NISHI FORES AND LEISURE PVT LTD vs CANARA BANK
- Court
- Karnataka High Court
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HC-KAR
NC: 2026:KHC:57233
WP No. 16509 of 2025
CNR: KAHC010370212025
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 12 DAY OF OCTOBER, 2026
BEFORE
THE HON'BLE MR. JUSTICE C.M. POONACHA
WRIT PETITION NO. 16509 OF 2025 (GM-RES)
BETWEEN:
1. NISHI FORES AND LEISURE PVT LTD
A COMPANY INCORPORATED UNDER THE
PROVISIONS OF COMPANIES ACT,
HAVING ITS OFFICE AT NO.536,
GROUND FLOOR, AMAR JYOTHI NAGAR,
100 FEET INTERMEDIATE, RING ROAD,
DOMLUR, BENGALURU-560071.
REP BY ITS AUTHORIZED SIGNATORY
AND DIRECTOR MR RAMACHANDRA K
…PETITIONER
(BY SRI. GIRISH KUMAR B M.,ADVOCATE)
AND:
1. CANARA BANK
ARM-II BRANCH
AT 2ND FLOOR,
CIRCLE OFFICE, NO.86,
SPENCER TOWERS, M.G. ROAD,
BENGALURU-560001
REP BY CHIEF MANAGER
2. THE MANAGER
CANARA BANK,
JAYANAGAR 4TH T BLOCK BRANCH
BENGALURU - 560041
…RESPONDENTS
(BY SRI. T P MUTHANNA.,ADVOCATE)
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HC-KAR
NC: 2026:KHC:57233
WP No. 16509 of 2025
CNR: KAHC010370212025
THIS WP IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT IN THE
NATURE OF CERTIORARI OR ANY OTHER WRIT QUASHING THE
ORDER DATED 03.04.2025 BEARING NO. R AND L(L)/2025/FR-
16 STYLED AS ORDER AFTER DECLARING THE ACCOUNT AS
FRAUD ISSUED BY THE RESPONDENT NO. 1 VIDE ANNEXURE -
B.
THIS PETITION, COMING ON FOR ORDERS, THIS DAY,
ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE C.M. POONACHA
ORAL ORDER
1. The present petition is filed seeking for the following
reliefs:
"(a) Issue a Writ in the nature of Certiorari or any other
Writ quashing the Order dated 03.04.2025 bearing No.
R&L(L)/2025/FR:16 styled as 'Order after declaring the
account as fraud' issued by the Respondent No. 1 vide
Annexure - B;
(b) Issue a Writ in the nature of Certiorari or any other
Writ quashing the show cause notice dated 21.01.2025
bearing No. BLR/LEGAL/2025/19 issued by the
Respondent No. 1 vide Annexure - A
(c) Consequently, direct the Respondents to withdraw all
actions/decisions taken pursuant to the passing of the
issuance of show cause notice dated 21.01.2025 vide
Annexure A and Order dated 03.04.2025 vide Annexure -
B;
(d) Issue a Writ in the nature of Mandamus or any other
Writ directing the Respondents to consider the
Representation dated 20.05.2025 addressed by the
Petitioner to the Respondent No. 1 vide Annexure -V;
Digitally Signed by CHEPPUDIRA
MONNAPPA POONACHA
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HC-KAR
NC: 2026:KHC:57233
WP No. 16509 of 2025
CNR: KAHC010370212025
(e) Issue a Writ in the nature of Mandamus or any other
Writ directing the Respondents to consider the
Petitioner's proposal for possession of property and for
OTS.
(f) Pass such other order or grant such other relief/s as
this Hon'ble Court deems fit to grant, in the facts and
circumstances of the case. "
2. The petitioner, inter alia is aggrieved by the order dated
03.04.2025 (Annexure - B to the writ petition) whereunder the
respondent-Bank has classified the account of the petitioner as
'fraud' account. It is the contention of the petitioner that the
petitioner has not been notified in terms of the judgment of the
Hon'ble Supreme Court in the case of State Bank of India
1
and others vs. Rajesh Agarwal and others . The Hon'ble
Supreme Court in the case of State Bank of India and
1
others while considering the scope and applicability of the
principles of natural justice while passing an order classifying
an account as 'fraud' has held as under:
"98.
The conclusions are summarised below:
98.1.
No opportunity of being heard is required before an FIR is lodged
and registered.
98.2.
Classification of an account as fraud not only results in reporting
the crime to the investigating agencies, but also has other penal and
civil consequences against the borrowers.
1
(2023) 6 SCC 1
Digitally Signed by CHEPPUDIRA
MONNAPPA POONACHA
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HC-KAR
NC: 2026:KHC:57233
WP No. 16509 of 2025
CNR: KAHC010370212025
98.3.
Debarring the borrowers from accessing institutional finance under
Clause 8.12.1 of the Master Directions on Frauds results in serious civil
consequences for the borrower.
98.4.
Such a debarment under Clause 8.12.1 of the Master Directions
on Frauds is akin to blacklisting the borrowers for being untrustworthy
and unworthy of credit by banks. This Court has consistently held that
an opportunity of hearing ought to be provided before a person is
blacklisted.
98.5.
The application of audi alteram partem cannot be impliedly
excluded under the Master Directions on Frauds. In view of the time-
frame contemplated under the Master Directions on Frauds as well as
the nature of the procedure adopted, it is reasonably practicable for the
lender banks to provide an opportunity of a hearing to the borrowers
before classifying their account as fraud.
98.6.
The principles of natural justice demand that the borrowers must
be served a notice, given an opportunity to explain the conclusions of
the forensic audit report, and be allowed to represent by the banks/JLF
before their account is classified as fraud under the Master Directions
on Frauds. In addition, the decision classifying the borrower's account
as fraudulent must be made by a reasoned order.
98.7.
Since the Master Directions on Frauds do not expressly provide
an opportunity of hearing to the borrowers before classifying their
account as fraud, audi alteram partem has to be read into the provisions
of the directions to save them from the vice of arbitrariness."
( emphasis supplised )
3. The learned counsel for the respondent - Bank supporting
the impugned order vehemently contends that the petitioner
was issued a show cause notice dated 21.01.2025 (Annexure -
A to the writ petition) and the petitioner has not responded to
the same. Thereafter, a forensic audit was conducted and
having regard to the report of the said forensic audit, the
impugned order dated 03.04.2025 has been passed.
Digitally Signed by CHEPPUDIRA
MONNAPPA POONACHA
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HC-KAR
NC: 2026:KHC:57233
WP No. 16509 of 2025
CNR: KAHC010370212025
4. It is forthcoming that in the impugned order, the reasons
for classifying the accounts of the petitioner as 'fraud' has
been set out, the relevant portion of which reads as under:
"Reasons for declaring the account/s as Fraud
Manipulation of Books of Accounts and diversion of Funds
Forensic Audit was conducted in the Account by M/S D Pathak and Co.
for the period from 01.04.2020 to 31.03.2023 and submitted final Report
on 15.07.2023
The Forensic Audit revealed that fraudulent elements as per given
below:
1. Based on the Balanced confirmation received from debtors (15
Parties) auditors observed mismatch in the Balance. The borrowers
reported the Balance of Rs 5.21 CR from 15 debtors and as per the
confirmation mail received from the debtors they have NIL outstanding.
Further the auditors also reported that the parties are not even doing
business with the borrowers since last 2 years and 3 years in few
cases. So it is clearly understood that the borrowers have manipulated
the books of Accounts to deceive the Bank.
2. During the review period of the Forensic audit report i.e, 1 April 2020
Το 31 March 2023 Rs 27.85 CR transferred from the OD and other 2
Current Accounts of Nishi Forex and in turn only 4.25 CR is credited to
these Accounts. It clearly indicates that the borrower is not routing the
Business proceeds through the OD Accounts with the Bank and it is
clear case of funds misappropriation.
3. Money Trail and end use of Funds financed by the Bank/ Lenders-
Borrower to be found Non Cooperative and auditor has scrutinized the
Banking Data of the Company for Checking the end use of Funds and
found that the Borrower was transferring the Money from Canara Bank
Account to other Bank Accounts maintained by the Borrower with Axis
Bank and HDFC Bank. The Borrower has not provided any Documents
substantiating above transaction.
4. Diversion of Funds During the review period the auditor has observed
the events of transfer borrowed funds to other bank accounts of the
borrower details of which were not provided. "
Digitally Signed by CHEPPUDIRA
MONNAPPA POONACHA
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HC-KAR
NC: 2026:KHC:57233
WP No. 16509 of 2025
CNR: KAHC010370212025
5. It is pertinent to note here that in the show cause notice
dated 21.1.2025, the conclusions of the forensic audit have not
been communicated to the petitioner. It is only in the impugned
order dated 03.04.2025 that the Bank has set out the reasons
for classifying the accounts of the petitioners as 'fraud'
whereunder the findings of the forensic audit have been set
out.
6. It is clear from the aforementioned that the petitioner has
communicated the findings of the forensic audit only by virtue
of the impugned order dated 03.04.2025. The show cause
notice dated 21.01.2025 does not set out the details/particulars
of the finding to the forensic audit. It is clear from the
judgment of the Hon'ble Supreme Court in the case of State
Bank of India and others that the conclusion of the forensic
audit report ought to have to be communicated to the
borrowers and an opportunity of hearing ought to be afforded
to explain the same.
7. In view of the aforementioned, the order dated
03.04.2025 (Annexure - B to the writ petition) shall be
construed as a show cause notice. The petitioner shall furnish
Digitally Signed by CHEPPUDIRA
MONNAPPA POONACHA
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HC-KAR
NC: 2026:KHC:57233
WP No. 16509 of 2025
CNR: KAHC010370212025
his response to the same to the respondent - Bank on or before
28.10.2026, consequent to which, the petitioner shall be
afforded an opportunity of hearing before any further orders
are passed on the same. Until further orders are passed, the
order dated 03.04.2025 shall not be precipitated in any
manner.
8. The writ petition is disposed of in the aforementioned
terms.
9. Pending I.As. if any, stand disposed of.
Digitally Signed by CHEPPUDIRA
MONNAPPA POONACHA
(C.M. POONACHA)
JUDGE
BS
List No.: 2 Sl No.: 15