Suspension Of Fraud Classification Does Not Automatically Nullify Criminal Investigation: Telangana High Court

The Telangana High Court has held that suspension of a bank's administrative decision classifying a borrower's account as "fraud" does not prevent investigation into cognizable offences.

The court observed that the CBI's jurisdiction to investigate cognizable offences does not derive its authority merely from the bank's administrative fraud classification.

A bench of Justice Nagesh Bheemapaka dismissed a writ petition filed by Vivimed Labs Ltd and its Managing Director challenging the CBI's investigation into an alleged ₹424.43 crore bank fraud, including the FIR and search and seizure operations carried out on January 20, 2026.

"Merely because certain foundational facts overlap between the administrative proceedings and the criminal investigation, it cannot be held that suspension of the administrative action, automatically, extinguishes or nullifies the criminal process. The jurisdiction exercised by the investigating agency in relation to cognizable offences does not derive its authority merely from the administrative classification of the account as "Fraud"," the court held.

State Bank of India classified Vivimed Labs' account as "fraud" on June 20, 2024 after a forensic audit, issuing show-cause notices and considering the company's replies.

On August 20, 2025, the Telangana High Court passed an interim order suspending the operation and effect of the fraud classification. Meanwhile, acting on a complaint lodged by the bank, the CBI registered an FIR on November 19, 2025 alleging diversion and siphoning of ₹424.43 crore and later conducted searches at premises linked to the company and its directors.

Vivimed argued that once the operation and effect of the fraud classification had been suspended, the FIR and the subsequent investigative steps were also liable to be treated as invalid because they flowed from that classification.

Rejecting the contention, the court held that once the investigating agency independently applies its mind and registers an FIR disclosing cognizable offenses, the investigation assumes an independent statutory character.

"Once information disclosing commission of cognizable offences is received and the investigating agency forms an opinion warranting registration of FIR, the investigation proceeds under the independent statutory regime governing criminal law," the court observed.

The court held that while the bank's complaint may trigger an investigation, the criminal process does not remain dependent on the administrative fraud classification after the investigating agency has independently registered an FIR.

It also rejected the company's argument that criminal proceedings automatically fall merely because the administrative action from which they were alleged to have flowed has been suspended.

"The principle cannot be mechanically extended to criminal investigation into cognizable offences undertaken pursuant to statutory powers and judicial authorization. Such investigation cannot be equated with purely consequential administrative action mechanically flowing from the fraud classification," the court held.

The company further argued that the CBI had shown bias by referring to "fraud", "diversion" and "criminal conspiracy" in its counter affidavit.

Rejecting the submission, the court held, "Mere articulation of allegations forming part of the FIR or investigation cannot, by itself, lead to an inference that the entire investigation stands vitiated by bias or pre-determination."

Holding that the case disclosed no exceptional circumstances warranting interference with an ongoing criminal investigation, the court refused to stall the investigation and dismissed the writ petition.