Delhi High Court - Orders
Sintex Bapl Limited & Ors vs Bank Of Baroda & Anr on 28 August, 2020
Author: Jayant Nath
Bench: Jayant Nath
$~A-13
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 5750/2020, CMs 20793-20796/2020
SINTEX BAPL LIMITED & ORS. ..... Petitioners
Through Mr.Parag P.Tripathi, Sr.Adv. with
Ms.Neeha Nagpal, Adv.
versus
BANK OF BARODA & ANR. ..... Respondents
Through Mr.Arun Aggarwal, Adv. for R-1/
Bank of Baroda.
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
ORDER
% 28.08.2020
1. This hearing is conducted through video conferencing.
2. This writ petition is filed seeking apart from other reliefs, an appropriate writ for quashing the declaration of fraud passed by respondent No.1.
3. The case of the petitioner is that his account was red-flagged by certain financial creditors of petitioner No.1 sometime in July/August, 2019. The account of petitioner No.1 was subjected to a forensic audit. A copy of the audit report however has not been provided to petitioner No.1. On 20.08.2020, it is stated by the petitioner that from reliable sources information was received that respondent No.1 has unilaterally declared the account of the petitioner as fraud account.
4. The grievance of the petitioner is that the said account has been declared as fraud account without following elementary principles of natural justice. No notice or hearing was given to the petitioner. No order declaring the account of the petitioner as fraud account was communicated to the petitioner.
5. Learned senior counsel appearing for the petitioners further pleads that this act of respondent No.1 causes grave civil consequences without following principles of natural justice.
6. Reliance is placed on an order of a Co-ordinate Bench of this court in the case of Apple Sponge And Power Ltd. And Ors. v. Reserve Bank Of India And Anr., W.P.(C) 306/2019, dated 15.02.2019, where this court had stayed the operation of an order declaring the account in question as a fraud as being contrary to the principles of natural justice.
7. Reference in this context may be had to the relevant portion of the order in Apple Sponge And Power Ltd. And Ors. v. Reserve Bank Of India And Anr.(supra), where this court held as follows:
"9. The contentions and counter-contentions notwithstanding, in my prima facie view there clearly appears to be something amiss inasmuch as RBI's Master Directions dated 01.07.2016 relating to classification and reporting of 'fraud' does not contain any provision for issuance of show-cause notice or affording a hearing to the affected party, even though a decision by a bank, whether taken individually or collectively with other banks, to classify an account as 'fraud' is a significant administrative decision taken in the commercial realm, having serious consequences for the account holder. That is to say, while a bank may most certainly report fraudulent transactions in an account to law enforcement agencies under the criminal law regime without issuing a show cause notice or hearing an affected party, but if an account is to be declared 'fraud' by an administrative decision in the framework of civil law, such action it appears on first principles, cannot be taken without giving to the affected party an opportunity of hearing to show cause against it.
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11. It is noteworthy that while the RBI circular dealing with 'willful defaulters' provides a mechanism whereby a hearing is given to the affected party, no opportunity of hearing appears to be available in the circular that deals with declaring an account as 'fraud', which latter is a much more serious matter.
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17. To me it prima facie appears that declaring an account as 'fraud' would arise in a case of egregious default on the part of an account holder, something more than the account holder being a 'willful defaulter'. For an account to be declared as 'fraud' must entail an element of criminality on the part of the account holder, which ought to be inferred only on the basis of some substantial material which must be put to the errant account holder; and after considering any explanation such account holder has to offer; and not unilaterally by a stroke of the pen.
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19. In the circumstances, without prejudice to the rights and contentions of the parties, all of which are kept open, it is directed that respondent No. 2/bank shall not take any further steps or actions prejudicial to the petitioners based upon the petitioners' account being declared 'fraud' until the next date of hearing."
8. Keeping in view the above facts, it is manifest that the petitioner has made out a prime facie case. There has been prima facie non-compliance with the principles of natural justice. Accordingly, in view of the afore-noted order of this court, the order of respondent No.1 declaring the account of petitioner No.1 as fraud account is stayed till further orders.
9. It is clarified that respondent No.1 is free to take any steps as per law which do not emanate from the declaration of the account of the petitioner as fraud.
10. It is also clarified that respondent No.1 is free to issue a show cause notice to the petitioner and after hearing may pass appropriate reasoned orders pertaining to the account of the petitioner.
11. Issue notice. Learned counsel appearing for respondent No.1 accepts notice. Notice be issued to respondent No.2, returnable for 20.10.2020. Counter affidavit be filed within three weeks. Rejoinder, if any, be filed within two weeks thereafter.
JAYANT NATH, J.
AUGUST 28, 2020/v