The Bombay High Court has quashed Bank of India’s decision classifying Future Lifestyle Fashions Ltd. (FLFL) and its promoters, Kishore Biyani and Rakesh Biyani, as ‘fraud’, holding that the bank’s order was wholly unreasoned and violated the Reserve Bank of India’s Master Directions on Fraud Risk Management, 2024.
A Division Bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla allowed the writ petition challenging the bank’s order dated June 21, 2025, the show cause notice, the forensic audit report, and the consequent fraud classification. The petitioners contended that they were non-executive directors of FLFL and the bank had failed to comply with the mandatory procedure prescribed under the RBI’s 2024 Fraud Master Directions.
Also Read Delhi HC Orders Crocs to Pay ₹24.63 Lakh Costs to Bata in Design Infringement Suit
The Court noted that Clause 2.1.1.4 of the 2024 Master Directions expressly requires banks to pass a reasoned order while classifying an account as fraud. Such an order must set out the relevant facts relied upon, consider the submissions made in response to the show cause notice, and provide reasons for the decision.
Examining the impugned order, the Bench found that it merely narrated the background of the loan account, reproduced portions of the forensic audit report, and recorded the ultimate conclusion declaring FLFL and the petitioners as fraud, without independently analysing the material or assigning reasons for the classification. The Court also observed that the detailed reply submitted by FLFL’s Managing Director to the show cause notice found no consideration in the impugned order.
Rejecting the bank’s contention that the reasons were contained in the forensic audit report itself, the Court held that the RBI’s Master Directions specifically require the bank to issue a reasoned order, and merely reproducing the contents of the forensic audit report does not satisfy this requirement.
Accordingly, the High Court quashed the impugned order classifying FLFL and the petitioners as fraud. The Court further directed Bank of India to ensure that the names of the petitioners are not reflected as ‘Fraud’ in the Central Fraud Registry maintained by the Reserve Bank of India.
The Court granted liberty to Bank of India to recommence the proceedings from the stage of the show cause notice, or by issuing a fresh show cause notice, provided it strictly complies with the requirements of the RBI’s 2024 Fraud Master Directions.
