WP/25677/2026 of YAMINI MINERALS Vs UNION OF INDIA on 23 September 2026

1. YAMINI MINERALS, R Narasimha Reddy Aged Kadapa Y.S.R. Kadapa D

1. UNION OF INDIA, R Department of Financial S

2. The Reserve Bank of Office Building Bharat Si

3. The Canara, Rep. by Circle, Kadapa 516001 Petition under Articl circumstances stated in pleased to issue an appro in the nature of a Wri respondent No.3 in class as a Fraud Account as natural justice, contrary E HIGH COURT OF ANDHRA PRAD AT AMARAVATI (Special Original Jurisdiction) Y, THE 24th DAY OF SEPTEMBER 20 PRESENT ABLE SRI JUSTICE RAVI CHEEMAL T PETITION NO: 25677 OF 2026 Rep. by Its Managing Partner K. Anja 49 years, Occ Business Rio 4-520-5, District AND Represented by its Secretary, Minis Services, New Delhi -110001. India, rep by its Executive Director, 2n ingh Marg Mumbai. 400001 its Branch Manager, Kadapa Branch le 226 of the Constitution of India pra the affidavit filed therewith, the High opriate Writ, Order or Direction, more it of Mandamus, by declaring the sifying and maintaining the Petitione illegal, arbitrary, and violative of t y to the RBI Master Directions DESH

LAPATI ana Devi,W/o K. , Aravind Nagar, ...Petitioner stry of Finance, nd Floor Central h, Seven Roads ...Respondents aying that in the h Court may be particularly one action of the r's loan account he principles of on Fraud Risk

Management and the law declared by the Hon'ble Supreme Court in State Bank of India v. Rajesh Agarwal and Others, violative of Articles 14, 19(1)(g) and 21 of the Constitution of India, and consequently direct the Respondents to set aside the classifying of the Petitioner's loan account as a Fraud Account, IA NO: 1 OF 2026 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to suspend the operation of the classification of the Petitioner's loan account as a Fraud Account, pending disposal of the above Writ Petition Counsel for the Petitioner: RAMALAKSHMANA REDDY SANEPALLI Counsel for the Respondents: K MALLIKHARJUNA MOORTHY

The Court made the following order:

The grievance of the petitioner is that, without following the RBI Master Directions on Fraud Risk Management and the law declared by the Hon’ble Supreme Court in State Bank of India v. Rajesh Agarwal, respondent No.3 classified and maintained the petitioner’s loan account as a ‘Fraud Account’.

2. Heard Ms. Jishita, learned counsel representing Sri S.Rama Lakshmana Reddy, learned counsel for the petitioner, and Sri K. Mallikharjuna Moorthy, learned Central Government Counsel.

3. Learned counsel for the petitioner, elaborating upon the averments made in the writ affidavit, contended that, the petitioner-company had availed a loan from respondent No.3 and had initially paid the installments regularly. For securing the said loan, the petitioner had furnished immovable property as security in favour of respondent No.3. Subsequently, the petitioner sustained huge losses in its business, and the petitioner-company’s loan account was declared a Non-Performing Asset (NPA) in the month of October, 2015. Pursuant to the declaration of the loan account as an NPA, respondent No.3 initiated proceedings under the SARFAESI Act and, without issuing any notice to the petitioner or informing it about the proposed sale of the secured assets, sold the said properties by way of auction. She further submitted that the petitioner-company was orally informed that its loan account had been classified as a fraud account in the month of March, 2026. Thereafter, the petitioner submitted a representation dated 02.09.2026, requesting respondent No.3 to furnish the status of the account. Respondent No.3, in response, endorsed that the account had been classified as fraud. She further submitted that respondent No.3 had neither issued any show-cause notice nor afforded an opportunity to the petitioner to submit its explanation nor furnishing a copy of audit report before classifying the loan account as fraud, which amounts to violation of the principles of natural justice and failure to adhere to the procedure mandated under the RBI Master Directions. She further submitted that respondent No.3 was threatening the petitioner with initiation of criminal proceedings if the petitioner did not agree to the terms and conditions imposed by respondent No.3 for a One-Time Settlement (OTS). Hence, prayed to set aside the classifying of the petitioner’s loan account as ‘fraud account.’

4. Despite service of notice, the respondent-bank did not choose to enter appearance.

5. Perused the material available on record and considered the submissions made by learned counsel for the petitioner.

6. The grievance of the petitioner is that its loan account has been classified as a ‘Fraud Account’ by respondent No.3 without issuing any show- cause notice or affording an opportunity to the petitioner to submit its explanation.

7. The Hon’ble Supreme Court, in State Bank of India and others v. Rajesh Agarwal and others, in Civil Appeal No.7300 of 2022 and batch, decided on 27.03.2023, while considering the Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions, 2016, held that the principles of natural justice, particularly the rule of audi alteram partem, are required to be read into the Master Directions on Frauds. The relevant portion of the decision reads as follows:

“70……we hold that the rule of audi alteram partem ought to be read in Clauses 8.9.4 and 8.9.5 of the Master Directions on Fraud. Consistent with the principles of natural justice, the lender banks should provide an opportunity to a borrower by furnishing a copy of the audit reports and allow the borrower a reasonable opportunity to submit a representation before classifying the account as fraud. A reasoned order has to be issued on the objections addressed by the borrower.”

The decision makes it clear that, before classifying a borrower’s account as Fraud Account, the lending institution is required to afford the borrower an opportunity of hearing by issuing a show-cause notice and furnishing the relevant material relied upon for such classification, in compliance with the principles of natural justice and the procedure prescribed under the applicable RBI Master Directions.

8. In the present case, the specific contention of the petitioner is that no show-cause notice was issued to it and no opportunity was afforded to submit its explanation before its loan account was classified as fraud. The respondent-bank, despite service of notice, has not chosen to enter appearance and has not placed before this Court any material showing that a show-cause notice was issued to the petitioner, that the relevant material was furnished to it, or that its representation was considered before the impugned classification was made. In the absence of any material to establish compliance with the aforesaid mandatory requirements of natural justice, the impugned classification of the petitioner’s loan account as Fraud Account cannot be sustained.

9. Taking into consideration the submissions made by the learned counsel for the petitioner and the decision referred to supra, this Court is inclined to dispose of the writ petition with the following directions:

“The classification of the petitioner’s loan account as ‘Fraud Account’ is hereby set aside. However, this order shall not preclude the respondent-bank from initiating fresh proceedings for classification of the petitioner’s loan account as fraud, if so warranted, strictly in accordance with the applicable RBI Master Directions on Fraud Risk Management and the law laid down by the Hon’ble Supreme Court in State Bank of India v. Rajesh Agarwal.”

10. Accordingly, the writ petition is disposed of. There shall be no order as to costs. As a sequel, miscellaneous petitions pending, if any, shall stand closed. ___________________________ JUSTICE RAVI CHEEMALAPATI 24.09.2026 MP

THE HON’BLE SRI JUSTICE RAVI CHEEMALAPATI

WRIT PETITION No.25677 of 2026 Dated : 24.09.2026

MP