The Bombay High Court has set aside Union Bank of India’s decision to classify the account of Mumbai based businessman Kamlesh Kanungo as fraud in a Rs 21.80 crore banking dispute, holding that such a serious adverse action cannot be taken without first issuing a show cause notice and giving the borrower an opportunity to be heard.
Court Says Bank Violated Natural Justice
In its ruling, the court said the bank proceeded with the fraud classification without serving a notice or granting a hearing, amounting to a clear breach of the principles of natural justice. It observed that before taking punitive action against a borrower or promoter, a fair and transparent process must be followed and the person concerned must be informed of the allegations and supporting material.
The court also underlined that fraud classification is not merely an internal banking step. It said such a label can seriously damage a businessperson’s reputation and future commercial prospects, making procedural fairness essential before any such action is imposed.
Referring to the applicable framework, the court noted that issuing a show cause notice and sharing relevant documentation are mandatory requirements before an account can be declared fraudulent.
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Dispute Stems From Alleged Rs 21.80 Crore Fraud
The dispute relates to allegations by Union Bank of India that it had been defrauded of Rs 21.80 crore between 2008 and 2018. According to the bank, a forensic audit had revealed several irregularities, including alleged diversion of about Rs 9.46 crore into personal accounts and routing of significant parts of the company’s turnover through other banking channels instead of the lender’s account.
Kamlesh Kanungo challenged the bank’s action before the High Court, arguing that the RBI guidelines had been misapplied and that he had been denied any opportunity to respond to the allegations. He also contended that under revised RBI guidelines issued in 2024, banks are required to issue notice and provide detailed records before classifying an account as fraudulent.
The court accepted the importance of these safeguards and said complete details of the transactions and accusations must be shared with the affected party before any adverse decision is taken.
Bank Allowed to Restart Process Under Revised Rules
While setting aside the fraud classification, the court allowed Union Bank of India to begin fresh proceedings under the revised RBI framework, provided that due process is followed strictly. The judgment makes clear that the bank is not barred from taking action, but it must do so in a manner consistent with transparency, fairness and regulatory compliance.
The case is linked to M/s Trison Impex, established in 2001. The bank had alleged misuse of funds and questioned a number of transactions for lack of proper documentation, leading to concerns over financial irregularities.
The ruling is likely to be seen as an important reminder that fraud related classifications by banks must withstand judicial scrutiny and cannot rest on procedure that denies the affected party a fair chance to defend themselves. By insisting on notice, disclosure and hearing, the court has reinforced the principle that even in serious banking disputes, regulatory power must be exercised within the bounds of natural justice.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
