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Aashish Jhunjhunwala vs Federal Bank Ltd. & Ors on 1 June, 2022

Author: Sanjeev Narula

Bench: Sanjeev Narula

                          $~119
                          *         IN THE HIGH COURT OF DELHI AT NEW DELHI
                          +         W.P.(C) 8964/2022
                                    AASHISH JHUNJHUNWALA                                                ..... Petitioner
                                                          Through:       Ms. Nattasha Garg, Advocate.

                                                          versus

                                    FEDERAL BANK LTD. & ORS.                                       ..... Respondents
                                                          Through:       None.

                                    CORAM:
                                    HON'BLE MR. JUSTICE SANJEEV NARULA
                                                          ORDER

% 01.06.2022 CM APPL. 26972/2022 (seeking exemption from filing certified/ dim/ typed/ margin copy of annexures and lengthy synopsis and list of dates)

1. Exemption is granted, subject to all just exceptions.

2. The Petitioner shall file legible and clearer copies of exempted documents, compliant with practice rules, before the next date of hearing.

3. Accordingly, the application stands disposed of.

W.P.(C) 8964/2022

4. The Petitioner impugns a circular dated 01st July, 2016,4 (as updated on 03rd July, 2017) issued by Respondent No. 3 [Reserve Bank of India] pertaining to classification and reporting of fraud accounts by commercial banks and financial institutions [hereinafter "RBI Circular/ impugned 4 bearing number RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.NO.l/23.04.001/2016-17 Signature Not Verified Digitally Signed By:SAPNA SETHI Signing Date:03.06.2022 13:07:15 Circular"] and the consequential action of Respondent No. 1 [ Federal Bank Ltd.] and Respondent No. 2 [UCO Bank] declaring the account of M/s Ramsarup Industries Limited ["RIL"], of which the Petitioner is a promoter, as a 'fraud' account.

5. Issue notice to the Respondents, by all permissible modes, returnable on 20th July, 2022.

CM APPL. 26971/2022 (seeking stay of the impugned notification)

6. The case of the Petitioner is that he along with RIL have received a notice dated 02nd June, 2021 issued by Axis Bank Limited [Respondent No. 5], wherein it has been alleged that RIL "has been classified as 'fraud' by lenders United Bank of India, Bank of India and ICICI Bank", and, relying on such classification, Axis Bank has "classified the borrower as Red Flagged Account, as per extant RBI guidelines." Axis bank has called upon both RIL as well as the Petitioner to give their response along with supporting documents by 16th July 2021 for the Bank to take a decision in terms of the circular referred above.

7. Ms. Nattasha Garg, counsel for Petitioner, states that the entire proceeding for declaring RIL's account as 'fraud' has been done without adhering to the principles of natural justice as no notice was issued prior to such a declaration. She states that till date, no communication has been received by Petitioner classifying Petitioner/ RIL as a 'wilful defaulter' or its account being declared as 'fraud'. She also places reliance on another matter, filed by the Petitioner wherein this Court had granted an interim Signature Not Verified Digitally Signed By:SAPNA SETHI Signing Date:03.06.2022 13:07:15 order in favour of the Petitioner on 24th May, 2022. 5

8. This Court notes that the legality of the RBI Circular is being examined in a batch of part-heard petitions before Hon'ble Mr. Justice Prateek Jalan which are next coming up for hearing on 13th July, 2022.6 The Court vide Order dated 15th February, 2019, passed in the same case, formed a prima facie view that declaration of an account as 'fraud' means more than the account being a 'wilful defaulter'. In that light, it has been observed that if the account itself has not been declared to be a 'wilful defaulter', the declaration of an account as 'fraud' cannot sustain. Several orders have been passed by other co-ordinate benches, wherein the Court has deliberated upon the Impugned Circular and granted interim protection. Reliance has also been placed upon the dicta of the Court in State Bank of India v. Jah Developers.7

9. For the fore-going reasons, the Petitioner has established a prima facie case, and considering the orders referred above, the Court is inclined to grant interim protection. Accordingly, till the next date of hearing, Respondents No. 1 and 2 are restrained from taking any further steps or actions prejudicial to the Petitioner, in furtherance of the order declaring the bank account of RIL as 'fraud'.

10. It is clarified that Respondents are free to issue a show cause notice, 5 W.P. (C) 8184/2022 titled Aashish Jhunjhunwala v. Reserve Bank of India and Ors.

W.P.(C) 306/2019 titled Apple Sponge and Power Ltd and Ors v. Reserve Bank of India and Anr.

2019 SCC Online SC 787.

and give necessary hearing to the Petitioner, if they are inclined to do so. If such a measure is taken, a reasoned order shall be passed as per law, which shall be communicated to Petitioner. It is also clarified that Respondents are free to continue/ initiate/ file any complaint/ proceedings against the Petitioner, as per law, independent of the impugned order declaring the account of RIL as a fraud account, and this would include the action initiated for declaring the Petitioner to be a 'wilful defaulter'.

11. Accordingly, the application stands disposed of.

12. Re-notify on 20th July, 2022.

SANJEEV NARULA, J JUNE 1, 2022/as Signature Not Verified Digitally Signed By:SAPNA SETHI Signing Date:03.06.2022 13:07:15