Prasanth Narayanan vs Canara Bank

CNR No : HCBM020130862026

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Gokhale
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 3094 OF 2026
Prasanth Narayanan ..Petitioner
Versus
1. Canara Bank
2. Bhavesh Mansukhbhai Rathod ..Respondents
__________
Mr. Gaurav Joshi, Sr. Advocate a/w. Nidhi Singh, Nidhi Faganiya
and Arav Dass i/b. Vidhii Partners for Petitioner.
Mr. Prakash Shinde, Niyati Merchant and Shanmukh Puranik i/b.
MDP Legal for Respondent No.1.
Ms. Uma Chatterjee (through V.C.) for Respondent No.2.
__________
CORAM : SARANG V. KOTWAL &
RANJITSINHA RAJA BHONSALE, JJ.
RESERVED ON : 29 OCTOBER 2026
PRONOUNCED ON : 04 NOVEMBER 2026
JUDGMENT: (PER SARANG V. KOTWAL, J.)
1. Rule. Rule is made returnable forthwith with consent of
the parties.
2. The Petitioner is a Director of the suspended Board of
Directors of Carnival Technopark Private Limited (hereinafter
referred to as ‘the company’) which is presently undergoing the
Digitally
signed by
VINOD
BHASKAR
GOKHALE
Date:
2026.11.04
17:45:45
+0530
VINOD
BHASKAR
GOKHALE
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Corporate Insolvency Resolution Process under the provisions of
the Insolvency and Bankruptcy Code, 2016 (IBC). The Respondent
No.1 Canara Bank is the contesting party. The Canara Bank had
merged with the erstwhile Syndicate Bank in the year 2020. The
subject matter arises from the loan given by the Syndicate Bank to
the company in the year 2017 through the Lease Rental
Discounting facility (LRD) on the company’s property in a
technology park at Thiruvananthapuram. The second Respondent
is the Resolution Professional appointed in the Corporate
Insolvency Resolution process.
3. The Petitioner has challenged the proceedings initiated
vide the show-cause notice dated 23.06.2025 culminating into
Declaration dated 01.04.2026 whereby the company’s account and
the transactions were classified as ‘fraud’ by the Respondent No.1
bank.
4. Heard Mr. Gaurav Joshi, learned senior counsel for the
Petitioner, Mr. Prakash Shinde, learned counsel for the Respondent
No.1-Canara Bank and Ms. Uma Chatterjee, learned counsel
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(through video conferencing) for the Respondent No.2.
BACKGROUND AS MENTIONED IN THE PETITION
5. The Company’s account was declared as ‘fraud’ under
the Reserve Bank of India Master Directions on Fraud Risk
Management in Commercial Banks and All India Financial
Institutions dated 15.07.2024 (RBI Master Directions).
6. In the year 2017, the company was in need of financial
assistance and hence, approached the Syndicate Bank for sanction
of a term loan through LRD facility to the tune of Rs.130 crores. It
was granted by the Syndicate Bank on the terms and conditions as
set out in the sanction letter dated 17.03.2017. The loan was
disbursed on 31.03.2017 by the Syndicate Bank. The purpose of
the said loan was to repay the existing loan granted through the
LRD facility by the IndusInd Bank of Rs.115 crores and the balance
amount was for other business purposes of the company. At the
time of taking loan from the RCL, the loan taken from IndusInd
Bank was already operational; which was subsequently closed by
using the loan sanctioned by the Syndicate bank. It is the
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contention of the company that the company at all times used the
said money for the purpose agreed in the sanction letter and the
company repaid the existing loan of IndusInd Bank of Rs.115
crores by April 2017.
7. The said term loan given by Syndicate Bank was secured
by giving first and exclusive assignment charge with future rental
income from the phase/building I & II of Carnival Technopark Pvt.
Ltd. at Thiruvananthapuram, collateral by way of charge on the
company’s property, pledged shares of the company and by way of
personal guarantee from the shareholders of the company i.e. Mr.
Shrikant Bhasi and Corporate guarantee from the Holding
company i.e. Asian Business Connections Pvt. Ltd. The main source
of repayment of the said term loan was the lease rental, out of
which, the repayments of the loan were made to the Syndicate
Bank. As per the sanction letter, the company submitted yearly
audited financial statements of the company showing the true
picture of the financial position of the company.
8. It is further the case of the Petitioner that, from the year
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2017, the company was regular in making the payments under the
said term loan and its account was not declared as NPA till
01.02.2024. It shows that, there was no intention to defraud the
Respondent No.1 bank. It is further the contention of the Petitioner
that, after the sanction of the amount of Rs.130 crores, the
Petitioner repaid Rs.14.86 crores within a stipulated time.
However, because of unprecedented disruption caused by the
outbreak of Covid-19, the company faced significant operational
and financial constraints. There were substantial vacancies in the
IT park premises during that period. This led to a material
reduction and shortfall in rental collections, thereby adversely
impacting the company’s cash flows and its ability to service the
loan in a timely manner.
9. On 01.04.2020, the Syndicate Bank merged with the
Canara Bank i.e. the Respondent No.1 herein. By virtue of the said
amalgamation, all assets, liabilities, rights, claims, obligations and
undertakings of Syndicate Bank stood transferred to and vested
with the Canara Bank. The company made bonafide and diligent
efforts to repay the loan obligations, but there was no meaningful
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relief or resolution extended by the Respondent Bank. At one point
of time, the company tried to bring a purchaser but the deal had to
be cancelled. The Respondent No.1 failed to approve or reject the
proposed transaction within reasonable time.
10. After referring to the company’s transactions with the
Respondent No.1 and its predecessor in the petition, the Petitioner
referred to the transactions with the Reliance Capital Ltd. (RCL).
On 16.01.2017 RCL issued sanction letter in favour of the
company along with Advantage Overseas Private Limited (AOPL)
and Carnival Soft Private Limited (CSPL) as co-borrowers to
provide financial assistance by way of term loan facility to the
extent of Rs.75 crores for working capital required by the co-
borrowers. On 20.01.2017, a facility agreement was entered into
between RCL, the company and the co-borrowers, wherein, as per
the terms of the agreement, loan facility of Rs.75 crores was
granted to the borrower for a tenure of 84 months with interest at
the rate of 15%p.a. The loan was secured applying charge on Inter
Corporate Deposit (ICD) of Rs.175 crores between AOPL and the
company, pledge of shares of Carnival Company equivalent to
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Rs.75 crores and corporate guarantee of Asian Business
Connections Pvt. Ltd. (ABCPL).
11. According to the Petitioner, the servicing of RCL loan
was independent and had no bearing whatsoever on the loan
availed from the Syndicate Bank, as the source and mechanism of
repayment for both facilities were distinct and segregated. In
2016, the entire commercial finance business undertaking of RCL
was transferred to Reliance Commercial Finance Limited (RCFL).
On 23.01.2019, the account of the company was classified as NPA
by RCFL and on 22.10.2019 the RCFL issued the first recall notice
to pay the entire outstanding sum of more than Rs.79 crores.
12. Importantly, on 16.04.2021, the Respondent No.1 Bank
addressed an e-mail to the company stating that after reviewing
the audited financial statements of the company, the Respondent
No.1 bank was concerned over the defaults made in RCL loan and
asked the company to take steps to regularize the same. This
clearly indicates that the Respondent No.1 bank was aware about
the RCL loan. On 23.05.2022, the RCFL issued a demand notice
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seeking payment of an outstanding amount more than Rs.138
crores. On 24.01.2023, the RCFL filed Company Petition U/s.7 of
IBC.
13. The Petitioner then has described the proceedings before
the National Company Law Tribunal (NCLT). The Respondent No.1
Bank also participated in those proceedings by filing different
applications. However, those parallel proceedings are not the
subject matter of the present petition. It is the contention of the
Respondent No.1 bank that the said proceedings were initiated by
RCFL against the company in collusion with the company.
However, the impugned show-cause notice and the impugned
order do not make any such allegation. The Petitioner has filed
Additional Affidavit annexing a copy of the term loan agreement
dated 28.03.2017 between the company and the Syndicate Bank.
REPLY BY THE RESPONDENT NO.1-BANK
14. The Respondent No.1 Canara Bank filed a reply to the
petition. It is mentioned that, the Petitioner was a Director of the
company as on 30.09.2015 and accordingly was in charge of the
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affairs and decision making on behalf of the borrower company.
The company approached the Syndicate Bank on 21.01.2017
without disclosing the RCL loan. The company requested for
sanction of term loan (LRD facility) to the tune of Rs.135 crores.
The company had concealed from the Syndicate Bank that prior to
sanction of the facility, the company had already availed credit
facility from RCL amounting to Rs.75 crores. That loan was
disbursed by the RCL to the company on 27.01.2017. This fact was
not disclosed by the company.
15. On 09.03.2017, the Company Secretary Mr. Kuldeep Jain
submitted a due diligence report disclosing the financial position
of the company as on 31.12.2016. In that report, the loan availed
from the RCL could not have been disclosed as it was sanctioned
after 31.12.2016.
16. On 17.03.2017, the Syndicate Bank sanctioned the term
loan of Rs.130 crores to the borrower. It was secured by way of
First and Exclusive Assignment charge on future rental income, as
mentioned earlier, and by exclusive charge by way of mortgage of
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lease hold land/right owned by the borrower situated at
Technopark Road, Technopark Campus, Thiruvananthapuram,
Kerala of area 3.55 acres with building standing thereon. In March
2019, the borrower company defaulted the repayment of RCL
loan. The borrower failed and neglected to communicate the
existence of credit facility or the subsequent defaults to Canara
Bank. Such deliberate concealment deprived the Canara Bank of
material information that could have assisted the Bank in the
credit assessment and sanction decision. According to the
Respondent No.1, the Petitioner’s reliance on the e-mail dated
16.04.2021 does not absolve the Petitioner from the responsibility
of primary disclosure at the time of sanctioning the credit facilities.
On 13.02.2024, the NCLT admitted the borrower company into
Corporate Insolvency Resolution Process (CIRP). The cash flows of
the borrower, which were charged in favour of secured creditor
Canara Bank were diverted to the Resolution Professional due to
the concealment of material facts by the Directors. Owing to the
non availability of these cash flows the loan account of the
company could not be regularized and was eventually classified as
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NPA from 30.05.2024 w.e.f. 01.02.2024. Upon admission of the
borrower company into CIRP, the Respondent No.1 filed a claim of
more than Rs.116 crores. The reply then refers to the proceedings
before the NCLT and NCLAT. The reply thereafter goes on to
mention issuance of show-cause notice and passing of impugned
order. The Respondent No.1 through their affidavit supported their
action.
SUBMISSIONS OF LEARNED SENIOR COUNSEL SHRI. JOSHI ON
BEHALF OF THE PETITIONER
17. Shri. Joshi, learned senior counsel for the Petitioner
made the following submissions:
The impugned show-cause notice is based on a false
allegation of non disclosure of term loan facility of Rs.75 crores
issued by RCL, and on false assertion that the same came to the
knowledge of the Respondent No.1 bank only when the company
was admitted into CIRP vide the order dated 13.02.2024. The
bank’s e-mail dated 16.04.2021 itself shows that the bank was
aware of the RCL loan; in fact, the audited financial statements
furnished by the company right from the financial year 2016-2017
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to financial year 2022-2023 reflected the RCL loan and these
statements were regularly submitted to the Respondent No.1 bank.
18. In spite of being aware of the RCL loan, the Respondent
No.1 bank neither treated the alleged non-disclosure as an event of
default nor recalled the loan, but continued the contractual
relationship. There was no allegation of any diversion and
misutilization of the money disbursed under the term loan of
Rs.130 crores sanctioned by the Respondent No.1 bank.
19. The loan sanctioned by the Respondent No.1 bank and
the loan sanctioned by the RCL had different security and
repayment arrangements.
20. Mere non disclosure would not amount to deliberate
concealment amounting to fraud. The essential ingredients of
‘fraud’ included concealment of the facts, intention to deceive or
defraud and the consequent injury or loss. Mere non disclosure in
the absence of other ingredients cannot justify the classification as
‘fraud’.
21. The RCL loan was backed by a separate security and
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independent cash flows, had no bearing on the Respondent No.1’s
bank’s credit risk or security cover. In support of this contention,
Shri. Joshi relied on the observations of Madhya Pradesh High
Court in the case of Bhagwani Bai Versus Life Insurance
1
Corporation of India, Jabalpur . He also relied on the observations
of the Hon’ble Supreme Court in the case of Harjas Rai Makhija
2
Versus Pushparani Jain and another .
22. Shri. Joshi submitted that the alleged non disclosure of
RCL loan caused no wrongful loss to the Respondent No.1 as there
was no allegation of diversion, intermingling or misuse of
disbursed funds – the two loans being distinct with separate
security and repayment arrangements.
23. Shri. Joshi further submitted that, Section 19 of the
Contract Act provides that an agreement induced by fraud or
misrepresentation is viodable at the option of the party whose
consent was obtained. In the present case, even after acquiring the
knowledge of the RCL loan, the Respondent No.1 Bank did not
invoke the relevant clause from the Term Loan Agreement. The
1 1983 SCC OnLine MP 10
2 (2017) 2 Supreme Court Cases 797
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agreement was not terminated.
24. There were sufficiently effective clauses in the
agreement between the company and the Respondent No.1 Bank
safeguarding the Respondent No.1’s interest, but none of these
clauses were invoked by the Respondent No.1-Bank.
25. The issuance of show-cause notice and passing of the
impugned order indicates that the impugned proceedings were
malafide and afterthought, issued after the Respondent No.1 Bank
had already litigated and failed to secure a favourable outcome
before the NCLT and NCLAT.
26. Shri. Joshi also submitted that there was violation of
principles of natural justice in the present proceedings.
SUBMISSIONS OF SHRI. SHINDE, LEARNED COUNSEL FOR THE
RESPONDENT NO.1-BANK
27. Shri. Shinde submitted that the proceedings initiated by
the Respondent No.1 before NCLT and NCLAT are independent
proceedings in law and unrelated to the declaration of the
borrower’s account as ‘fraud’ under RBI Master Directions 2024.
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Under the law and banking regulations, a borrower is under a
strict legal obligation to provide full, true and complete disclosure
to the bank. If a borrower deliberately holds back, misrepresents or
hides material financial facts to obtain loan or benefit, it is treated
as fraudulent concealment of information.
28. He submitted that, for seeking credit facilities or loan, a
person must provide accurate and complete information, and
material facts regarding their financial health, existing liabilities
etc. The concealment of material facts has effect of influencing the
bank’s decision to sanction credit and it leads to criminal or civil
liability, and also results in the account being declared as ‘fraud’
under RBI Master Directions.
29. The order declaring the account as ‘fraud’ under RBI
Master Directions, is an internal/regulatory administrative order.
The administrative proceedings is distinct from the criminal
proceedings. Therefore, the principles applicable to the criminal
proceedings regarding criminal intent are not applicable to the
administrative proceedings. The result of ‘fraud’ classification is
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that the person associated with such entities shall be debarred
from raising of funds or seeking credit facilities from the financial
entities regulated by RBI.
30. The knowledge of RCL loan to the Respondent No.1 in
the year 2021 or on a later date is not relevant. The said
information regarding RCL loan was important at the time of
taking decision of sanction of the loan, as the bank was required to
assess the overall risk profile, credit worthiness of the borrower
etc. If the company had informed the Respondent No.1 regarding
RCL liability, the Respondent No.1 would have taken precautionary
measures by stipulating various conditions to safeguard and to ring
fence their asset and security. While taking the decision of sanction
of any loan, the Bank usually analizes the total borrowing of the
company, its repayment capacity and its overall risk profile; which
could not be done in the present case, because of concealment of
the RCL loan.
31. Shri. Shinde submitted that the company and its official
facilitated RCL to bring the company into CIRP so that the secured
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assets and mortgaged property of the Canara Bank would go out of
the control of Canara Bank. This has caused great loss to the bank.
Under the Resolution Plan, the bank is to get very small portion of
their claim. This has caused big financial loss to the bank. Shri.
Shinde submitted that the Petitioner was a Director of the
borrower company when the credit facilities were availed from the
Syndicate Bank by deliberately suppressing the fact that the loan
was availed from RCL. Shri. Shinde submitted that the Respondent
No.1 has rightly declared the Petitioner’s account as ‘fraud’ under
RBI Master Directions 2024. Shri. Shinde relied on the
observations of the Hon’ble Supreme Court in the case of State
3
Bank of India Vs. Amit Iron Private Limited & Ors. . It was
observed that, in the case of ‘fraud’ there is an element of
criminality. In the case of a wilful default, though it may involve
financial default, there is not as yet an element of criminality; this,
in any event, is the perception of the regulator.
REASONS AND CONCLUSION
32. We have considered these submissions. The RBI had
3 2026 SCC OnLine SC 538
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issued master directions on fraud risk management in commercial
banks including the Regional Rural banks and All India Financial
Institutions dated 15.07.2024. Paragraph-6.1 of Chapter VI
mentions ‘Reporting of Incidents of Fraud to Reserve Bank of India
(RBI)’. It is provided that to ensure uniformity and consistency
while reporting incidents of fraud to RBI through Fraud
Monitoring Returns (FMRs) using online portal, banks shall choose
the most appropriate category from any one of the categories
provided under that paragraph. Category (iv) refers to ‘cheating by
concealment of facts with the intention to deceive any person and
cheating by impersonation’.
The present case revolves around this clause and,
therefore, it has to be seen whether in this case the non
concealment of RCL loan by the company to the Syndicate Bank
amounted to cheating by concealment of fact with the intention to
deceive the Syndicate Bank. Thus, requirement of this particular
category is not mere concealment of facts, but it is coupled with
the intention to deceive any person. Thus, in this case, it has to be
decided whether concealment of RCL loan to the Syndicate Bank
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was made by the company with the intention to deceive Syndicate
Bank.
33. The show-cause notice refers as to why it was issued for
declaring the Petitioner’s account as ‘fraud’. The exact statement in
the show-cause notice is as follows:
“The borrower and its directors Sh. Prashanth
Narayanan and Sh. Sony Ravindranath have actively
concealed the fact that they have availed an unsecured
loan from M/s. Reliance Capital Limited at the time of
sanction of loan from our bank. The matter came to
light only after the admission of the company petition
bearing No.383/2023 before Hon’ble NCLT, Mumbai.”
The contention, that matter came to light only after the
admission of the company petition in the year 2023 before NCLT,
Mumbai is not correct as can be seen from the record.
The e-mail dated 16.04.2021 issued by the Respondent
No.1-Bank to the company mentioned in paragraph-4 as follows:
“4. there are defaults with reliance for unsecured
loan, company to provide full details of the loan and
also regularise the same.”
This shows that the Respondent No.1-Bank was aware
of the loan from RCL, at least, in the year 2021 itself.
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34. The impugned order dated 01.04.2026 specifically
records the company’s contention that, at the time of availing the
term loan, the company had provided the financial details to the
bank as per the requirement of the bank and the same was
provided on yearly basis. On 16.04.2021, in an e-mail addressed to
the company, the bank conveyed the observations of the Central
Auditor in which one of the observations was regarding the
unsecured loans availed by the company and the company was
instructed to regularize the same.
Having considered the company’s contentions, it was held
that, at the time of availing the facilities from the bank, the company
and its Directors did not disclose the existence of previously
sanctioned loan from RCL as disclosure of such information had a
direct bearing on company’s financial position and repayment capacity.
Omitting such information amounted to suppression of material fact
and vitiated the genuineness of loan application. Such non-disclosure
amounted to false and misleading reporting. The company’s
reference to the e-mail dated 16.04.2021 did not absolve it from
primary failure of disclosure at the time of loan sanction.
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35. The sanction letter dated 17.03.2017 issued by the
Syndicate Bank to the company has a special paragraph titled as
“OTHER TERMS & CONDITIONS”. Clause 13 of that paragraph
reads as follows:
“13. Audited Financial Statement along with Audit
report of the company as well as Due Diligence
Certificate to be provided within seven months from
the closure of the financial year. Penal interest shall be
charged @1%p.a.
Thus, it was the duty cast on the company to furnish
audited financial statement within seven months from the closure
of the financial year. It is not the case of the Respondent No.1-
Bank that such audited reports were never supplied by the
company to the Respondent No.1-Bank. It is not the case that the
loan given by RCL was not mentioned in the audited report of the
company throughout the years from 2017 onwards.
Shri. Shinde, learned counsel for the Respondent No.1
submitted that the subsequent disclosure would not make any
difference as the disclosure before sanction of loan was important,
as it could have impacted the decision to grant loan and the bank
could have imposed certain other security measures.
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36. In this case, we are testing whether said non disclosure
was with intent to cheat the bank. If the company had never
disclosed this fact and if the Bank was never aware of the fact of
sanction of RCL loan, it would have been a different matter. But as
stipulated in the sanction letter of the bank itself it was
compulsory for the company to have furnished the audited report.
There are no allegations that there was concealment in the audited
report regarding the RCL loan. The bank never raised the issue of
non disclosure of RCL loan at the time of sanctioning there own
loan for a long period from the year 2017. In that context, we find
force in the reliance of Mr. Joshi on the observations of the Hon’ble
Supreme Court in the case of Harjas Rai Makhija. Paragraph-20 of
the said judgment is important; which reads thus:
“20. We agree that when there is an allegation of fraud by
non-disclosure of necessary and relevant facts or
concealment of material facts, it must be inquired into. It is
only after evidence is led coupled with intent to deceive
that a conclusion of fraud could be arrived at. A mere
concealment or non-disclosure without intent to deceive or
a bald allegation of fraud without proof and intent to
deceive would not render a decree obtained by a party as
fraudulent. To conclude in a blanket manner that in every
case where relevant facts are not disclosed, the decree
obtained would be fraudulent, is stretching the principle to
a vanishing point.”
(emphasis was on “intent to deceive”)
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37. As we have discussed, the company was bound to
disclose the RCL loan immediately, at least, within seven months
from the transaction with the Syndicate Bank, and hence, from the
record it does not appear that there was any intent to conceal this
fact. We are unable to agree with the submission of Shri. Shinde
that concealment at the time of sanctioning the loan only mattered
and subsequent disclosure made soon after was inconsequential, in
this particular case. In the case of Bhagwani Bai, Madhya Pradesh
High Court, in paragraph-11 has observed that, mere non-
disclosure of fact, material or not, does not ordinarily amount to
misrepresentation unless it was fraudulent.
38. Shri. Joshi relied on the observations of the Hon’ble
Supreme Court in the case of Union of India and others Versus N.
4
Murugesan and others . Paragraph-25 of the said judgment is
important; which reads thus:
“25. Acquiescence would mean a tacit or passive
acceptance. It is implied and reluctant consent to an
act. In other words, such an action would qualify a
passive assent. Thus, when acquiescence takes place, it
presupposes knowledge against a particular act. From
the knowledge comes passive acceptance, therefore
instead of taking any action against any alleged refusal
4 (2022) 2 Supreme Court Cases 25
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to perform the original contract, despite adequate
knowledge of its terms, and instead being allowed to
continue by consciously ignoring it and thereafter
proceeding further, acquiescence does take place. As a
consequence, it reintroduces a new implied agreement
between the parties. Once such a situation arises, it is
not open to the party that acquiesced itself to insist
upon the compliance of the original terms. Hence, what
is essential, is the conduct of the parties. We only dealt
with the distinction involving a mere acquiescence.
When acquiescence is followed by delay, it may become
laches. Here again, we are inclined to hold that the
concept of acquiescence is to be seen on a case-to-case
basis.”
39. The clauses in the original agreement between the
Syndicate Bank and the company are important. Clause-10 of the
said agreement dated 28.03.2017 has a heading “OTHER TERMS
AND CONDITIONS”. Sub-clause 10 of Clause-10 reads thus:
“10. The Borrower shall submit Due Diligence Report
from Company Secretary or Chartered Accountant or
Cost Accountant of the borrower Company, on an
annual basis.”
Sub-clause 13 of Clause-10 reads thus:
“13. The Lender reserves the right to periodically
inspect their records and books of accounts to ensure
the correctness of information furnished by them.
Further, the Lender shall have a right to appoint any
other independent consultants / agencies / auditors
etc. as desired by them at any time during the tenor of
the loan, the cost of which shall be borne by the
Borrower.”
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Sub clause 15 of Clause-10 reads thus:
“15. Audited Financial Statement along with Audit
report of the Borrower as well as Due Diligence
Certificate to be provided within seven months from
the closure of the financial year. In case of failure to do,
penal interest shall be charged @1%p.a.”
All these clauses give sufficient control to the lender
bank to verify the documents and financial status of the borrower
company. It is neither the case in the show-cause notice nor in the
final order that such audit reports were never supplied by the
company to the bank periodically or that the company prevented
the bank from inspecting their reports. Therefore, it is not possible
to accept that there was willful concealment with the intent to
deceive the bank. Before sanctioning the loan, the bank on its own
independently had to show due diligence. ‘Defaults’ are listed in
Clause-23 of the said agreement. Sub-clause 10 of Clause-23 is
about ‘supply of misleading information’; which reads thus:
“10. If any information given by the Borrower in its
application for financial assistance or any
representation/declaration/warranty under this Term
Loan Agreement to the Lender or otherwise is false or
misleading in any material respect.”
40. If according to the bank, non disclosure of RCL loan was
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default under this sub-clause, the consequences of default were
provided under sub-clause 18 (23.18.1); which reads as follows:
“23.18.1. On the occurrence of an Event of Default
and in the event the same is not cured within the cure
period of 30 (thirty) days, any amount outstanding
towards the Lender shall be immediately due and the
Lender may through a written notice to the Borrower
exercise all rights and remedies available to it by law,
contract or in equity including without limitation, the
following;
23.18.1.a. xxxxx
23.18.1.b. The Lender may suspend or terminate
all or any undrawn commitments.
23.18.1.c. xxxxx
23.18.1.d. xxxxx
23.18.1.e. The Lender shall be entitled to recall
any sums advanced to the Borrower and take
recovery action against the Borrower including but
not limited to action under the Securitisation and
Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002.
23.18.1.f. Exercise any and all powers which a
receiver could exercise (under the Indenture of
Mortgage) or by law.
23.18.1.g. Enter into and upon and take
possession of the Leased Units and any future
assets comprised in the Indenture of Mortgage and
after the taking of such action, the Mortgagor
(under the Indenture of Mortgage) shall take no
action inconsistent with or prejudicial to the right
of the Lender quietly to possess, use and enjoy the
same and to receive the income, profits and
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benefits thereof without interruption or hindrance
by the Mortgagor (under the Indenture of
Mortgage) or by any person or persons
whomsoever, and upon the taking of such action,
the Lender shall be freed and discharged from or
otherwise by the Mortgagor (under the Indenture
or Mortgage) well and sufficiently saved and kept
harmless and indemnified of, from and against all
former and other estates, titles, claims, demands
and encumbrances whatsoever.”
41. The important question is whether such non-disclosure
would amount to ‘fraud’ and whether it was made with the intent
to deceive the bank, as we have set out in our discussion.
42. From the above discussion, it is clear that the company
had to disclose this RCL loan within a short period and not later
than seven months from the closure of financial year 2017. Thus,
at the cost of repetition, it has to be noted that, it is not the case
that they had concealed the said loan even in their financial status
or audited report for the financial year on 31.03.2017 onwards.
The Lender bank had sufficient powers and safeguards under the
said agreement to terminate the agreement immediately and to
recover the amount forwarded to the company and to take over
the property. In the year 2021, the Respondent No.1-Bank had sent
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an e-mail indicating that they were aware of the RCL loan. Thus,
in spite of the knowledge, the bank chose not to terminate the
agreement or take any action.
43. Section 25 of the IPC which was then applicable, defines
‘Fraudulently’ as follows:
“25. “Fraudulently” – A person is said to do a
thing fraudulently if he does that thing with
intent to defraud but not otherwise.”
In this definition also, ‘intent’ is an important
ingredient. It has to be independently established.
44. Section 17 of the Contract Act, 1872 defines ‘Fraud’ as
follows:
"17. “Fraud” defined - “Fraud" means and includes any of the
following acts committed by a party to a contract, or with his
connivance, or by his agent, with intent to deceive another party
thereto or his agent, or to induce him to enter into the contract :
(1) the suggestion, as a fact, of that which is not true, by
one who does not believe it to be true;
(2) the active concealment of a fact by one having
knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to
be fraudulent.
Explanation.-Mere silence as to facts likely to affect
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the willingness of a person to enter into a contract is
not fraud, unless the circumstances of the case are
such that, regard being had to them, it is the duty of
the person keeping silence to speak, or unless his
silence is, in itself, equivalent to speech.”
Under this provision also, ‘intent’ is an important
consideration. Intent can be gathered from the attending
circumstances.
45. The loan taken from RCL was not a secret document.
The bank had means of discovering the said contract with ordinary
due diligence. In the present case, the bank had all the means to
examine the financial status of the borrower company before
sanctioning the loan to the company. The bank was required to be
given Financial Report of the company every year. The default and
its consequences clauses referred to herein above gave sufficient
power to the bank to take steps to even takeover the property of
the company. The company stood to lose heavily by deliberate
concealment of any relevant fact. Therefore, we do not find that
there was intent on the part of the company to commit fraud on
the bank.
46. As a result of the above discussion, we find merit in the
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submissions and the contentions raised on behalf of the Petitioner.
Hence, we are inclined to allow the petition.
47. Hence, the following order:
O R D E R
i) Rule is made absolute in terms of prayer clause
(a); which reads as follows:
“a) That this Hon’ble Court be pleased to issue a
Writ of Certiorari or a Writ in the nature of Certiorari
or any other appropriate Writ, Order or Direction for
quashing and setting aside the entire proceedings
initiated vide the Show Cause Notice Ex C dated
23.06.2025 culminating into the Impugned
Declaration Ex A dated 01.04.2026.”
ii) The Petition is disposed of.
(RANJITSINHA RAJA BHONSALE, J.) (SARANG V. KOTWAL, J.)
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