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Tarun Kapoor & Ors vs Punjab And Sind Bank & Anr on 30 May, 2022

Author: Sanjeev Narula

Bench: Sanjeev Narula

                          $~17
                          *      IN THE HIGH COURT OF DELHI AT NEW DELHI
                          +      W.P.(C) 7941/2022
                                 TARUN KAPOOR & ORS.                                      ..... Petitioners
                                                    Through:      Ms. Ranjana Roy Gawai, Advocate.


                                                    versus

                                 PUNJAB AND SIND BANK & ANR.                             ..... Respondents
                                                    Through:      Ms. Seema Singh, Advocate for R-1/
                                                                  Bank.

                                 CORAM:
                                 HON'BLE MR. JUSTICE SANJEEV NARULA
                                                    ORDER

% 30.05.2022 CM APPL. 24187/2022 (seeking exemption from filing original/ certified copies of annexures and typed copies of dim/ illegible documents)

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

2. The Petitioners 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) 7941/2022

4. The Petitioners impugns a circular dated 01st July, 2016, bearing number RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.NO.l/23.04.001/2016-17 updated on 30th July, 2017 [hereinafter "RBI Circular/ Impugned Circular"] issued by Respondent No. 2 [Reserve Bank of India] which Signature Not Verified Digitally Signed W.P.(C) 7941/2022 Page 1 of 4 By:SAPNA SETHI Signing Date:31.05.2022 19:59:39 pertains to declaration of fraud accounts - as well as consequential action of Respondents No. 1 [Punjab Sind Bank] declaring the account of Petitioners/ Companies, of which the other Petitioners are the co-borrowers/ mortgagors/ guarantors, as a 'fraud' account.

5. Ms. Ranjana Roy Gawai, counsel for the Petitioner states that in light of the objection raised by the Respondent No. 1 qua maintainability of the instant petition, she states that the present petition be confined to the cause of action urged by Petitioners No. 1 and 2. The statement of Ms. Gawai is taken on record and accordingly, the present petition will be treated as such. Petitioners No. 3 and 4 are deleted from the array of parties. Let amended memo parties be filed within a period of two weeks from today.

6. Issue notice. Ms. Seema Singh, Advocate, accepts notice on behalf of Respondent No. 1. Let counter affidavits be filed within a period do four weeks from today. Rejoinder thereto, if any, be filed within two weeks thereafter.

7. Upon filing of process fee, issue notice to Respondent No. 2, by all permissible modes, returnable on 20th July, 2022.

CM APPL. 24186/2022 (seeking interim reliefs)

8. Ms. Gawai argues that pursuant to Petitioners' own diligence and research, it came to their knowledge that in the year-2020, the accounts of the Petitioners were declared as 'fraud' by Respondent No. 1-Bank, while making their disclosures to BSE Ltd. and NSE Ltd. The entire proceedings for declaring the Petitioner No. 1/ Company's account as 'fraud', in terms of Master Circulars, were initiated in the year-2021 and has been done without adhering to the principles of natural justice as no notice has been issued Signature Not Verified Digitally Signed W.P.(C) 7941/2022 Page 2 of 4 By:SAPNA SETHI Signing Date:31.05.2022 19:59:39 prior to such a declaration. She states that so far; no communication has been sent classifying the Petitioners as 'wilful defaulter' or their accounts being declared as 'fraud'.

9. 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, 2022.1 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.2

10. For the fore-going reasons, Petitioners No. 1 and 2 have 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, Respondent No. 1-Bank is restrained from taking any further steps or actions prejudicial to the Petitioners No. 1 and 2 in furtherance of the order declaring the bank account of Petitioners No. 1 and 2 as 'fraud'.

11. It is clarified that Respondents are free to issue a show cause notice, and give necessary hearing to the Petitioners, if they are inclined to do so. If such a measure is taken, a reasoned order shall be passed as per law, which 1 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.

shall be communicated to the Petitioners. It is also clarified that the Respondents are free to continue/ initiate/ file any complaint/ proceedings against the Petitioners, as per law, independent of the impugned order declaring the account of Petitioners as a fraud account, and this would include the action initiated for declaring the Petitioners to be a 'wilful defaulter'.

12. Accordingly, the application stands disposed of.

SANJEEV NARULA, J MAY 30, 2022 nk Signature Not Verified Digitally Signed W.P.(C) 7941/2022 Page 4 of 4 By:SAPNA SETHI Signing Date:31.05.2022 19:59:39