Calcutta HC Sets Aside Bank Fraud Notice Based on Inconclusive Forensic Audit Report

Monoranjan Roy Vs Bank of Baroda & Ors. (Calcutta High Court)

The appeal arose from a judgment dated 02.07.2026 dismissing the appellant’s writ petition challenging a show cause notice dated 04.07.2025 issued by Bank of Baroda directing the appellant to explain why the loan account should not be classified and reported as fraud under the RBI Guidelines. The writ petition also sought setting aside of the bank’s decision dated 18.09.2025 to report the account as fraud to the Reserve Bank of India. The learned Single Judge had dismissed the writ petition on the ground that the appellant had already replied to the show cause notice and therefore the challenge to the notice was not maintainable.

The appellant contended that the show cause notice was founded entirely on a forensic audit report which itself contained express disclaimers and was not conclusive. It was submitted that the report had been prepared on limited information received from the lenders and other available sources and that the auditor had expressly stated that the conclusions were based on evidence available on the date of the report and were subject to further findings upon production of complete financial records and cooperation by the borrower. The appellant further submitted that the company had been undergoing Corporate Insolvency Resolution Process (CIRP) since 2018 and had gone into liquidation in 2019. Consequently, the directors and erstwhile management had lost control over the company’s affairs, while the books of account and records were under the control of the liquidator and had also been seized by the Directorate of Economic Offences (DEO). It was argued that the bank ought to have approached the liquidator or the National Company Law Tribunal (NCLT) for the necessary records instead of relying upon the incomplete audit report.

The appellant also submitted that, by judgment dated 02.07.2026 in WPA 978 of 2026, the same learned Single Judge had already set aside a show cause notice issued by the State Bank of India, the lead bank of the consortium, which had relied on the very same forensic audit report. According to the appellant, once that report had been held to be inconclusive and the State Bank of India’s proceedings had been quashed, the proceedings initiated by Bank of Baroda on the basis of the same report could not survive.

Bank of Baroda submitted that although it had relied on the same forensic audit report, the appellant had responded to its show cause notice and the bank had already reported the account as fraud to the RBI, leaving nothing further for adjudication. The Reserve Bank of India submitted that the dispute was between the appellant and the bank.

The Division Bench noted that the company had entered CIRP in 2018 and liquidation thereafter, resulting in the management losing control over the company’s affairs. It further observed that the company’s records had already been seized by the Directorate of Economic Offences and that the liquidator had also been seeking those records from the investigating agency. Consequently, the borrower did not possess the documents sought by the forensic auditor. The Court found that the forensic audit report itself acknowledged its limitations and had been prepared on the basis of limited materials received from the lenders without complete corroborative records from the borrower.

The Court reproduced and relied upon extensive findings recorded by the learned Single Judge in WPA 978 of 2026. Those findings noted that the forensic auditor had not received books of account, transactional records, invoices, agreements and other financial documents from the borrower, had relied upon limited documents supplied by the lenders, and had expressly incorporated a disclaimer stating that the report was based on limited information and assumptions and that the conclusions were subject to further findings upon production of complete records and cooperation by the borrower. The earlier judgment also observed that, once liquidation had commenced, the liquidator became the custodian of the company’s books and records and that requests for documents should have been routed through the liquidator. It had further held that the forensic audit report was not conclusive and had set aside the show cause notice issued by State Bank of India while granting liberty to obtain documents from the liquidator or the Directorate of Economic Offences and conduct a proper forensic audit in future.

The Division Bench held that the foundational basis of the Bank of Baroda’s show cause notice had already been declared inconclusive and unreliable in the earlier proceedings. It observed that no reason had been assigned by the learned Single Judge for treating the Bank of Baroda’s notice differently from the State Bank of India’s notice when both relied upon the same forensic audit report. The Court also rejected the distinction based on the appellant having replied to the show cause notice, noting that replies had also been submitted in the proceedings initiated by the State Bank of India, yet those proceedings had nevertheless been quashed.

The Court further observed that the appellant had informed Bank of Baroda in its reply that the records had been seized by the Directorate of Economic Offences and requested the bank to obtain them. The bank admittedly did not take any such steps. The Court also noted the appellant’s contention that the transactions referred to in the show cause notice were already within the knowledge of the consortium of banks and had been recorded in the Annual General Meeting minutes. It found that the forensic auditors had not addressed the fact that the borrower was not in possession of the books of account and relevant records when the audit was undertaken.

Accordingly, the Division Bench set aside the impugned order dismissing the writ petition. It also set aside the show cause notice issued by Bank of Baroda and all consequential actions taken pursuant thereto. At the same time, the Court clarified that its decision would not preclude the bank from issuing a fresh show cause notice if it obtained further conclusive evidentiary material. The Court also observed that the bank could request the auditors to undertake a further forensic audit and prepare a supplementary report, obtain assistance from the liquidator, and take appropriate steps under the Insolvency and Bankruptcy Code by approaching the NCLT in relation to the allegations against the borrower. The appeal and connected application were accordingly disposed of without any order as to costs.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

1. The appeal arises out of a judgment and order dated July 02, 2026, passed in W.P.A. 25902 of 2025.

2. His Lordship had dismissed the writ petition on the ground that the show cause notice which was issued by the Bank of Baroda, had been replied to by the appellant, and as such, the challenge to the show cause notice, was not sustainable.

3. The writ petition was filed challenging a show cause notice dated July 4, 2025. The Bank of Baroda had directed the appellant to show cause within 21 days as to why the account of the appellant should not be categorized and reported as fraud, in terms of the R.B.I. Guidelines. Prayer was also made for setting aside the order dated September 18, 2025, by which the bank resolved to report the account of the appellant as fraud to the R.B.I.

4. According to Mr. Kar, learned Senior Advocate, the learned Judge failed to take into consideration the fact that the show cause notice was entirely based on a Forensic Audit report. The Forensic Audit report was not conclusive. The disclaimer of the auditor clearly indicated that the report could not be treated to be complete in all respect. The report was prepared on key assumptions. The audit was carried out on limited information and explanations, which were made available by the lenders and from sources indicated elsewhere in the report.

5. In the final opinion category of the report, it had been stated that the conclusion was based on evidence available on the date of the report and was subject to further findings, upon production of complete financial records and cooperation by the borrower.

6. According to Mr. Kar, the appellant’s Company was in liquidation, pursuant to a decision of Committee of Creditors (COC), approved by the adjudicating authority. The records and books of accounts were not in the control of the appellant. Thus, the findings in the Forensic Audit report that the appellant/borrower did not cooperate and hence the documents could not be made available for the preparation of a proper and conclusive audit report, were erroneous.

7. According to Mr. Kar, the bank should have approached the liquidator and requested for the documents or the bank ought to have moved the NCLT. He further submits that the orders of the NCLT would clarify that the documents and books of accounts were seized by the Directorate of Economic Offences (DEO) prior to the initiation of the CIRP.

8. Finally, it is submitted by Mr. Kar that, the Forensic Audit report, which was relied upon by the Bank of Baroda in the show cause notice, has already been set aside by the said learned Judge in WPA 978 of 2026 dated July 2, 2026. Once the Forensic Audit report and the show cause notice issued by the State Bank of India, which was the lead bank amongst the consortium of lenders had been set aside by the learned Judge, the order under appeal does not have any legs to stand on. The show cause notice and the decision arrived at by the Bank of Baroda and all further actions taken by the Bank of Baroda in reporting fraud of the account to the R.B.I, were all vitiated and liable to be set aside. It is also submitted that the same learned Judge who had passed the order setting aside the Forensic Audit report and the show cause notice by judgment and order dated July 2, 2026, failed to take into consideration the impact of such decision in the proceeding initiated by the appellant against the Bank of Baroda, in WPA 25902 of 2025.

9. Datta, learned Advocate for the Bank of Baroda submits that although the same forensic report was relied upon by the Bank of Baroda. His Lordship had considered the fact that the appellant had filed a reply to the show cause notice issued by the Bank of Baroda, and as such, the show cause notice could not be challenged before the writ court. Moreover, the bank had also reported fraud to RBI and the entire proceeding had reached a logical conclusion. Under such circumstances, nothing further remained for a decision by the writ court.

10. The learned Advocate for the Reserve Bank of India submits that the dispute was between the bank and the appellant.

11. Upon hearing the learned Advocates for the respective parties, we find that, admittedly, the Company was in CIRP since 2018 and the Company went into liquidation sometime in 2019. When the Company was admitted into CIRP, the directors and erstwhile management lost control over the affairs of the Company. The management was superseded by the COC. The documents had already been seized by the Directorate of Economic Offences. Such facts are available from the orders of the NCLT as also from other records. The liquidator has also been asking the said Directorate for the books of account. Thus, the borrower did not have any document at the time of requisition by the auditor.

12. The forensic auditor had incorporated a disclaimer. In the absence of sufficient materials, the report was prepared. The lender’s documents were taken into consideration. The corroborative materials justifying the allegation of the lender, were not available to counter­check the information that was supplied. Upon perusing these issues and factual aspects, His Lordship has already held that the Forensic Audit report could not be relied upon and the show cause notice issued by the lead bank i.e. State Bank of India was accordingly set aside. In our view, the fact that the said Forensic Audit report has already been held to be inconclusive by His Lordship and the show cause notice initiated for declaring the loan account of the State Bank of India as fraud, had been set aside along with the consequential proceedings, a similar treatment should have been given in respect of the show cause notice of the Bank of Baroda. Admittedly, the Bank of Baroda also relied on the same Forensic Audit report in its show cause notice.

13. We do not find any reason in the order impugned, as to why the show cause notice issued by the Bank of Baroda was found to be different from that of the State Bank of India. The fact that the Bank of Baroda was relying on the same show cause notice, was not taken into consideration by the learned Single Judge.

14. His Lordship had already held that, the Forensic Audit report dated June 4, 2025, was not worthy of any reliance. In WPA 978 of 2026, His Lordship made the following observations and dealt with the conclusions and disclaimers in the following manner:-

“18. The respondent bank has issued show cause notice to the petitioner on the basis of the Forensic Audit report of R. Dokania and Company dated 4^th June, 2025. As per Forensic Audit report, the Bank has appointed R. Dokania and Co., Chartered Accountants to conduct a Forensic Audit of the books of accounts of the Borrower for a period from 1s^t April, 2013 to 31s^t March, 2018. As per report, the management of the Company were not reachable and due to which no details of supporting documents have been received from the Borrower.

19. In the report, it is mentioned that the Auditor has sent a request to the Borrower for providing several details including Cash Book/ Bank Book and Journal Book from the period 1s^t April, 2013 to 31s^t March, 2018, Audited Financial Statements of Borrower for the said period and other many information but the mail sent to the Borrower were not delivered due to blockage issue. In the report, the Auditor has scanned the message which shows that the request made by the Auditor to the PSL has been blocked.

20. In the report, it is also mentioned that the Borrower has not provided any document like books of accounts, transactions details, copy of invoices, agreement entered into with various parties.

21. Conclusion and Disclaimer and Limitations of the Forensic Audit report which reads as follows:

“CONCLUSION

Analysis of Management Comments

The borrower, Pincon Spirit Limited (PSL), has categorically failed to provide any documentary evidence or verifiable supporting documentation in response to the observations raised during the forensic audit. The stated reason for non-submission-seizure of records by the Directorate of Economic Offences (DEO)- does not absolve the company from the responsibility of maintaining backups or duplicate records.

As per standard accounting and statutory compliance practices, listed companies are required to maintain backups, digital records, audit trails, and file statutory returns (e.g., GST returns, ROC filings) which remain accessible through respective portals or backups. No such attempt to produce secondary or corroborative evidence has been made by the management.

The management response provides broad, generic justifications about normal business transactions but fails to address specific transaction-level observations made in the forensic audit. Statements such as “transactions were in the ordinary course of business” or “accounting lapses were inadvertent” are unsupported by verifiable facts or documentation.

Despite the lapse of more than seven years, the management has not pursued any legal remedy to regain access to its own records from DEO, nor taken steps to reconstruct the books of accounts – a minimum expected effort from a listed entity. The continued inaction indicates wilful negligence or a deliberate attempt to avoid scrutiny.

The reply admits that operations have come to a standstill, but fails to clarify the current status of compliance with regulatory authorities like MCA, SEBI, BSE/ NSE, GST, or Income Tax. The absence of updated filings or regulatory disclosures further adds to concerns regarding the continuity and authenticity of financial operations.

Conclusion on the basis of review of limited documents made available to us by the lenders

Further, we have received very limited documents like bank statements, sanction letter, valuation report, etc. for the purpose of conducting forensic audit of the Borrower. The lenders have provided us with such documents for our review.

We have reviewed the documents made available to us by the lenders and have done proper web search to identify the irregularities done by the Borrower. Our investigation reveals multiple high-value, unjustifiable financial transactions which are serious and prima facie indicative of fraudulent intent, fund diversion and deliberate misrepresentation on the part of the Borrower. The following key findings underscore this conclusion:

A) Payment to suspected shell entities

The Borrower had made payment aggregating to Rs. 27.03 crores to entities whose current status is showing as ‘Strike off’ and has not filed the financial statements since their incorporation or has not filed the financial statements from last few years. Furthermore, the directors of these entities are found to be common across multiple ‘Strike Off entities, indicating a deliberate creation of a web of shell companies to facilitate fund diversion. The Borrower has failed to produce any agreements, invoices, proof of delivery of goods/ services, or rationale justifying these payments. The summary of payment done to such shell entities has been shown below:

Such payments without any visible economic and directed towards non-operational, non-compliant and defunct entities represent a classis typology of fund siphoning and fraudulent activity conducted on the part of the Borrower.

B) Questionable Payments to a Former Director:

It has been observed that the Borrower have paid amount aggregating to Rs.40.00 lakhs to Mr. Raj Kumar Roy within a period of 5 days. The summary of payment made to him has been shown below:

Mr. Raj Kumar Roy was a director of the Company for the period 06.08.2011 – 06.03.2014. No documentary justification or business rationale has been provided for these payments. In light of the Borrower’s default and absence of corresponding entries or documentation, these transactions appear to be in violation of principles of fiduciary responsibility and indicative of unauthorized siphoning of funds.

B) Disproportionate Increase in Trade Receivables vs. Trade Payables and lack of debtor confirmations

It has been observed that the Borrower has reported an aggregate increase of fl 7,703.06 lakhs in trade receivables over the period from 01.04.2012 to 31.03.2017. In contrast, trade payables have increased only by (8,284.38 lakhs during the same period. This results in a significant mismatch between receivables and payables growth, raising concerns regarding the genuineness of the trade receivables reported in the financial statements.

In view of the absence of adequate supporting documents, lack of debtor confirmations, and non­cooperation from the Borrower, it prima facie appears that the trade receivables may have been artificially inflated by the Borrower. This creates a reasonable ground to suspect that funds may have been diverted to non-genuine or related parties under the guise of trade receivables, in violation of fiduciary responsibilities and applicable laws.

C) Payments to Entities Unrelated to the Core Business

During the course of review, it was observed that the Borrower made huge payments to multiple entities during FY 2015-16 to FY 2017-18, whose line of business and activities do not appear to have any direct or indirect nexus with the Borrower’s core operations. These entities include Vinayak Research, Todi Investors, RR Creations, HM Creations, Cellcom, Payal Commodities, etc.

These entities, prima facie, appear to be engaged in businesses such as investment advisory, commodity trading, textile business and unrelated research services which are not required in the normal course of business of a liquor manufacturing company. This pattern of payment, in the absence of business rationale and supporting documentation, suggests possible diversion of funds or accommodation entries, and may fall under the ambit of fraudulent transactions

D) Absence of Key Records & Obstruction in Audit Process:

There are various suspicious transactions observed by us which could not be completely unearthed due to the absence of books of accounts. The Borrower has not provided its statutory books of accounts, ledger records, transactional invoices, agreements, etc. This non­cooperation hinders the transparency and traceability of financial conduct and itself raise red flags under forensic and regular scrutiny.

FINAL OPINION

In view of the foregoing, it is our categorical and professional opinion that the Borrower has engaged in a well-orchestrated scheme of financial misrepresentation, fraud and fund diversion, through a network of shell entities and through unauthorized individual payments, with the sole intention of defrauding institutional lenders.

This conclusion is based on evidence available as on the date of this report and is subject to further findings upon production of the complete financial records and cooperation by the Borrower.

DISCLAIMER & LIMITATIONS

This report is to be read in totality, and not in parts, in conjunction with the relevant documents referred to in this report. While utmost care has been taken in carrying out the assignment, there are certain limitations of its use; our report is subject to the following:

The scope of work is not equivalent to an audit conducted in accordance with generally accepted auditing standards, an examination of internal controls, or other attestation or review services or services to perform agreed upon procedures in accordance with the standards established by The Institute of Chartered Accountants of India.

Further, given the nature of the assignment, the procedures followed may not comprehend all matters relating to Company that might be pertinent or necessary to the client’s evaluation. Accordingly, though we have carried out the work as per the scope of work given, we make no representation to the sufficiency of our procedures for the users. Our verification cannot be relied upon to reveal all material issues (known and/or unknown), which may have an impact on the opinion of the Lender(s).

We did not independently verify all matters discussed and consequently, we have relied on the records and documents produced before us.

We have considered following key assumptions while carrying out the assignment:

• • Information and explanations and representation received are materially correct.
  • Documents such as bank statements, sanction letters, etc. provided to us are Genuine.

No technical or economic viability study or market survey was conducted for the purpose of this assignment.

No responsibility is assumed for matters of a legal nature. We were not required to carry out a legal audit/ review.

With respect to the documents and information required for conducting forensic audit, we have mailed our preliminary requirement list to the lenders and borrower and have received very limited documents which have been mentioned in the report.

We have carried out the audit based on the limited information and explanations to the extent made available to us by the lenders and from the sources indicated elsewhere in this report.

Our firm shall by indemnified with respect to any legal cost & expenses, if any required to be incurred by us in this assignment due to any future litigations against us by any party.

We have no obligation to update this report or revise our opinion because of events or transactions occurring subsequent to the date of this report.

This report has been prepared solely for the purpose of providing selected information on a confidential basis to which it is issued and should not be used for any other purpose without our consent in writing.

FOR
R DAKONIA & CO.
CHARTERED ACCOUNTANTS
Sandeep
Agarwal
SANDEEP AGARWAL
Dated: 04.06.2025
UDIN: 25064912BMMHB9150.”

24. Admittedly, Corporate Insolvency Resolution Process (CIRP) is initiated against the petitioner and Liquidator was appointed by the Learned Tribunal. Once liquidation proceeding is started, the power of the Board of Directors are suspended. The Liquidator is the sole custodian of the company’s books of accounts, financial records and operational documents. The Forensic Auditor must submit a formal requisition list to the Liquidator specifying the exact financial years, ledgers and transactions to be examined. The Liquidator compiles the available documents and securely hands over to the Auditor. The Auditor may examine or request clarifications directly from the suspended directors/ management, but all formal document exchanges must be routed through or approved by the Liquidator to maintain the chain of custody.

28. Considering the above, this Court finds that the Forensic Audit report on the basis of which the impugned show cause notice is issued, is not conclusive as the documents of the borrower was not available to the Forensic Auditor and the same is categorically reflected in the Forensic Audit report.

29. In view of the above, the impugned show cause notice dated 2n^d December, 2025, is set aside and quashed. However, this order will not prevent the respondent bank for taking appropriate steps against the petitioner in accordance with law. It is further made it clear that if the bank intending to rely upon the Forensic Audit report in future, the bank may request the Auditor to obtain all the necessary documents from the Liquidator appointed by the Learned Tribunal or from the Directorate of Economic Offences to conduct Forensic Audit report to come to a definite finding. The petitioner is also directed that, if any, request is made by the auditor for supply of any documents and the petitioner possesses the same, the petitioner shall forward the same after being verified by the Liquidator in writing.”

15. Thus, we are of the considered opinion that the foundational basis for the issuance of the show cause notice was held to be inconclusive and not worthy of reliance in the proceeding initiated by the State Bank of India by the same learned Judge. Consequently, the show cause notice issued by the lead bank was set aside. His Lordship quoted from the audit report to demonstrate the short comings in the same, by the laying special emphasis on the final conclusion, disclaimer and the observations of the auditor that, all the documents and corroborative materials were not available.

16. Although, Mr. Datta submits that His Lordship was persuaded by the fact that, filing of the reply by the appellant demonstrated that the appellant was in a position to answer to the show cause notice and there had been no violation of principles of natural justice, but we find from paragraph 17 of the order dated July 2, 2026 passed in WPA 978 of 2026 that the petitioner had also filed a detailed reply to the show cause, but even then the proceeding was set aside.

17. In the reply, the appellant had informed the Deputy General Manager (C85A), Bank of Baroda, Zonal Office – Chennai, that all the relevant documents had been seized by the DEO and all the business units, subsidiaries and associated companies of the appellant’s company had been sealed. The Bank of Baroda was requested to take steps from their end, to obtain such records. Admittedly, the Bank of Baroda did not do so.

18. The specific contention of the appellant was that, the transactions which were mentioned in the show cause notice as the grounds demonstrating fraud, were all within the knowledge of the consortium of banks including the Bank of Baroda. In the Annual General Meeting (AGM) of the Bank of Baroda, such transactions were recorded in the minutes. It is an established fact that the records were not available with the appellant and a proper answer to the show cause notice, in the manner required, could not be filed. The Forensic Audit Report also indicates that the borrower did not co­operate and did not produce corroborative material. The forensic auditors failed to address the issue that the borrower was not in possession of the books of accounts and the relevant materials. The foundational basis for issuance of the show cause notice could not be relied upon, as had already been held by the learned Judge. With regard to the loan account of the Bank of Baroda, a separate treatment could not have been given to the appellant.

19. We find that replies were filed by the borrower in respect of all the show cause notices and not only in respect of the show cause notice to the Bank of Baroda. His Lordship did not provide any reason as to why the steps taken by the Bank of Baroda, on the basis of the same Forensic Audit Report, was tenable in law. Under such circumstances, the order impugned is set aside.

20. Our decision will not preclude the bank from issuing a show cause notice, in the event the Bank of Baroda has further conclusive evidentiary materials against the appellant.

21. This order will not prevent the bank from requesting the auditors to cause a further forensic audit of the accounts of the appellant’s company and prepare a supplementary report in addition to the report already prepared. The bank may also approach the liquidator for necessary assistance and act in terms of the provision of the IBC, by approaching the NCLT, with regard to the allegations levelled against the borrower.

22. With the aforesaid observations, the appeal and the connected application are disposed of. The order impugned is set aside. The show cause notice and all consequential steps taken on the basis of the same are also set aside.

23. However, there shall be no order as to costs.

24. Urgent Photostat certified copy of the order, if applied for, be given to the parties, upon usual undertakings.