Gurugram: Kotak Mahindra Bank and AU Small Finance Bank have moved court against what they call coercive action by the Haryana government and its agencies to extract money from them in connection with separate fraud cases involving public funds. On 29 May, the Punjab and Haryana High Court issued a notice to the Haryana government on a petition by AU Small Finance Bank.
The bench of Justices Suvir Sehgal and Vikas Puri issued the notice to the state on AU Small Finance Bank’s civil writ petition filed on 26 May under Article 226 of the Constitution.
The Kotak Mahindra Bank matter had earlier reached the Bombay High Court, which on 6 April granted interim relief to the bank after 109 of its branches were sealed by the police across Haryana.
The two cases, though involving different state agencies and different frauds, follow a strikingly similar pattern: a cheque or term deposit fraud involving public funds held with the bank followed by the Haryana authorities sealing the bank’s branches, pressuring senior bank officials, and extracting large sums of money under protest from the banks themselves even as they maintained they had acted in good faith and bore no legal liability.
Also Read: Years after CAG raised red flag, Haryana blacklists ghost publishers who scammed govt colleges
AU Small Finance Bank case
AU Small Finance Bank’s petition before the Punjab and Haryana High Court concerns a fraud involving the Employees’ Pension Fund Trust Account of Haryana Power Generation Corporation Limited (HPGCL).
On 29 December 2025, the bank cleared a cheque of Rs 25 crore drawn on the HPGCL Employees Pension Fund Trust Account in favour of M/s Swastik Desh Projects. The bank says the transaction followed standard banking and maker-checker protocols. It was subsequently discovered that the proceeds had been misappropriated through a criminal conspiracy involving external actors, partners of M/s Swastik Desh Projects, and certain HPGCL officials.
Contending that this was entirely outside the knowledge of its senior management, the bank did not wait to be summoned.
The bank says it moved in February 2026, launching an internal fraud control inquiry, and filing a Suspicious Transaction Report with the Financial Intelligence Unit-India on 16 February, and getting arrested former employees involved in the fraudulent transaction.
A forensic report by Truth Labs, submitted on 7 March found that the signatures on the cheque matched the authorised signatory specimens held by the bank, establishing that it had acted as a bona fide paying banker protected under Sections 10, 31 and 85 of the Negotiable Instruments Act, 1881. The bank’s board, which had initially indicated a conditional willingness to credit the shortfall pending reconciliation, formally withdrew that offer on 19 March, saying that reimbursing the funds without a lawful basis would be contrary to banking regulations.
What followed, the bank’s petition alleges, was an escalating campaign of executive coercion between 20 and 31 March this year. On 26 March, the managing director of the bank was kept the entire day at the office of the State Vigilance and Anti-Corruption Bureau under the guise of a summons, to allegedly compel payment. On 30 March, the Haryana Police allegedly blocked and physically locked the bank’s branches across the state without warrants or court orders, paralysing operations and denying depositors access to their accounts.
To prevent further operational disruption, the bank reluctantly credited Rs 25,33,00,000, the principal amount of Rs 25 crore plus interest, from its own funds to the HPGCL Trust Account on 31 March. The bank says this was done under protest, with reservation of rights, and on the basis of an explicit oral assurance from senior Haryana government officials that the sum would be kept aside and refunded once recoveries were made from the actual accused by the Enforcement Directorate.
That assurance, the bank alleges, was breached. In April 2026, the bank discovered that the respondents had secretly withdrawn the entire Rs 25.33 crore from the recipient trust account.
The bank’s petition further notes that since then, Chief Minister Nayab Singh Saini referred the underlying fraud to the Central Bureau of Investigation. It also notes a deeply troubling development: Balwant Singh, an authorised signatory of the HPGCL Trust, died by suicide, with his family filing a report that alleged serious harassment by senior Haryana government officials.
The petition argues that the forced extraction of its funds without any decree, judgment, or lawful authority violates Articles 14, 19(1)(g) and 300A of the Constitution. It seeks a declaration that the extraction of Rs 25.33 crore was illegal and void ab initio, an order directing its immediate refund with interest from March 31, 2026, and a declaration that the bank bears no civil liability for the fraudulent cheque. It also seeks urgent interim protection restraining the state from taking any further coercive action against the bank, its branches or its employees, and from characterising the forced payment as an admission of liability.
Virendrasingh Dhansingh Ghunawat, Senior Vice President, Corporate Communication at AU Small Finance Bank, responded to a query from The Print by email. “Given that the matter is currently sub judice, we would not be in a position to comment on the specifics of the case or ongoing proceedings at this stage. AU Small Finance Bank remains committed to the highest standards of governance and regulatory compliance, and we continue to extend full cooperation to the relevant authorities, as required,” he said.
The Kotak Mahindra Bank case
The Kotak Mahindra Bank matter involves a different public body, the Municipal Corporation of Panchkula, but follows a near-identical playbook of alleged state coercion.
The case centres on Term Deposit Advices, or TDAs, held by the Municipal Corporation of Panchkula with Kotak Mahindra Bank. On reconciliation, the bank found that out of 16 TDAs presented for payment, 14 had already been prematurely redeemed in 2024 itself. Despite this, the corporation called upon the bank to make payment of approximately Rs 158 crore on the basis of these TDAs.
The bank’s counsel, Senior Advocate Janak Dwarkadas, appearing before a single bench of Justice Arif S. Doctor of the Bombay High Court, pointed out that the TDAs being presented were not even in the standard format issued by Kotak Mahindra Bank. One TDA examined in court carried two different maturity dates and mentioned an interest rate of 8.45 percent, a rate, the bank stated, at which it had never accepted term deposits. The bank’s own standard TDA format specifies a concrete deposit amount, a concrete maturity amount, and an interest rate of 8.4 percent.
When the bank received the first communication from the Municipal Corporation on 18 March 2026, demanding payment, it filed a police complaint with the Deputy Commissioner of Police, Panchkula. No First Information report was registered on that complaint. Instead, the Haryana Police sealed 109 branches of Kotak Mahindra Bank across the state, crippling operations for a bank with approximately 14 lakh customers and total deposits of around Rs 24,000 crore in Haryana.
It was only after the intervention of the Principal Secretary to the Chief Minister of Haryana that the 109 branches were de-sealed, on the bank depositing approximately Rs 127.27 crore in a savings account of the Municipal Corporation at the bank’s Panchkula branch, with the specific understanding that the amount would remain deposited pending completion of reconciliation and would not be treated as an admission of liability.
That understanding, the bank told the Bombay High Court, was then breached. The corporation sent two letters dated 1 April 2026, received by the bank on 2 April, asking it to transfer the deposited amount to an SBI account in the name of the corporation. Notably, both letters carried the same date, the same contents, but were signed by two different officers of the corporation with the same designation, an anomaly the bank flagged before the court.
Kotak Mahindra Bank moved the Bombay High Court seeking urgent ad-interim relief, fearing both that the money would be withdrawn and that a repeat sealing of its 109 branches could occur. On 6 April, Justice Arif S. Doctor granted limited ad-interim relief, noting that the bank had made out a case for consideration, that the TDA under which the corporation was claiming appeared clearly at variance with the bank’s standard TDA format, and that granting the limited interim relief would not prejudice the corporation since the money was already in its account. The matter was posted to 15 April 15 for further hearing, and again posted to 27 April.
However, on 27 April, the Municipal Corporation, Panchkula, filed an application that since no cause of action has arisen within the jurisdiction of this court; leave granted by this court under Clause XII (concerning jurisdiction) of the Letters Patent to the Plaintiff will have to be revoked.
The bank sought time to file its reply and the case has now been listed for 15 June.
Prasanna Kotian, Head of Corporate Communication at Kotak Mahindra Bank, acknowledged ThePrint’s email query and said the bank would revert should it have any comments to share.
The Haryana government has not yet responded to queries on either matter. The AU Small Finance Bank petition is now before the Punjab and Haryana High Court, with the state on notice.
A senior officer of the Haryana government told ThePrint on condition of anonymity that these are sub judice matters pending before the courts, and responses would be filed in the courts alone.
(Edited by Nardeep Singh Dahiya)
Also Read: CBI alleges civil servant-bank nexus in Rs 661 cr IDFC First Bank fraud; 3 IAS, 1 IFS under scanner