Fraud classification under RBI circular upheld despite MSME plea; connected SARFAESI action could not be blocked in writ jurisdiction.

A fraud classification made under a binding RBI circular cannot be interfered with in writ jurisdiction merely because the borrower later invokes MSME protection or alleges non-compliance with a rehabilitation framework. The court held that, where the circular itself is not directly challenged, the bank's declaration of the account as fraudulent and the connected SARFAESI action remain sustainable. The petitioner could not resist the regulatory fraud process on the pleaded grounds, and any challenge had to be mounted independently against the circular. The writ petition therefore failed on merits, leaving the petitioner to pursue other remedies available in law.

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Issues: Whether the bank's declaration of the petitioner's account as fraudulent, and the consequential action under the SARFAESI framework, could be interfered with on the ground of alleged non-compliance with the MSME notification and the rehabilitation framework.

Analysis: The impugned fraud classification was found to be in consonance with the RBI circular dated 15.07.2024, which provides a framework for prevention, early detection and reporting of fraud by banks. The Court relied on the later Supreme Court position that the binding circular cannot be bypassed merely by invoking MSME status at a belated stage, and observed that the petitioner, if aggrieved by the regulatory framework itself, would have to challenge the circular independently. In the absence of such a challenge, the petitioner could not resist the fraud declaration or the connected SARFAESI action on the basis urged.

Conclusion: The challenge to the declaration of the account as fraudulent was rejected, and the petitioner was not granted interference against the bank's action.

Final Conclusion: The writ petition failed on merits, with the petitioner left to pursue any other remedy available in law, including payment of the admitted liability or an independent challenge to the RBI circular.

Ratio Decidendi: A fraud declaration made in accordance with a binding RBI circular cannot be interdicted in writ jurisdiction merely on the plea of MSME protection or alleged non-compliance with the rehabilitation framework, unless the circular itself is directly challenged.

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