Bombay High Court Quashes BOI's Fraud Tag Against Future Lifestyle, Promoters Kishore Biyani, Rakesh Biyani

The Bombay High Court has recently quashed Bank of India's order classifying Future Lifestyle Fashions Ltd.'s (FLFL) loan account as fraud. The order had also named the company's promoters, Kishore Biyani and Rakesh Biyani, and its Managing Director, Vishnuprasad Mokkapatty.

The court found that the bank's decision did not explain why the account and the individuals had been brought within the fraud classification despite referring to the show cause notice, the replies received, and the forensic audit.

A Division Bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla held that the bank's order did not meet the requirement under the RBI's 2024 Fraud Master Directions that a reasoned order be passed after considering the noticee's submissions.

"When one peruses the impugned order passed by the 1st Respondent Bank, it is clear that it is bereft of any reasons as to why the accounts of the company as well as that of the Petitioners are classified as 'fraud'.", the court ruled.

Kishore Biyani and Rakesh Biyani had challenged Bank of India's order dated June 21, 2025. The order classified FLFL's loan account as fraud and also named the two promoters and the company's Managing Director in relation to that fraud classification.

Before the High Court, the promoters argued that the impugned order merely reproduced portions of the forensic audit report and then recorded the conclusion that the account should be classified as fraud. They contended that the bank had not independently dealt with the allegations or recorded reasons for its decision.

They also argued that the detailed reply submitted by FLFL's Managing Director to the show cause notice had been completely ignored.

Bank of India opposed the petition. It argued that the promoters could not rely on the Managing Director's reply because they had neither filed their own detailed response nor informed the bank that they were adopting his submissions.

The bank also contended that the reasons for the fraud classification were evident from the forensic audit report and did not have to be repeated in the final order.

Examining the impugned order, the court noted that it set out the background of the loan account, the facilities availed by FLFL, the declaration of the account as a non-performing asset and the forensic audit conducted by Parekh Shah and Lodha.

It further noted that the order reproduced the contents of the forensic audit report and referred to the correspondence exchanged between the parties, including the show cause notice and the replies.

The court, however, found that the order stopped there. It did not explain why FLFL's loan account was classified as fraud or why the promoters and the Managing Director were named in connection with that classification.

"This is more-so when one takes into consideration that the Managing Director of FLFL had given a detailed response to the Show Cause Notice issued, and which finds absolutely no consideration in the impugned order. It makes little difference that the Petitioners herein have not formally informed the bank that they are adopting what is stated by the Managing Director in his reply. Once these are the facts before us, we are clearly of the view that the impugned order cannot be sustained as it is wholly unreasoned and contrary to the mandate of the Fraud Master Circular of 2024, and more particularly Clause 2.1.1.4 thereof.", the court ruled,

The court held that the RBI's 2024 Fraud Master Directions require banks to issue a reasoned order setting out the relevant facts, the submissions made in response to the show cause notice, and the reasons for declaring or classifying an account as fraud. It found that the impugned order failed to satisfy that requirement.

Accordingly, the court quashed the Bank of India's June 21, 2025 order. Since it had set aside the order on the ground that it was unreasoned, the court clarified that it had not examined the petitioners' other challenges.

The court also directed Bank of India to ensure that the petitioners' names are not reflected as "fraud" in the Central Fraud Registry maintained by the Reserve Bank of India.

It clarified that the bank would be free to restart the proceedings from the stage of the show cause notice or issue a fresh show cause notice. If it chooses to do so, the court held, it must strictly comply with the RBI's 2024 Fraud Master Directions.

For Petitioner: Gaurav Joshi, Senior Advocate with Ankit Lohia, Petrushka Dasgupta, Krishna Baruah, Altamash Qureshi, Kewal Buddhen i/b Link Legal, Advocates

For Bank of India: Mustafa Doctor, Senior Advocate, with Spenta Kapadia, Ricky Sampat, Surekha Yadav i/b M. V. Kini Law Firm, Advocates

For Respondent No. 2: Huzan Bhumgara with Riddhi Badhekar i/b Desai and Diwani, Advocates