Banks cannot classify a non-executive director as fraudulent without a reasoned, evidence-based order.

Paramshakti Steels Ltd. (PSL) obtained credit facilities from several banks.

The petitioner was appointed a non-executive director of PSL on 11 March 2005 and resigned on 31 July 2015; he was neither a promoter nor a shareholder, and was not a guarantor for PSL’s borrowing from Bank of India (BOI).

BOI issued show-cause notices to the petitioner in 2021 and 2024 and, by order dated 11 August 2025, classified him as fraudulent.

The petitioner challenged that order, contending that it was unreasoned and that neither the forensic audit report nor the order identified his role in the alleged misconduct.

1. Whether BOI’s order declaring the petitioner fraudulent complied with the requirement to give a reasoned order addressing the relevant facts and the petitioner’s submissions.

2. Whether, in the circumstances, BOI should be permitted to commence fresh proceedings against the petitioner after the impugned order was set aside.

Clause 2.1.1.4 of the RBI Master Directions on Frauds dated 15 July 2024 requires a reasoned order communicating the bank’s decision to classify an account or person as fraud.

The order must state the relevant facts and circumstances relied upon, address the submissions made in response to the show-cause notice, and provide reasons for the classification.

The Court also applied the principles reflected in the Division Bench decisions in Vinod Garg v. Bank of India & Anr. and Ankit Rajendra Kumar Choudhary v. Bank of India & Anr., which it considered applicable to the materially similar circumstances.

The impugned order largely reproduced the show-cause notice and recorded a general conclusion that the petitioner was responsible for diversion or siphoning of funds.

It did not address his resignation in 2015, identify any specific role attributed to him, or explain the basis for treating him as a promoter; the record established that he was not a promoter.

The forensic audit report did not specifically refer to him or attribute any role to him, and he was not a guarantor of PSL’s facilities.

The Court therefore found the order unsupported by reasons and indicative of non-application of mind, contrary to clause 2.1.1.4.

It declined BOI’s request to initiate fresh proceedings because no material had been identified showing the petitioner’s involvement in the allegations against PSL.

It made the Rule absolute, quashed and set aside BOI’s order dated 11 August 2025, and disposed of the petition; it did not grant BOI liberty to commence fresh proceedings.