IN THE HIGH COURT AT CALCUTTA

(Constitutional Writ Jurisdiction)

APPELLATE SIDE

Present:

The Hon’ble Justice Krishna Rao

W.P.A. No. 13100 of 2024

Hemant Kanoria & Anr.

Vs.

Punjab National Bank

Mr. Ratnanko Banerjee, Sr. Adv.

Mr. Jishnu Chowdhury, Sr. Adv.

Mr. Deepan Kumar Sarkar

Mr. Soumalya Ganguli

Mr. Naman Chowdhury

Mr. Shubrojyoti Mookherjee

Mr. Samriddha Sen

....For the petitioners.

Mr. Dhruv Dewan

Mr. Deepanjan Dutta Roy

Ms. Arushi Chandra

Mr. Udbhav Nanda

Ms. Sanjana Jha

Ms. Rashi Sharma

Ms. Aditi Rathore

….For respondent.

2

Hearing Concluded On : 14.01.2026

Judgment on : 10.02.2026

Krishna Rao, J.:

1. The petitioners have initially challenged the show cause notices dated

16

th April, 2024 wherein the bank directed the petitioners to show

cause as to why the account of the petitioners shall not be declared as

“fraud” and during pendency of the writ application, the respondent

bank issued an order declaring the account of the petitioners as

“fraud”.

2. The petitioners contended that the respondent failed to act in

accordance with its statutory obligations and responsibilities in terms

of the Reserve Bank of India Master Directions.

3. It is further contended that the show cause notices issued by the

respondent are without any jurisdiction and is arbitrary, perverse and

violation of principles of natural justice. It is submitted that the

respondent bank failed to furnish either the purported Forensic Audit

Report or the documents relied in the show cause notices.

4. It is submitted that the petitioners do not have access to the record of

the SREI Entities since October, 2021 and the petitioners are not in a

position to deal with and respond to the allegations made in the show

cause notices.

5. Mr. Ratnanko Banerjee along with Mr. Jishnu Chowdhury, Learned

Senior Advocates representing the petitioners, submit that the show

3

cause notices have been issued on the basis of the Forensic Audit

Report by mechanically and selectively reproducing certain parts

thereof without context or basis and the respondent failed to provide a

copy of Forensic Audit Report or the copies of the documents on the

basis of which the Forensic Audit Reports were prepared.

6. Mr. Banerjee submits that in the absence of each and every documents

on the basis of which the allegations have been made against the

petitioners in the show cause notices are being made available to the

petitioners and a reasonable time is given to the petitioners, the

petitioners will not be in a position to give appropriate reply to the show

cause notices.

7. Mr. Banerjee in support of his submissions, has relied upon the

judgement in the case of Hemant Kanoria Vs. Bank of India passed

in WPA No. 28329 of 2023 dated 2

nd February, 2024 and submits

that in the said case, the Coordinate Bench of this Court held that a

show-cause notice is to be issued, enumerating the exact offences

alleged against the borrower/ Director. If any, Forensic Audit Report or

other document forms on the basis of the show-case notice, the same is

to be served along with the show cause notice.

8. Mr. Banerjee further relied upon the judgment in the case of Milind

Patel Vs. Union Bank of India and Others reported in 2024 SCC

OnLine Bom 745 and submits that the Division Bench of the Bombay

High Court held that it is now well settled that due compliance with

4

principles of natural justice must essentially entail compliance with the

obligation to provide access to the material on which the allegations are

based.

9. Mr. Banerjee submits that upon receipt of personal hearing notices, the

petitioners have filed a detailed reply informing the respondent that the

petitioners have not received the entire documents and the details of

the documents mentioned in the reply but instead of receipt of the

request of the petitioners, the respondent has not supplied the

documents to the petitioners and have passed the impugned order

declaring the loan account of the petitioners as “fraud”.

10. Mr. Dhruv Dewan, Learned Advocate representing the respondent

submits that the show cause notice was issued on 16

th April, 2024 and

the petitioners have filed the writ petition on 13

th May, 2024 and reply

to the show cause notice was filed on 22

nd May, 2025, after personal

hearing of the petitioners. He submits that second notice for personal

hearing was issued on 22

nd October, 2025 and the petitioners have filed

reply on 10

th November, 2025, thereafter the impugned order is passed

on 19

th December, 2025.

11. Mr. Dewan has relied upon the judgment in the case of Hemant

Kanoria (supra) and submits that the Coordinate Bench of this Court

also held that a balance has to be struck between the limit up to which

technicalities should be adhered to on the one hand and speed in

reporting is ensured on the other. He submits that the time is the

5

essence of the entire Master Directions, which lends an extremely

summary character to the process involved therein.

12. Mr. Dewan submits that in the show cause notices dated 16

th April,

2024, 15 days’ time was provided to the petitioners for reply but the

petitioners have not filed reply within time. He further submits that

with respect to issues no.1 of the show cause notices, the petitioners by

a letter dated 22

nd May, 2025 in paragraph 61 (a) to (m), they have

given the details of the documents which the petitioners requested to

supply the same but the said documents are not relevant to give reply

to the show cause notices.

13. Mr. Dewan further submits that as regard to the issue nos. 2 and 6 of

the show cause notices, the petitioners have given the descriptions of

the documents at paragraph 86 (a) to (n) for supply of the same to the

petitioners but the said documents are similar documents as described

in paragraph 61(a) to (m) of the letter dated 22

nd May, 2025.

14. As regard to the issue no.3 of the show cause notices, the petitioners

have given descriptions of the documents at paragraph 115 (a) to (jj)

out of which most of the documents are referred in the previous

paragraphs. He submits that the said documents are irrelevant for

giving reply to the show cause notices. With respect to the issue no.4,

the petitioners have given descriptions of documents at para 122 (a) to

(k).

6

15. Mr. Dewan further submits that as regard to the issue no. 5 of the

show cause notices, the petitioners requested the respondent to supply

documents mentioned in paragraph 138(a) to (k) of the letter dated 22

nd

May, 2025 but the said documents are also the same documents as

mentioned in above paragraphs. He further submits that the

documents are not at all relevant to give reply to the show cause

notices. He further submits that the Forensic Audit Report is already

with the petitioners and in any of the above mentioned paragraphs, the

petitioners have not requested for supply of Forensic Audit Report.

16. Mr. Dewan submits that how the names and details of the officials of

the bank are relevant for the petitioners, who are involved in granting

loan, monitoring the loans to SREI Entities were utilized and

scrutinized the loan account of the petitioners.

17. Mr. Dewan submits that appraisal report prepared by the bank officials

is no way connected with regard to reply to the show cause notices.

18. The details of the documents which the petitioners have requested to

supply for submitting reply to the show cause notices, are as follows:

“115. In light of the issues indicated above,

I once again humbly request you to provide me

with all the documents and information

pertaining to loans furnished by the SREI entities

with long moratorium periods and low interest

rates which would enable me to provide a

specific response behind the business

justification for sanctioning such loans with long

moratoriums and low interest rates. In aid of

what I have respectfully stated above, I request

your good offices to provide me with the

following specific documents which would enable

7

me to effectively and adequately respond to the

allegations made in paragraph 3 of the SCNs.

(a) Names and details of all officials of your

bank who were involved in granting the

subject loans to the SREI Entities.

(b) Names and details of all officials of your

bank who were monitoring the manner in

which your loans to SREI Entities were

being utilized in respect of the loan

accounts mentioned in paragraph 3 of the

SCNs and sections 6 and 7 of the KPMG

FAR.

(c) Names and details of all officials of your

bank who were scrutinizing the loan

accounts mentioned in paragraph 3 of the

SCNs and sections 6 and 7 of the KPMG

FAR and preparing appraisal reports

which is mandatory as per applicable

law.

(d) Copies of all appraisal reports prepared

by the bank officials in respect of the loan

accounts mentioned in paragraph 3 of the

SCNs and sections 6 and 7 of the KPMG

FAR.

(e) Copies of all minutes of meetings of your

competent credit committee/ special cell/

relevant competent authority where the

appraisal reports prepared by your bank

in respect of the loan accounts mentioned

in paragraph 3 of the SCNs and sections

6 and 7 of the KPMG FAR were

considered and discussed.

(f) Specific information as to the security, its

present value and also whether the loans

are being serviced/restructured by the

present management of the SREI Entities

in respect of the companies mentioned in

paragraph 3 of the SCNs.

(g) All documents which demonstrate or

evidence the fact that the arrangement of

lending over a long moratorium period

with low interest rates is without

8

adequate justification, as alleged in

paragraph 3 of the SCNs and paragraph

6.9.5 of the KPMG FAR.

(h) Copies of minutes of all meetings held in

your bank by your competent authorities

where all loan accounts and loan

proposals of SREI Entities were placed

and discussed for the purpose of

sanctioning loans/ enhancing limits to

SREI Entities between 1

st April, 2015 and

4

th October, 2021.

(i) Copies of the Detailed Appraisal Report

(DAR) and Credit Assessment Memo

(CAM) prepared by the relationship

managers sad regional heads of the SREI

Entities of the transactions which are

mentioned in paragraph 3 of the SCNs

and sections 6 and 7 of the KPMG FAR.

(j) Copies of the notes /reports/memos

prepared by the relationship managers

and the regional heads of the SREI

Entities with respect to the transactions

mentioned in paragraph 3 of the SCNs

and sections 6 and 7 of the KPMG FAR.

(k) Copies of the minutes of the meeting of

the credit committee dealing with the

approval modification/appraisal of the

loans which were disbursed and detailed

in paragraph 3 of the SCNs and sections

6 and 7 of the KPMG FAR.

(l) All documents which demonstrate or

evidence the fact that the arrangement of

lending over a long moratorium period

with low interest rates has created a

working capital mismatch, as alleged in

paragraph 3 of the SCNs and paragraph

6.9.5 of the KPMG FAR.

(m) All documents which were relied upon by

KPMG in observing that “…. The

arrangement of lending on long

moratorium period without adequate

Justification with loan interest rates

creating working capital mis-match is

9

prima facie detrimental to the financial

health of the lenders", as alleged in

paragraph 3 of the SCNs and paragraph

6.9.5 of the KPMG FAR.

(n) Copy of the Corporate Governance report

forming a part of the annual report of the

SREI Entities which was reviewed by

KPMG as indicated in pg. 205 of the

KPMG FAR;

(o) Copies of all documents reviewed and

analyzed by KPMG on sample basis as to

the source and application of funds,

revenue, capital and operating expenses

during the review period, as indicated in

pg. 210 of KPMG FAR.

(p) Copies of all documents which were

reviewed by KPMG during the review

period concerning impairment gains/

losses, incomes including provisions and

reversals, expenses, capital expenses

and fixed asset registers, investments

and other current liabilities and assets

and sample transactions which were

selected by KPMG considering a

threshold value of INR 25,00,000/- along

with all supporting documents, as

indicated in pg. 210 of KPMG FAR.

(q) Copies of all documents which were

reviewed by KPMG during the review

period which included invoices, vouchers,

proof of delivery of service and all other

supporting documents which were

reviewed by KPMG for ascertaining

genuineness of the transactions, as

indicated in pgs. 210-211 of KPMG FAR.

(r) Copies of the internal audit reports

prepared by the auditors of the SREI

Entities with respect to the transactions.

(s) Specific information as to the security, its

present value and also whether the loans

are being serviced/restructured by the

present management of the SREI Entities

10

in respect of the companies mentioned in

paragraph 3 of the SCNs.

(t) All documents which were reviewed by

KPMG during the review period which

demonstrate or evidence the fact that

fresh loans that have been given with

longer moratorium period and lower

interest rates have been given without

adequate justification, as more fully

indicated in paragraph 3 of the SCNs;

(u) All documents which were reviewed by

KPMG during the review period which

demonstrate or evidence the fact that

loans have not been utilized by borrowers

for a purpose other than the stated

purpose for which they were sanctioned,

as indicated in paragraph 3 of the SCNs.

(v) Copies of all “280 selected customer

contracts aggregating to Rs. 19,604.98

Crore indicate that loans aggregating to a

value of Rs. 7060.52 Crore (36% of Rs.

19,604.98 Crores), which were disbursed

post June 2018” as indicated in

paragraph 3 of the SCN.

(w) Copies of all “280 selected customer

contracts…. aggregating to INR

19,604.98 Crore and which indicate that

"loans aggregating to a value of INR

7,060.52 Crore (36% of 19604.98 Crore

which were disbursed post June 2018

bear an interest rate of 2% per annum or

lower payable on a monthly/quarterly

basis during the moratorium period with

an Internal Rate of Return (IRR) of around

12% to 15% an exit, as indicated in

paragraph 3 of the SCNs,

(x) All documents which were reviewed by

KPMG during the review period which

demonstrate or evidence the fact that

loans to customers at a low interest rate

of 2% per annum or lower during the

initial moratorium period have also

created a working capital gap for the

11

SREI Entities, as indicated in paragraph

3 of the SCNS:

(y) Copy of the loan contract(s) in respect of

Suasth Health Care (India) Limited, as

indicated in paragraph 3 of the SCNs

along with all related documents,

(2) Copies of the loan contract(s) in respect of

Solapur Tollways Private Limited, as

indicated in paragraph 3 of the SCNs

along with all related documents,

(aa) All documents which were reviewed by

the purported financial auditors during

the respective review periods which

demonstrate or evidence the fact that

loans were sanctioned to connected

entities and otherwise wherein long

moratorium periods have been provided

without adequate justification, as

indicated in paragraph 3 of the SCNs;

(bb) All documents which were reviewed by

the purported financial auditors during

the respective review periods which

demonstrate or evidence the fact that

loans which were granted with long

moratorium period were utilized for

repaying outstanding loan taken by

another connected entity, as indicated in

paragraph 3 of the SCNs;

(cc) All documents which were reviewed by

KPMG during the review period which

demonstrate or evidence the fact that

there was inadequate business

justification for long moratorium with low

interest payment in the context of projects

which were generating revenue, as

indicated in paragraph 3 of the SCNs.

(dd) Copy of the Corporate Governance report

forming a part of the annual report of the

SREI Entities which was reviewed by

KPMG as indicated in pg. 205 of the

KPMG FAR;

12

(ee) All records pertaining to related party

transactions with Directors and Key

Managerial Personnel ("KMP") which was

reviewed by KPMG during the review

period as indicated in pg. 205 of the

KPMG FAR.

(ff) Copies of all loan contracts/sanction

letters reviewed by KPMG during the

review period which demonstrate or

evidence the fact that the overall interest

rates would be high (12-15% on exit) as

indicated in pg. 211 of KPMG FAR.

(gg) Copies of all documents which were

reviewed by KPMG during the review

period on the basis of which it is

observed that "... the working capital

facilities and demand loans raised by

SREI Entities from Consortium of Bankers

for meeting the working capital

requirements have an average interest

rate of 9% per annum.” as indicated in

pg. 211 of KPMG FAR.

(hh) Copies of all documents which was

reviewed by KPMG during the review

period on the basis of which it observed

that "... the term loans from domestic

banks and FIIs which are raised for the

purpose of financing infrastructure

projects and meeting the on-ward lending

requirements have an average interest

rate 10.50% per annum are also payable

on a monthly/ quarterly basis as

indicated in pg. 211 of KPMCO FAR and

paragraph 3 of the SCNs.

(ii) Details of all alleged connected entities/

alleged related parties alleged potentially

related parties along with their

shareholding and ultimate beneficiaries

with respect to Kanoria Family members.

(jj) Copies of legal opinions obtained by SREI

Entities, internal audit reports and

external audit reports carried out from

time to time on issue of related

party/entities and family members'

13

ownership, and KPMG's comments on the

same.”

19. In the case of Hemant Kanoria (supra), the Coordinate Bench of this

Court held that:

“56. Chapter VI of the Master Directions gives

the guidelines for reporting frauds to the police/CBI

and other investigative agencies. Thus, the

classification of fraud has two purposes – first, to

caution the banking system as to the modus

operandi of fraudulent operatives and borrowers

and secondly, to initiate proceedings against

fraudsters by reporting the same to investigative

agencies, which, in turn, might lead to convictions

under the criminal laws of the country.

57. Clause 8.4 of the Master Directions

speaks about early detection and reporting and

highlights that at present the detection of frauds

takes an unusually long time since banks tend to

report an account as fraud only when they exhaust

the chances of further recovery. Clause 8.4.2 says

that the most effective way of preventive frauds in

loan accounts is for banks to have a robust

appraisal and an effective credit monitoring

mechanism during the entire life-cycle of the loan

account.

58. Clause 8.7 of the Master Directions

provides incentive for prompt reporting by banks.

59. Thus, looking into the entire tenor of the

Master Directions, it is evident that unnecessary

reliance of formalities would tend to defeat and

frustrate the very purpose of enunciation of the

said Directions.

60. Hence, what has to be ensured is that

specific instances of allegations are to be

mentioned in the show-cause notice, although all

particular documents which are to be relied on

and/or intricate details of the frauds alleged need

not be given at the show-cause notice stage. The

show-cause is a mere indicator of the allegations

made against the borrower and its

Director/management. It is to ensure that an

14

effective opportunity of hearing is given to the

accused.

61. Although the process of fraud declaration

is summary under the Master Directions, the

principles of natural justice have to be read into it

as much as possible, since such principles are the

basic features of Rule of Law and cannot be short

shrifted.

62. However, there is no scope of any detailed

trial and, as such, the procedure is to be

streamlined.

63. Keeping such backdrop in view, in the

light of the judgments rendered in Rajesh Agarwal

(supra) and Neptune Overseas Limited (supra), the

following procedure is, in the opinion of this Court,

apt to serve the purposes of the Master Directions

as well as to take care of the principles of natural

justice, in particular the tenet of Audi Alteram

Partem and ensure that an effective opportunity of

rebutting the allegations is given to the borrower

and its Directors.

64. First, a show-cause notice is to be issued,

enumerating the exact offences alleged against the

borrower/Director. If any FAR or other document

forms the basis of the show-cause, the same is to

be served along with the show-cause notice. (Both

the said criteria have, in fact, have been satisfied

in the present case in respect of BOI, BOB and

UBI.)

65. A fortnight thereafter would be ample time

to give reply to the showcause notice. In its reply,

the noticee shall, apart from addressing the

allegations and controverting those specifically,

specify the documents which are required to be

provided to the noticee by the Banks/financial

institutions. If necessary, in the reply, the

borrower/Director or promoter can reserve its rights

to give a further additional reply upon receiving

such documents.

66. Within a week from receiving such replies,

the Banks can give an inspection of the documents,

if extremely voluminous, and/or furnish copies of

15

the particular documents which are sought by the

borrower.

67. Within a further fortnight, if necessary,

the noticee/borrower can be given an opportunity

to file additional reply, in the light of the documents

which have by now been inspected / served on

them. Thereafter, a hearing shall be fixed by the

bank on the basis of the reply.

68. Upon such hearing being concluded, a

decision shall be taken whether or not to declare

the borrower-company or its Director/promoter as

“fraud” or “perpetrator of fraud”. The aforesaid

procedure would take, at the most, 8 weeks in total

to be concluded, which would be sufficient

compliance of the Master Directions of the RBI.

Thereafter, if declared as fraud/perpetrator of

fraud, the same can be intimated by the Bank to

the RBI.”

20. The petitioners though have requested for supply of various documents

but in the said reply, the petitioners have also indicated why the said

documents are required. In their representations, the petitioners have

categorically described the relevancy of each and every document.

21. In the impugned order dated 19

th December, 2025, the respondent has

narrated the total reply of the petitioners. The Committee of the bank

have also given their views on each issues but have not given any

reasons as to why the documents which the petitioners have requested

to supply, is not relevant or the said documents have been supplied. At

the end of the impugned order, the Committee has given its view

wherein in one part, it is recorded that the said documents are beyond

the Forensic Audit Report and in other part, it is recorded that the

allegation of fraud detailed in the show cause notices are based on the

16

transaction between the SREI Entities and their customers and these

records are already with the borrowers.

22. It is the specific case of the petitioners that the entire documents of the

Forensic Audit Report are not supplied to the petitioners. The

respondent has given personal hearing to the petitioners and in the

personal hearing also the petitioners have requested the respondent for

supply of documents but the same was neither supplied nor have given

any justification as to why it is not necessary to supply the same to the

petitioners. The respondent has offered personal hearing to the

petitioners, the respondent ought to have given an opportunity to the

petitioners to inspect the said documents if it was not possible for the

respondent to supply the voluminous documents to the petitioners.

23. Considering the above, this Court finds that the petitioners have

specified the documents which the petitioners are required to give

proper reply to the show cause notices but without any reasons and

without considering the request of the petitioners, the respondent has

passed the impugned order, thus the impugned order is set aside and

quashed.

24. The respondent is directed to supply the documents as requested by

the petitioners in their reply dated 22

nd May, 2025, within two weeks

from date and if the documents are voluminous, the respondent shall

allow the petitioners to inspect the documents within two weeks from

17

date and the petitioners shall complete the inspection of the documents

within a period two weeks.

25. On receipt of documents or on completion of inspection of documents,

the petitioners shall have the liberty to file their supplementary reply

within two weeks thereafter.

26. On receipt of supplementary reply to the show case notices, if any, the

respondent shall pass necessary order within two weeks thereafter.

27. WPA No. 13100 of 2024 is disposed of.

Parties shall be entitled to act on the basis of a server copy of the

Judgment placed on the official website of the Court.

Urgent Xerox certified photocopies of this judgment, if applied for,

be given to the parties upon compliance of the requisite formalities.

(Krishna Rao, J.)