A bank must adhere to principles of natural justice by providing borrowers with necessary documents and an opportunity to be heard before classifying accounts as fraud.

JUDGMENT :

KRISHNA RAO, J.

1. The petitioner has filed the present writ application challenging the show cause notice dated 28th February, 2024 and the impugned order dated 7th August, 2024 wherein the Deputy Zonal Manager, Bank of India, Ranchi Zone, has decided to classify the account of M/s. Swati Mining Pvt. Ltd. as “Fraud”.

2. This is the 2nd round of litigation before this Court. In the earlier round of litigation or by an order dated 18th July, 2023, this Court set aside the order passed by the bank wherein the bank has classified the account of the petitioner company as “Fraud”. Being aggrieved with the order passed by this Court, the bank had preferred an appeal being M.A.T No. 1769 of 2023 and the Appellate Court by a judgment dated 16th November, 2023, allowed the appeal in part holding that while sustaining the order passed by the Writ Court setting aside the classification of the writ petitioner and the company as fraud, liberty is given to the appellant/bank to proceed afresh in accordance with law.

3. Ms. Noelle Banerjee, Learned Advocate representing the petitioner submits that the Appellate Court has given liberty to the bank to proceed against the petitioner afresh in accordance with law but in the show cause notice dated 28th February, 2024 itself, the bank has classified the account of company of the petitioner as “Fraud” without giving any opportunity of hearing. She submits that while issuing the show cause notice upon the petitioner, the respondent bank has already pre-judged the account of the petitioner company as “Fraud”.

4. Ms. Banerjee submits that the respondent bank had issued the show cause notice on the basis of the forensic audit report but no forensic audit report is supplied to the petitioner. She submits that on receipt of show cause notice, the petitioner has submitted a detailed reply and has categorically mentioned that the copy of the forensic report dated 18th March, 2020, on the basis of which the account of the petitioner was examined, has not been served upon the petitioner.

5. It is the further contention of the petitioner that in the show cause reply, the petitioner has categorically mentioned that no copy of the forensic report was served upon the petitioner and without serving the copy of forensic report upon the petitioner, the respondent bank has passed the impugned order dated 7th August, 2024. The petitioner has relied upon the judgment in the case of State Bank of India & Ors. vs. Rajesh Agarwal & Ors. (2023) 6 SCC 1 and submits that the Hon’ble Supreme Court had held that the lender banks should provide an opportunity to a borrower by furnishing a copy of the audit reports and allow the borrowers a reasonable opportunity to submit a representation before classifying the account as fraud but in the present case, no such procedure has been followed.

6. Ms. Banerjee submits that the respondent bank has issued the show cause notice and the impugned order in violation of Master Directions.

7. The petitioner says that several correspondences exchanged between the respondent bank and the petitioner and the petitioner had offered to pay Rs. 6.62 crores against the outstanding dues of the bank of Rs. 6.61 crores but during the pendency of the settlement, the respondent bank has issued the show cause notice and passed the impugned order.

8. Ms. Banerjee submits that no such investigation was undertaken by the bank during the