highlighted alleged misuse of credit facilities availed by BTA from the Respondent – Bank as well as alleged irregular Letters of Credit, inflated stock statements and fund diversions in BTA Accounts. The Forensic Audit Report was placed before the Central Level Fraud Scrutiny Committee (Empowered Committee to examine the accounts/incidents from the angle of fraud) of Respondent – Bank on 21^st July 2020.

4. The Petitioners, as Directors of BTA received email on 3^rd July 2025 from Respondent – Bank bearing impugned Show Cause Notice dated 2^nd July 2025 wherein Forensic Audit Report dated 5^th December 2019 was enclosed.

5. The Petitioner – Mr. Jawaharlal Rijhumal Gangaramani had been diagnosed with aggressive high-grade B-cell lymphoma, a life-threatening form of cancer, and had started undergoing medical treatments from the year 2015 till date. He along with his wife – Usha Jawaharlal Gangaramani (Petitioner in Writ Petition No. 35534 of 2025) with the assistance of their Legal Advisors prepared their responses dated 24^th July 2025 to the Show Cause Notice and duly sent the same to the Respondent – Bank on email and via Registered Post on 25^th July 2025 and was received by the Respondent –Bank on 28^th July 2025.

6. The Respondent – Bank passed the impugned order on 19^th September 2025 classifying BTA and its Directors including the Petitioners and one Nitesh as “fraud” under the RBI Master Directions without considering the Petitioners’ submissions / responses dated 24^th July 2025 and/or submissions contained therein.

7. The Petitioners have addressed letters dated 26^th September 2025 to the Respondent – Bank highlighting the non-consideration of the Petitioners response letters and the need for due process and request for withdrawal of fraud classification and a personal hearing.

8. The Petitioners received an email dated 29^th October 2025 from Respondent – Bank enclosing the impugned communication dated 23^rd October 2025 stating that the Petitioners’ responses dated 24^th July, 2025 were beyond 21 days and “cannot be considered” and confirmed the fraud classification.

9. Mr. Sharan Jagtiani, learned Senior Counsel appearing for the Petitioners has taken this Court through the relevant documents annexed to the Petitions. He has submitted that the Respondent – Bank vide the Show Cause Notice dated 2^nd July 2025 requested the Petitioners to show cause as to why the BTA should not be declared as ‘fraud’. The reply of the Petitioners was to reach the Respondent – Bank within 21 days of the Show Cause Notice.

10. Mr. Jagtiani has submitted that the Show Cause Notice was issued after a period of almost five years from the completion of the Forensic Audit Report commissioned by the Respondent – Bank and which Report had observed that certain transactions of BTA were irregular and/or fraudulent.

11. Mr. Jagtiani has submitted that under Clause 4.1.5 of the RBI Master Directions once an account has been red-flagged i.e. prior to the commissioning of the Forensic Audit Report, the entire process of classification of the account as fraud or removal of red-flagged status shall ordinarily be completed within 180 days from the date of first reporting of the acc