The Bombay High Court on 4 November held that mere non-disclosure of an existing loan, without establishing an intention to deceive the bank, cannot justify classifying a borrower's account as fraudulent under the Reserve Bank of India's (RBI) Master Directions on Fraud Risk Management, 2024.
A Bench comprising Justices Sarang V Kotwal and Ranjitsinha Raja Bhonsale allowed a petition filed by Prasanth Narayanan, a Director of the suspended Board of Carnival Technopark Private Limited, and quashed Canara Bank's decision to classify the company's account as fraudulent. It said:
“Therefore, it is not possible to accept that there was willful concealment with the intent to deceive the bank. Before sanctioning the loan, the bank on its own independently had to show due diligence.”
The dispute arose from a Rs. 130 crore loan sanctioned by the erstwhile Syndicate Bank in March 2017 under a Lease Rental Discounting facility, primarily to repay an existing Rs. 115 crore loan from IndusInd Bank.
Carnival Technopark had also availed a separate Rs. 75 crore loan from Reliance Capital Limited (RCL) in January 2017, along with two other entities. Narayanan contended that the two loans had independent security and repayment arrangements.
Canara Bank, which merged with Syndicate Bank in April 2020, alleged that Carnival Technopark had concealed the RCL loan while obtaining the Rs. 130 crore facility, thereby withholding material information relevant to the bank's credit assessment.
However, Carnival Technopark contended that it had disclosed the RCL loan in its audited financial statements submitted to the bank. It also relied on an email dated 16 April 2021 in which Canara Bank had acknowledged the RCL loan and sought details of its defaults.
Subsequently, the bank issued a show-cause notice on 23 June 2025 and classified the company's account and transactions as fraudulent on 1 April 2026 under the RBI's Master Directions on Fraud Risk Management, 2024. Narayanan challenged the decision before the High Court.
The Court noted that Paragraph 6.1 of Chapter VI of the RBI Master Directions, which deals with reporting incidents of fraud, includes the category of 'cheating by concealment of facts with the intention to deceive any person'.
It observed that the provision does not treat concealment of facts alone as sufficient to establish fraud. The bank must also establish an intention to deceive.
Examining the bank's allegation that it learnt about the RCL loan only after Carnival Technopark was admitted into the Corporate Insolvency Resolution Process (CIRP), the Bench found that its own email dated 16 April 2021 contradicted this claim.
It observed that the central question was whether the non-disclosure was accompanied by an intention to deceive the bank. It noted that the bank had not alleged that Carnival Technopark concealed the RCL loan in its audited financial statements, which the company was contractually required to submit.
The judges also noted that Canara Bank had not raised any objection regarding the alleged non-disclosure for a considerable period after sanctioning the loan in 2017. Further, the loan agreement empowered the bank to inspect the company's books and appoint independent auditors at any time during the loan tenure.
Moreover, the Court observed that despite becoming aware of the RCL loan in 2021, the bank had neither terminated the agreement nor taken any action against the company.
Relying on the Supreme Court's decision in Harjas Rai Makhija v. Pushparani Jain, it reiterated that mere concealment or non-disclosure of relevant facts, without an intention to deceive, would not establish fraud. It added:
“The loan taken from RCL was not a secret document. The bank had means of discovering the said contract with ordinary due diligence.”
Lastly, the Bench noted that the bank had sufficient means to verify Carnival Technopark's financial position before sanctioning the loan. The loan agreement also empowered the bank to take remedial measures, including taking over the company's property, in the event of default. It concluded:
“Therefore, we do not find that there was intent on the part of the company to commit fraud on the bank.”
Accordingly, the High Court quashed the proceedings initiated through the show-cause notice, including the fraud declaration dated 1 April 2026.
For Petitioner: Senior Advocate Gaurav Joshi, Advocates Nidhi Singh, Nidhi Faganiya and Arav Dass
For Respondents: Advocates Prakash Shinde, Niyati Merchant, Shanmukh Puranik and Uma Chatterjee