Delhi HC: Bank's Secret Reports Lead to Fraud Label Overturn for ASM Traxim

Quick Summary: The Delhi High Court overturned the fraud label against ASM Traxim Pvt. Ltd., pointing out unfair treatment. The case involves Punjab National Bank, COVID-19 challenges, and a complicated legal fight.

The Background: ASM Traxim and Their Financial Problems

ASM Traxim Pvt. Ltd., a trading company, faced money problems because of the COVID-19 pandemic. They initially had a loan of Rs. 50 crore from Punjab National Bank (PNB), backed by various promises and property. Although they made regular payments until December 2021, the pandemic hit their business hard, causing late payments.

The NPA Label and What Followed

On January 27, 2022, Punjab National Bank labeled ASM Traxim's account as a Non-Performing Asset (NPA). This happened even though ASM Traxim tried to cut down on expenses and discuss lower interest rates. Punjab National Bank sent a notice asking for the loan to be paid back and started actions to claim the guarantees.

Legal Fights and Settlement Offers

ASM Traxim fought against Punjab National Bank's actions through different legal ways. They filed requests and offered One Time Settlements (OTS) to rearrange their debts. The court told Punjab National Bank to consider these offers, but the bank said no, leading to more legal actions.

The Fraud Label and Court's Intervention

On February 11, 2025, Punjab National Bank labeled ASM Traxim's account as 'fraud' because of supposed misuse of funds. ASM Traxim argued against this, saying they were treated unfairly because they weren't given a chance to explain their side. They referred to the Supreme Court's decision in Rajesh Agarwal's case, which stressed the need for fair hearings in such situations.

Court's Ruling: Supporting Fair Treatment

Justice Jyoti Singh of the Delhi High Court removed the fraud label on November 21, 2025. The court agreed with ASM Traxim, noting that Punjab National Bank did not give them a chance to speak and used secret reports. The court stressed:

"Fair treatment requires that borrowers must be notified, given a chance to respond to the audit report findings, and be allowed to speak before their accounts are labeled as ‘fraud’."

Key Points from the Judgment

• Unfair Treatment: The court pointed out that ASM Traxim was not given a fair chance to defend themselves, which was unfair.
• Secret Evidence: Punjab National Bank used audit reports not shared with ASM Traxim, which the court found to be unjust.
• Chance for New Proceedings: The court allowed Punjab National Bank to start over, making sure all important information is shared and a chance to speak is given.

Summary of the Verdict

The court's decision emphasizes the importance of being fair and open in financial disputes. It stresses that banks must follow fair treatment rules, ensuring that borrowers have a chance to explain their side of the story.