Bombay HC Quashes Canara Bank’s Fraud Tag On Company’s Account, Finding No Deceit Intent: Annual Accounts Listed RCL Loan, Bank Knew By 2021

The petitioner, a director of Carnival Technopark Private Limited, challenged Canara Bank’s show-cause notice dated 23 June 2025 and its declaration dated 1 April 2026 classifying the company’s account and transactions as “fraud” under the RBI Master Directions on Fraud Risk Management, 2024.

In 2017, Syndicate Bank sanctioned the company a ₹130 crore lease-rental discounting facility.

The bank alleged that the company and its directors concealed an earlier ₹75 crore loan from Reliance Capital Limited (RCL) when seeking the facility.

The petitioner argued that the RCL loan appeared in the company’s audited financial statements, which were furnished to the bank, and that the bank’s email of 16 April 2021 showed its awareness of the loan.

The High Court found that the email did refer to RCL defaults and that the bank’s sanction terms required periodic audited statements and permitted inspection of the company’s records.

Paragraph 6.1, category (iv), of the RBI Master Directions on Fraud Risk Management, 2024 covers “cheating by concealment of facts with the intention to deceive”; concealment alone is insufficient without the required intention.

Section 17 of the Indian Contract Act, 1872 defines fraud by reference to acts committed with intent to deceive, and provides that mere silence is not fraud unless there is a duty to speak or silence is equivalent to speech.

Section 25 of the IPC, as then applicable, similarly requires intent to defraud.

Relying on Harjas Rai Makhija v. Pushparani Jain, the Court stated that non-disclosure must be accompanied by evidence of intent to deceive before fraud can be found.

It also referred to Bhagwani Bai v. Life Insurance Corporation of India on non-disclosure not ordinarily amounting to misrepresentation unless fraudulent, and Union of India v. N. Murugesan on acquiescence, knowledge and conduct.

The Court accepted that the company was required to disclose the RCL loan, but held that the record did not establish an intention to deceive.

The bank’s assertion that it learned of the loan only after the company entered CIRP was contradicted by its 2021 email referring to RCL defaults.

The bank had also required annual audited statements and retained rights to inspect the company’s books; it was not alleged that the RCL loan was omitted from those statements or that the company prevented inspection.

Further, after becoming aware of the loan, the bank did not terminate the agreement or exercise the available contractual remedies.

Considering these circumstances, the Court concluded that the evidence did not demonstrate deliberate concealment with intent to deceive, as required by the RBI category and the applicable legal principles.

It allowed the petition and made the rule absolute, quashing the proceedings initiated by the show-cause notice dated 23 June 2025 and culminating in the fraud declaration dated 1 April 2026.