A Show Cause Notice That Reads Like a Guilty Verdict Is No Notice At All: Calcutta High Court Quashes Bank of India’s Fraud Classification for Predetermined Mind

“A show cause notice must be answerable as to show cause — not a verdict in disguise. The language and tone must be inquisitive, not conclusive” — ruled the Calcutta High Court, delivering a scathing indictment of the Bank of India on 18th November 2025, for classifying a borrower’s account as “fraud” without adhering to fundamental tenets of natural justice.

Justice Krishna Rao held that both the show cause notice dated 28.02.2024 and the impugned order dated 07.08.2024, classifying the account of M/s Swati Mining Pvt. Ltd. as “Fraud”, were issued in clear violation of RBI Master Directions and constitutional guarantees under Article 14.

“Natural Justice Is Not a Box to Tick — It’s a Constitutional Mandate”: Court Raps Bank for Withholding Forensic Audit Report and Copy-Paste Order

The Court found that the show cause notice issued by the bank was not a question — it was a conclusion, a document that had already labelled the borrower a fraud even before hearing his side. The judge noted that from the heading of the notice itself, it was evident the bank had prejudged the matter, thereby rendering the entire exercise void.

“From the face of the notice, it is clear that the respondent bank has already predetermined that the account of the petitioner is ‘Fraud’... a show cause must never be a foregone conclusion,” observed Justice Rao.

The Court held that this was not a mere technical flaw but a serious breach of procedural fairness, because once a prejudgment has occurred, the rest of the proceedings are nothing but ritualistic compliance.

“No Forensic Report, No Hearing, No Reasoned Order — Only a Replica of Accusation”: Calcutta HC Sets Aside Bank’s Fraud Declaration

The Bank of India’s entire case rested on a forensic audit report, but the Court noted that the report was not served along with the show cause notice. The bank later claimed that the report was emailed — yet it failed to prove that it was ever delivered, and there was no record of the petitioner being asked to respond specifically to the audit findings.

“The respondent bank has relied upon an email, but the same does not reflect whether the forensic report was served. In the impugned order, there is no mention of it either,” the Court noted.

More damningly, the Court held that the impugned order was a mirror image of the show cause notice, a mechanical copy-paste that failed to address the petitioner’s reply. The order did not deal with the fact that the petitioner had ceased to be director of the company since 2018, and also did not explain why his submissions were rejected.

“There is no finding as to why the reply submitted by the petitioner was not accepted... the impugned order is the replica of the show cause notice,” the Court stated.

“Master Directions Are Not Mere Guidelines — They Are Binding Procedural Law”: Bank Violated SC’s Directions in Rajesh Agarwal and Calcutta HC’s Own Judgment in Hemant Kanoria

The Court heavily relied on the Supreme Court’s authoritative ruling in State Bank of India v. Rajesh Agarwal (2023) 6 SCC 1, which mandates that borrowers must be provided with audit reports and given a meaningful opportunity to respond before any fraud classification is made.

It also referred to its own earlier ruling in Hemant Kanoria v. Bank of India (2024 SCC OnLine Cal 1012), where the High Court had laid down a clear eight-step procedure for classifying borrower accounts as fraud, including the mandatory supply of documents, an opportunity to reply, and a hearing. None of those steps were followed in the present case.

“None of the procedures were followed. No audit report was supplied, no documents were inspected, no additional reply was invited, and no hearing was fixed,” the Court ruled.

On the issue of personal hearing, the Court leaned on the Delhi High Court’s view in IDBI Bank Ltd. v. Gaurav Goyal, which held that a fair hearing includes a personal hearing, especially when the fraud tag carries significant stigma and irreversible consequences.

Court Grants Liberty to Reinitiate But Warns: “Follow the Law, Not a Prewritten Script”

While quashing both the notice and the order, the High Court allowed the Bank of India to proceed afresh, but only if it strictly complies with the RBI Master Directions and judicially mandated procedure.

“The bank has not proceeded in accordance with law despite liberty granted by the Division Bench in 2023. Accordingly, the show cause notice and impugned order are quashed,” the Court concluded.

The Court issued a clear warning to banks that even if the borrower is under suspicion, no classification as ‘fraud’ can be made without due process, and certainly not through cut-and-paste adjudication or predetermined templates.

Date of Decision: 18 November 2025