Bombay High Court Sets Aside Bank of India’s Fraud Tag on Naresh Goyal’s Loan Account | Finds Lack of Opportunity to Respond Breached Natural Justice
Isabella Mariam
The High Court of Bombay Division Bench of Justice R.I. Chagla and Justice Farhan P. Dubash quashed and set aside a show-cause notice dated July 1, 2025 issued by Bank of India that classified Jet Airways’ founder Naresh Jagdishrai Goyal’s loan account as “fraud,” and also set aside the earlier fraud classification referenced in that notice. The Bench held that the bank proceeded without first affording Goyal an opportunity to present a representation to the forensic audit findings, as required by the audi alteram partem rule read into the Reserve Bank of India’s Master Directions on Frauds.
The petitioner, Naresh Jagdishrai Goyal, challenged the Bank of India’s decision to classify his account as “fraud.” The dispute arose after the bank first issued a show-cause notice on 30 December 2024 without supplying the petitioner with the forensic audit report on which the classification was based. Subsequently, on 1 July 2025, the bank issued a second show-cause notice after furnishing the forensic audit report.
The petitioner argued that both actions were contrary to the Supreme Court’s ruling in State Bank of India and Ors. v. Rajesh Agarwal and Ors. (2023), which mandates that a borrower must be provided the findings of the forensic audit and be given an opportunity to present a representation before the classification of the account as fraud. The petitioner contended that the classification lacked justification and that no formal order of classification was ever served on him.
The impugned notice of 1 July 2025 referred to an earlier classification of the account as “fraud,” which the petitioner claimed was itself illegal as it had been made without complying with the mandatory principles of natural justice.
The Bank of India maintained that it had proceeded in accordance with its internal procedures and the RBI Master Directions on Frauds. However, it conceded that a re-examination had been undertaken through the second notice. The petitioner therefore approached the Bombay High Court seeking quashing of the order of classification and all subsequent proceedings arising from it.
The Bench referred to the Supreme Court’s pronouncement in Rajesh Agarwal and recorded that “the classification of the borrower account as ‘fraud’ is preceded by the observation of the rule audi alteram partem, which is required to be read into clause 8.9.4 and 8.9.5 of the Master Directions on Frauds.”
The Court noted that the bank is obliged to “provide an opportunity to the borrower to explain the findings in the forensic audit report, and to a representation before the account is classified as fraud under the Master Directions on Frauds.”
Referring to the two show-cause notices, the Court observed that the first notice dated 30 December 2024 had been issued “without providing the petitioner the report of the forensic audit conducted by the bank.” Although the second notice of 1 July 2025 furnished the report, the Court stated that “the mere re-examination of the earlier classification of the petitioner’s account as fraud does not meet with the rule of audi alteram partem as per the law laid down by the Supreme Court.”
The Division Bench quashed and set aside “the order classifying the petitioner’s account as ‘fraud’ as in paragraph 2 of the impugned show-cause notice dated 1st July 2025. The impugned show-cause notice dated 1st July 2025 which seeks re-examination of the petitioner’s account which has been classified as ‘fraud’ is set aside.”
It clarified that “the respondent No.1 – Bank is at liberty to issue a fresh show-cause notice … and shall comply with the principles of natural justice and the rule of audi alteram partem.”
The Court recorded the bank’s statement that it would not act upon the earlier classification or the impugned notice.
Advocates Representing the Parties
For the Petitioner: Mr. Sharan Jagtiani, Senior Counsel, with Mr. Ameet Naik, Mr. Abhishek Kale, Mr. Tushar Hathiramani, Ms. Shraddha Achliya, Mr. Pranjal Agarwal, Mr. Harish Khedkar, Mr. Devashish Jagirdar, and Mr. Ronit Doshi, instructed by Naik Naik and Co.
For the Respondents: Dr. Abhinav Chandrachud, with Mr. Rakesh Singh, Mr. Kedar Nayak, and Mr. S.D. Shetty, instructed by M.V. Kini and Co., Ms. Huzan Bhumgara, with Mr. Pradeep Mane and Ms. Shubhi Dotiya, instructed by Desai and Diwanji.
Case Title: Naresh Jagdishrai Goyal v. Bank of India and Ors.
Neutral Citation: 2025:BHC-OS:16700-DB
Case Number: Writ Petition (L) No. 26973 of 2025
Bench: Justice R.I. Chagla and Justice Farhan P. Dubash
