Anil Khemani and Another v. Axis Bank Ltd. and Another
An order classifying an account as fraud under the Master Directions need not be as elaborate as a judgment, and it is reasoned if it sets out the key findings of the transaction audit report; there is no breach of natural justice where the directors knew the case from the draft audit report and chose not to respond despite 21 days' notice.
By CA Nikhil Gupta · Reviewed against the retained judgment 2026-10-16
Axis Bank declared the account of a company that had gone through CIRP and had an approved resolution plan as fraud, citing a transaction audit. Two of its former directors challenged the order as unreasoned and passed without a fair hearing. The Division Bench held the order was reasoned and the directors had ample opportunity.
What happened
The petitioners are the erstwhile directors of respondent 2, a company whose credit facilities of ₹23.01 crore Axis Bank took over from SBI on 22 June 2020. On 17 November 2022 the company opened an account with Nashik Merchant Co-operative Bank (NMCB) without informing Axis Bank, which petitioner 1 admitted. After default the account was classified as NPA, the loan was recalled on 5 May 2023, and the company was admitted into CIRP on 3 March 2024, with Axis Bank in the Committee of Creditors; the NCLT approved a resolution plan on 10 September 2025. The Bank appointed auditors on 18 May 2024, who gave a draft Transaction Audit Report of 7 September 2024 to the petitioners, discussed at the 7th CoC meeting on 16 September 2024, where petitioner 1 admitted opening the NMCB account to circumvent a Bangalore court's freezing order and asked for 21 days' access to the office; the office was kept open on 1 and 2 October 2024 but nobody attended. The final report is dated 26 November 2024. A show-cause notice of 6 September 2025 gave 21 days, and a request for extension was refused; by order of 16 October 2025 the Bank declared the company a fraud, not the petitioners. The petitioners argued the order was unreasoned, that documents were withheld, and that the refusal of extension violated natural justice.
Questions before the court
- Was the order declaring the company a fraud account unreasoned or made in breach of natural justice?
Why the court ruled this way
The Bench seriously doubted whether the directors could maintain a petition in their name when only the company was declared fraud and its CIRP had succeeded, but examined the grounds anyway (paragraph 1). In State Bank of India v. Rajesh Agarwal, (2023) 6 SCC 1, the Supreme Court held that an order declaring fraud must be reasoned, though not at the level of a judgment, and the reasons may be brief but must show application of mind (paragraph 31). The order, through Schedule III and the key findings in Schedule I Part B of the Transaction Audit Report, set out diversion of funds through the NMCB account, transactions and loans to related parties, unjustified fund transfers to multiple entities and interest-free advances to promoters, so it was clearly not unreasoned (paragraphs 32 and 33). The draft report was given to the petitioners, petitioner 1 knew the case from the 7th CoC meeting, the office was kept open and nobody came, the final report was sent with the show-cause notice giving 21 days, and the petitioners did not respond despite that, so the Bank was justified in refusing extension (paragraphs 34 to 38). There was no violation of natural justice (paragraph 39).
Controlling point
The order of 16 October 2025 was reasoned and passed after due opportunity.
Order and next steps
The writ petition was dismissed and there was no order as to costs. The order was to be digitally signed by the Private Secretary or Personal Assistant of the Court.
Practical implications
A borrower or director facing a fraud classification should answer the show-cause notice within the time given, engage with the draft audit report, and seek access to documents in writing, because later complaints about fairness are weak if the case was known.
Limits of this ruling
- The decision turns on the facts of an undisclosed account and the opportunities given; it does not cut down the Master Directions' requirement of a reasoned order and hearing in other cases.
Law and judgment source
- Reserve Bank of India Master Directions on Fraud Risk Management in Commercial Banks, clause 6.1(iv)
- Insolvency and Bankruptcy Code, 2016
The linked PDF is a complete public court-copy document. The official court portal is provided for independent verification; a stable judgment-specific official link was not independently established.
Source checked: 2026-10-16 · Judgment paragraphs: paragraphs 1–41 · Later case history: not verified. Verify appeals, stays and subsequent orders before reliance.
This page is informational. Verify the current official court record, subsequent history and applicable law, and obtain professional advice for a specific matter.