The Bombay High Court quashed Canara Bank’s classification of a borrower’s account as fraud, finding no intent to deceive where the undisclosed loan featured in audited statements supplied to the bank every year.
The Bombay High Court has quashed a bank’s declaration classifying a borrower company’s account as “fraud” under the Reserve Bank of India (RBI) Master Directions on Fraud Risk Management dated 15 Jul 2024, holding that non‑disclosure of an earlier loan, without an intention to deceive, is not cheating by concealment [Prasanth Narayanan v. Canara Bank & Ors., 2026-juristway.com-3362-HC(Bombay)-IBC].
Justice Sarang V. Kotwal wrote the judgment for a Bench that included Justice Ranjitsinha Raja Bhonsale. The petitioner is a suspended director of Carnival Technopark Private Limited, now in corporate insolvency resolution process (CIRP). Syndicate Bank, later merged into Canara Bank, sanctioned a ₹130 crore lease rental discounting loan in March 2017. The bank alleged that the company had concealed a ₹75 crore loan taken weeks earlier from Reliance Capital Ltd. (RCL). A show cause notice dated 23 Jun 2025 ended in the fraud declaration dated 1 Apr 2026.
The bank argued that disclosure at the time of sanction was what mattered, and that criminal standards of intent do not govern an administrative classification whose effect is to debar the borrower from fresh credit. The petitioner relied on the bank’s own e‑mail of 16 Apr 2021 asking the company to regularise its RCL defaults, and on audited statements showing the RCL loan from 2016‑17 onwards.
The Court noted that the category invoked in the Master Directions, cheating by concealment of facts, requires concealment coupled with an intention to deceive. The notice’s claim that the RCL loan came to light only after the insolvency petition was contradicted by the 2021 e‑mail. The sanction letter required audited statements within seven months of each year end, and the bank never alleged that the RCL loan was missing from them.
Reading Section 17 of the Indian Contract Act, 1872 and Section 25 of the Indian Penal Code, the Court held that intent is an essential ingredient that must be independently established. The loan agreement gave the bank rights of inspection and wide remedies on default, yet despite knowing of the RCL loan it neither terminated the agreement nor recalled the loan. The RCL loan was not a secret and the bank could have found it with ordinary due diligence.
Relying on Harjas Rai Makhija v. Pushparani Jain (2017), the Court held that mere concealment or non‑disclosure without intent to deceive does not amount to fraud. The show cause notice and the declaration were quashed.
2026-juristway.com-3362-HC(Bombay)-IBC
