The Bombay High Court has dismissed a writ petition filed by former directors of a company challenging Axis Bank’s decision to classify the company’s account as “fraud”. The Court held that the bank’s order contained sufficient reasons and that the petitioners were given adequate opportunity to respond before the classification was made.
A Division Bench comprising Justice Firdosh P. Pooniwalla and Justice B. P. Colabawalla pronounced the judgment on August 6, 2026.
Background Of The Case
Axis Bank had taken over credit facilities aggregating to about Rs. 23.01 crore from SBI in June 2020. The company later defaulted on its loan obligations, following which the account was classified as a Non-Performing Asset.
The dispute arose after the company was admitted into the Corporate Insolvency Resolution Process (CIRP) in March 2024. During the insolvency process, a transaction audit was conducted.
The audit raised several issues, including the opening of an undisclosed bank account with Nashik Merchant Co-operative Bank. According to the audit report, more than Rs. 6 crore was received and diverted through that account, including transactions involving one of the petitioners and his partnership firm.
The petitioners were provided the draft audit report and were also given an opportunity to access the company’s office to provide relevant records. However, they did not visit the office on the dates fixed for this purpose. They later sought additional time to provide Tally data but failed to submit it within the undertaking given by them.Axis Bank Classifies Account As Fraud
Based on the transaction audit report, the company’s account was tagged as a Red Flagged Account in April 2025.
Axis Bank subsequently issued a Show Cause Notice on September 6, 2025, giving 21 days to respond and enclosing the final Transaction Audit Report. The petitioners sought another four weeks, citing family issues and a medical emergency. The bank refused the extension.
On October 16, 2025, the Fraud Identification Council classified the company’s account as fraud.
The former directors then approached the High Court, arguing that the order was unreasoned and had been passed in breach of natural justice.
Court’s Observation
The High Court rejected the argument that the order was unreasoned. Referring to the Supreme Court’s decision in State Bank of India v. Rajesh Agarwal, the Bench noted that an order declaring an account or person as fraud must contain reasons, though those reasons need not be as detailed as a judicial judgment.
“The reasons may be brief but they must comport with fairness by indicating a due application of mind,” the Court observed while explaining the applicable standard.
The Bench found that Axis Bank’s order referred to the adverse findings in the Transaction Audit Report. It specifically noted references to diversion of funds through the undisclosed NMCB account, related-party transactions, unjustified fund transfers and interest-free loans or advances.
The Court therefore held that the order contained detailed reasons and “cannot, by any stretch of the imagination, be termed as unreasoned.”
No Violation Of Natural Justice
The Court also rejected the petitioners’ contention that they were denied a fair opportunity to respond.
The Bench noted that the petitioners had received the draft audit report well before the Show Cause Notice. They had participated in the Committee of Creditors meeting where the audit findings were discussed and were given access to the company’s office to provide information.
The final Show Cause Notice itself granted 21 days to respond and was accompanied by the final Transaction Audit Report. Despite this, the petitioners sought further time until October 22, 2025, on the basis of unspecified family issues and a medical emergency.
The Court held that, in these circumstances, Axis Bank was justified in refusing the extension. It concluded that there was no violation of the principles of natural justice.
Decision
The Bombay High Court dismissed the writ petition filed by Anil Khemani and another. The Court also directed that there would be no order as to costs.
Case Details
Case Title: Anil Khemani and Another v. Axis Bank Ltd. and Another
Case Number: Writ Petition No. 886 of 2026
Bench: Justice Firdosh P. Pooniwalla and Justice B. P. Colabawalla
Decision Date: August 6, 2026
