Allowed¶75

M/S Associate Lumbers Private Limited v. Reserve Bank of India

Karnataka HC16 Apr 2026WP/5223/2022

Case brief

AI extract

What is this about?

RBI Master Directions on Frauds - Classification and Reporting; fraud classification of borrower account; opportunity of hearing before fraud declaration; audi alteram partem; principles of natural justice; certiorari under Articles 226 and 227; State Bank of India v. Rajesh Agarwal (2023) 6 SCC 1; Union Bank of India; Associate Lumbers Private Limited; ALPL account declared fraud; Karnataka High Court; Justice Lalitha Kanneganti; writ petitions allowed; fresh proceedings with hearing permitted.

What did the court decide?

Both writ petitions allowed; the order dated 01.07.2016 passed by Respondent No.1/RBI set aside; respondent/Bank at liberty to initiate fresh proceedings in accordance with law after giving reasonable opportunity of hearing to the concerned; pending I.As. in the writ petitions closed. ¶75

M/S Associate Lumbers Private Limited Vs Reserve… — Company and Corporate | Karnataka HC (2026)

What the court decided

AI extract

Outcome

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Issue for consideration

Whether the RBI Master Directions on Frauds - Classification and Reporting dated 01.07.2016 are unconstitutional insofar as they do not provide an opportunity of hearing to borrowers/defaulter before classifying their accounts as fraud. +1 more

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Court's answer

In the light of the judgment of the Apex Court in State Bank of India v. Rajesh Agarwal, the Bank has to give an opportunity to the borrowers before classifying the account as fraud under the Master Directions on Frauds.

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Ratio / Principle

Both writ petitions are allowed by setting aside the order dated 01.07.2016 passed by Respondent No.1/RBI.

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Key takeaways

The respondent/Bank are at liberty to initiate fresh proceedings in accordance with law after giving reasonable opportunity of hearing to the concerned; pending I.As. in the writ petitions stand closed.ratio¶80

Detailed headnote1 paragraphs

RBI Master Directions on Frauds - Classification and Reporting (Ref. No. RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.No.1/23.04.001/2016-17, dated 01.07.2016, updated as on 03.07.2017) - challenged under Articles 226 and 227 of the Constitution as unconstitutional for not affording borrowers a hearing before classifying accounts as fraud; Union Bank of India had declared the account of ALPL as 'fraud' pursuant to the said Directions - Held, in the light of State Bank of India v. Rajesh Agarwal, (2023) 6 SCC 1, the Bank has to give an opportunity to the borrowers before classifying the account as fraud under the Master Directions - Both writ petitions allowed; order dated 01.07.2016 passed by RBI set aside; Bank at liberty to initiate fresh proceedings in accordance with law after giving reasonable opportunity of hearing; pending I.As. closed (Lalitha Kanneganti, J.).

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NC: 2026:KHC:20951 WP No. 5223 of 2022 C/W WP No. 5214 of 2022

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HC-KAR

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 16^TH DAY OF APRIL, 2026

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BEFORE

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THE HON'BLE SMT. JUSTICE LALITHA KANNEGANTI

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WRIT PETITION NO. 5223 OF 2022 (GM-RES)

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C/W

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WRIT PETITION NO. 5214 OF 2022 (GM-RES)

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IN WP No. 5223/2022:

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BETWEEN:

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Digitally signed by SUVARNA T Location: HIGH COURT OF KARNATAKA

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M/S ASSOCIATE LUMBERS PRIVATE LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956 HAVING ITS REGISTERED OFFICE AT 85-A, SANT SAVTA MARG, MUSTAFA BAZAR, MUMBAI, MAHARASHTRA - 400 010. REPRESENTED BY ITS AUTHORISED SIGNATORY MR. PREETAM SUDAM TAMBE

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&PETITIONER

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(BY SRI. NAMAN JHABAKH., ADVOCATE FOR SRI. VIVEK HOLLA, HOLLA AND HOLLA.,ADVOCATE)

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AND:

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RESERVE BANK OF INDIA CONSTITUTED UNDER THE RESERVE BANK OF INDIA, 1934 HAVING ITS HEAD OFFICE AT

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18^TH FLOOR, CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH ROAD, MUMBAI - 400 001.

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NC: 2026:KHC:20951 WP No. 5223 of 2022 C/W WP No. 5214 of 2022

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HC-KAR

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UNION BANK OF INDIA, A PUBLIC SECTOR BANK CONSTITUTED UNDER THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT 1970, HAVING ITS REGISTERED OFFICE AT UNION BANK BHAVAN, 239, VIDHAN BHAVAN, MARG, NARIMAN POINT, MUMBAI - 400 021. MAHARASHTRA, INDIA. ALSO HAVING ITS BRANCH OFFICE AT 1^ST FLOOR, POOJA ARCADE BUILDING, K S RAO ROAD, HAMPANKATTA, P B NO. 224, MANGALORE - 575 001.

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&RESPONDENTS

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(BY SRI. MANIK B T.,ADVOCATE FOR R1; R2 IS SERVED)

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IN WP NO. 5214/2022:

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BETWEEN:

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MANOHARLAL SATRAMDAS AGICHA S/O SATRAMDAS SADHURAM AGICHA, AGED ABOUT 77 YEARS, R/AT THE AGICHAS, 6 MASTER VINAYAK ROAD, OFF PERRY CROSS ROAD, BANDRA (WEST), MUMBAI,

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3 - NC: 2026:KHC:20951 WP No. 5223 of 2022 C/W WP No. 5214 of 2022

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HC-KAR

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MAHARASHTRA -400 050.

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MOHAMED FARROUK SULEMAN DARVESH, S/O SULEMAN MIYA AHMED DARVESH, AGED ABOUT 70 YEARS, R/AT HOOR MANZIL, 7, PERRY CROSS ROAD, BANDRA (WEST), MUMBAI, MAHARASHTRA-400 050.

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EBRAHIM SULEMAN DARVESH, S/O SULEMAN MIYA AHMED DARVESH, AGED ABOUT 65 YEARS, R/AT HOOR MANZIL, 7, PERRY CROSS ROAD, BANDRA (WEST), MUMBAI, MAHARASHTRA-400 050.

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...PETITIONERS

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(BY SMT. SANJANA M., ADVOCATE & SMT. NANDINI S PATIL., ADVOCATE FOR SRI. PRADEEP NAYAK.,ADVOCATE)

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AND:

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RESERVE BANK OF INDIA CONSTITUTED UNDER THE RESERVE BANK OF INDIA ACT, 1934 HAVING ITS HEAD OFFICE AT 18^TH FLOOR, CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH ROAD, MUMBAI-400 001. HAVING REGIONAL OFFICE AT NO.10/3/8, NRUPATHUNGA ROAD, BENGALURU-560 001.

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UNION BANK OF INDIA, A PUBLIC SECTOR BANK CONSTITUTED UNDER THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970 HAVING ITS REGISTERED OFFICE AT UNION BANK BHAVAN,

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NC: 2026:KHC:20951 WP No. 5223 of 2022 C/W WP No. 5214 of 2022

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HC-KAR

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239, VIDHAN BHAVAN, MARG NARIMAN POINT, MUMBAI-400 021, MAHARASHTRA, INDIA. HAVING ITS BRANCH OFFICE AT 1^ST FLOOR, POOJA ARCADE BUILDING, K S RAO ROAD, HAMPANAKATTA, P B NO.224, MANGALORE-575 001.

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...RESPONDENTS

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(BY SRI. MANIK P T., ADVOCATE FOR R1; SRI. V B RAVISHANKAR.,ADVOCATE FOR R2)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO A) ISSUE A WRIT OF CERTIORARI AND/OR ANY OTHER APPROPRIATE WRIT, ORDER OR DIRECTION, QUASHING AND SETTING ASIDE THE IMPUGNED MASTER DIRECTIONS ON FRAUDS - CLASSIFICATION AND REPORTING BEARING REFERENCE NO.RBI/DBS/2016-17/28 DBS.CO.CFMC.BC NO.1/23.04.001/2016-17 DATED 01 JULY 2016 UPDATED AS ON 03/07/2017, ISSUED BY RESPONDENT NO.1 AS UNCONSTITUTIONAL AND B)DECLARE THE IMPUGNED ACTION OF RESPONDENT NO.2 OF DECLARING THE ACCOUNT OF ALPL AS FRAUD PURSUANT TO THE RBI DIRECTIONS ON FRAUD DATED 01/07/2016) IS ILLEGAL AND UNCONSTITUTIONAL AND FURTHER HOLDING ALL FURTHER AND CONSEQUENTIAL STEPS/ACTION/MEASURES TAKEN AGAINST THE PETITIONERS PURSUANT TO THIS DECLARATION AS ILLEGAL AND IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND C)PASS SUCH OTHER ORDERS.

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THESE PETITIONS, COMING ON FOR PRELIMINARY HEARING IN B GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE SMT. JUSTICE LALITHA KANNEGANTI

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NC: 2026:KHC:20951 WP No. 5223 of 2022 C/W WP No. 5214 of 2022

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HC-KAR

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ORAL ORDER

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W.P.No.5223/2022 is filed by the petitioner seeking the

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following prayer:

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<WHEREFORE, in view of what is set out hereinabove, it is most humbly prayed that this Hon'ble Court be pleased to:

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A. Issue a writ of certiorari and/or any other appropriate writ, order or direction, quashing and setting aside the impugned Master Directions on reference Frauds -Classification and Reportion' bearing no. RBI/DBS/ 201617/28 DBS.CO.CFMC.BC.No.1/23.04.001/201617 dated 01 July 2016 updated as on 03 July 2017, issued by Respondent No. 1 as unconstitutional.

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B. To declare the impugned action of Respondent No. 2 of declaring the account of the Petitioner as 'fraud' (pursuant to the RBI Directions on fraud dated 01.07.2016) as illegal and unconstitutional and all further and consequential steps/action/measures either civil / criminal, holding the same as illegal and in violation of principles of natural justice.

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C. Pass such other orders as this Hon'ble Court may deem necessary in the interest of justice and equity.=

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W.P.No.5214/2022 is filed by the petitioner seeking

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the following prayer:

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A. Issue a writ of certiorari and/or any other appropriate writ, order or direction, quashing and setting aside the impugned Master Directions on Frauds -Classification and

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6 - NC: 2026:KHC:20951 WP No. 5223 of 2022 C/W WP No. 5214 of 2022

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HC-KAR

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Reporting' bearing reference no. RBI/DBS/2016-17/28 DBS. CO. CFMC. BC.No.1/23.04.001/2016-17 dated 01 July 2016 updated as on 03 July 2017, issued by Respondent No. 1 as unconstitutional;

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B. To declare the impugned action of Respondent No. 2 of declaring the account of ALPL as 'fraud' (pursuant to the RBI Directions on fraud dated 01.07.2016) is illegal and unconstitutional and further holding all further and consequential steps/ action/ measures taken against the Petitioners pursuant to this declaration as illegal and in violation of principles of natural justice;

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C. Pass such other orders as this Hon'ble Court may deem necessary in the interest of justice and equity.=

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Learned counsel appearing for the petitioners submits that, as per the Circular/Master Directions on Fraud, classification and reportion bearing reference No. RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.No.1/23.04.001/201617 dated 01.07.2016 issued by respondent.No.1 there is no opportunity given to the defaulter for hearing. She had relied on the judgment of the Apex Court in the case of State Bank of India and others Vs. Rajesh Agarwal and others¹ wherein the Apex Court has observed that, < the principals of natural justice demand that the borrower must be served a notice, given an opportunity to explain the conclusions

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1 (2023) 6 SCC 1

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7 - NC: 2026:KHC:20951 WP No. 5223 of 2022 C/W WP No. 5214 of 2022

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HC-KAR

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of the forensic audit report and be allowed to represent by the bank before their account is classified as fraud under the Master Directions on frauds. In addition, the decision classifying the borrower's account as fraudulent must be made by a reasoned order. Since the master directions on fraud do not expressly provide an opportunity of hearing to the borrowers before classifying their account as fraud, audi alteram partem has to be read into the provision of the directions to save them from the vice of the arbitrariness.=

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In the light of the judgment passed by the Apex Court

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in Rajesh Agarwals case (referred supra) the Bank has to give an opportunity to the borrowers before classifying the account as fraud under the Master Direction. In that view of the matter, this Court deems it appropriate to pass the following:

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ORDER

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i. Accordingly, both the writ petition9s are Allowed by setting aside the order dated

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01.07.2016 passed Respondent No.1/RBI.

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NC: 2026:KHC:20951 WP No. 5223 of 2022 C/W WP No. 5214 of 2022

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HC-KAR

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ii. The respondent/Bank are at liberty to initiate fresh proceedings in accordance with law after giving reasonable opportunity of hearing to the concerned.

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iii. Pending I.As., in the writ petition shall stand closed.

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SD/(LALITHA KANNEGANTI) JUDGE

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TS List No.: 1 Sl No.: 73

M/S Associate Lumbers Private Limited v. Reserve Bank of India

Case brief

What is this about?

What did the court decide?

M/S Associate Lumbers Private Limited v. Reserve Bank of India

Case brief

What is this about?

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