Bank fraud classification stands absent arbitrariness or illegality in the decision-making process.

Three connected writ petitions under Article 226 challenged orders classifying the petitioners’ accounts as “fraud” on the basis of forensic audits.

The petitioners alleged that they had not received a fair opportunity to respond, including sufficient time to obtain records said to be in the custody of the GST Department; they also questioned the process because the show-cause notices and final decision were issued by different bank authorities.

The Bank contended that the petitioners had been given 31 days to respond, exceeding the 21-day period, and relied on the forensic audit material and the governing RBI directions.

Whether the Bank’s process for classifying the petitioners’ accounts as fraud complied with the principles of natural justice and the RBI Master Directions on Fraud Risk Management, 2024, despite the petitioners’ claims that they lacked sufficient time and access to records

Whether the difference between the authority issuing the show-cause notices and the authority making the final decision rendered the classification process unlawful

Whether the impugned orders warranted interference under Article 226

Article 226 permits judicial review of the decision-making process, rather than an appeal on the merits of the decision.

In State Bank of India v. Rajesh Agarwal, (2023) 6 SCC 1, the Supreme Court recognised the serious civil consequences of fraud classification and required a fair process and a reasoned decision.

As summarised by the Court from State Bank of India v. Amit Iron Private Limited, Civil Appeal Nos. 4243–4244 of 2026, decided 7 April 2026, the 2024 RBI Master Directions provide the applicable procedure; they do not create a right to a personal hearing, but require disclosure of relevant audit reports, including forensic audit reports, and an opportunity to make a representation.

With recorded reasons, portions affecting third-party privacy may exceptionally be withheld.

The Court found that the petitioners had been given 31 days to respond, exceeding the stated 21-day period, but had not filed replies.

It held that the petitioners’ assertion that records were with the GST Department did not establish that the Bank had failed to follow the prescribed procedure.

The Court considered the fraud classification to have been based on forensic audit findings and rejected the contention that the findings were merely speculative.

It also found no illegality in the notices being issued by the Zonal Manager and the decision being made by the Fraud Monitoring Group, reasoning that the decision was made on the material available to the competent authority.

It found no arbitrariness, impropriety or illegality in the decision-making process warranting writ intervention.