Delhi High Court - Orders
Shantanu Prakash vs State Bank Of India & Ors on 6 February, 2024
$~82
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 1702/2024 & CM APPL. 7006/2024, CM APPL. 7007/2024,
CM APPL. 7062/2024
SHANTANU PRAKASH ..... Petitioner
Through: Mr. Dayan Krishnan, Sr. Advocate
with Ms. Neeha Nagpal, Ms. Malak
Bhatt, Mr. Vishvendra Tomar, Ms.
Aditi Shrivastava, Advocates
(M:9810030834,email:nn@neehanag
pal.com)
versus
STATE BANK OF INDIA & ORS. ..... Respondents
Through: Mr. Sanjay Kapur, Mr. Surya
Prakash, Mr. Devesh Dubey,
Advocates for R-1
(M:9871789655,email:office@rpklaw
.com)
CORAM:
HON'BLE MS. JUSTICE MINI PUSHKARNA
ORDER
% 06.02.2024 CM APPL. 7007/2024 & CM APPL. 7062/2024 (For Exemption)
1. Exemptions allowed, subject to just exceptions.
2. Applications are disposed of.
W.P.(C) 1702/2024 & CM APPL. 7006/2024
3. The present petition has been filed under Article 226 of the Constitution of India seeking direction for setting aside the Show Cause Notice dated 04th October, 2023 along with letter dated 16th November, 2023 issued by the Bank of India; Show Cause Notice dated 26th October, 2023 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:04 issued by Axis Bank and Show Cause Notice dated 13th November, 2023 issued by the State Bank of India ("SBI"). The said Show Cause Notices have been issued for classification of accounts of the petitioner as 'fraud'.
4. Learned Senior Counsel for petitioner submits that the impugned Show Cause Notices have been issued by the respondent-banks as an empty formality.
5. Learned Senior Counsel for petitioner has drawn the attention of this Court to the judgment dated 12th May, 2023 passed in W.P.(C) 2485/2020, wherein the earlier declaration of 'Fraud' of the petitioner's account was set aside by this Court on the basis of the judgment of Supreme Court in case of State Bank of India Versus Rajesh Agarwal, 2023 SCC OnLine SC 342. Thus, liberty had been granted to respondent-banks to issue respective Show Cause Notices. Accordingly, the present Show Cause Notices which are under challenge in the present writ petition, have been issued subsequently by the respondent-banks in view of the aforesaid liberty.
6. It is submitted that respondent-banks have issued the Show Cause Notices with a preconceived mind for declaring the accounts of the petitioner as 'Fraud'.
7. It is further submitted that the said Show Cause Notices were issued by respondent- banks without any supporting documents and against the Principles of Natural Justice.
8. Learned Senior Counsel for petitioner has drawn the attention of this Court to the reply dated 12th October, 2023 written by the petitioner to the Bank of India, relevant portions of which reads as under:
"xxx xxx xxx
4. The underlying documents are essential and relevant for me to effectively respond to the SCN. It is a well-established legal position This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:04 that nothing should be used against any person, which has not been brought to his/her notice, especially if the said material is in the possession of the person/entity making such allegations. Hence, the request for the material on the basis of which the said allegations have been made.
5. As you are aware, EISML was admitted into CIRP on 25.04.2018 in terms of the Insolvency & Bankruptcy Code, 2016 ['IBC"] and on 31.03.2023 after the implementation of resolution plan it has been taken over by the new management. As such I have since then not been associated with the affairs of EISML and/or have access to its records, which are in the custody of the Resolution Professional/New Management of EISML and yourself. Further, the queries raised by you in the SCN pertain to transactions for the year[s] Financial Years 2009 to 2018. I will need time to collate this information, which I have very limited access to. Hence, for this reason as well, I request you to provide me with the material relied upon by you for making the allegations in the SCN.
xxx xxx xxx"
9. Learned Senior Counsel for petitioner has referred to the reply dated 16th November, 2023 issued by the Bank of India, wherein it has been answered as follows:
"xxx xxx xxx
2. We hereby advise that as per our internal guidelines, show cause notice was issued on 04.10.2023 indicating the findings of forensic audit report and seeking your written reply within given timelines. We observe that instead of submitting the reply on the findings highlighted in our SCN, letter dated 27.10.2023 is forwarded by you seeking underlying documents. It is pertinent to mention here that underlying documents sought by you are internal documents of the bank and we are not obliged to share the same. Further, you have already been served a show cause notice giving you an opportunity for making representation on findings of the forensic audit report which is in line with Hon'ble SC judgment (civil appeal 7300 of 2022) and our internal guidelines.
xxx xxx xxx "
10. A perusal of the aforesaid clearly shows that the petitioner has been making requests to the bank for supplying the requisite documents, which have not been provided along with Show Cause Notice. However, the Bank This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:05 of India by its letter dated 16th November, 2023 has given a reply that documents are internal documents of the bank and the bank is not obliged to share the same with the petitioner.
11. Attention of this Court has also been drawn to the letter dated 13th December, 2023 written by the petitioner to the State Bank of India, wherein the petitioner had requested the said bank to provide the material documents to him, which were relied upon and made the basis of the allegations in the Show Cause Notice. The relevant portions of letter dated 13th December, 2023 written by the petitioner to the State Bank of India reads as under:
"xxx xxx xxx The undersigned herein is in receipt of the aforesaid SCN issued by the State Bank of India ("SBI"). At the outset, it is submitted that there is no basis whatsoever for issuance of such SCN and/or for marking EISML's account as suspected fraud. The SCN summarily raises allegations on the basis of which EISML's account has been marked as suspected fraud. However, it fails to provide any underlying documentation and/or material relied upon to make such allegations. At the threshold, such documentation and/or material on the basis of which these allegations are raised ought to be provided to the undersigned. Not providing such documentation and/or material amounts violation of principles of natural justice. xxx xxx xxx"
12. It is further submitted by learned Senior Counsel for the petitioner that to the aforesaid letter dated 13th December, 2023, written by the petitioner, no reply has been received from State Bank of India.
13. Attention of this Court has also been drawn to the letter dated 20th November, 2023 written by the petitioner to Axis Bank, wherein again request for providing requisite documents was made. It is submitted that no reply to the aforesaid letter dated 20th November, 2023 has been received by the petitioner. Moreover, no documents have been provided to the petitioner pursuant to the aforesaid request.
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:05
14. Learned Senior counsel for petitioner further submits that the Forensic Audit Report on the basis of which Show Cause Notice has been issued is unreliable and tainted, as the Auditor himself had criminal proceedings going against him. Thus, it is submitted that fraud vitiates all transactions. In support of these submissions, learned Senior Counsel for petitioner relies upon the judgment in the case of Express Newspapers Pvt. Ltd. and Others Versus Union of India and Others, (1986) 1 SCC 133.
15. He also relies upon the judgment of the Calcutta High Court dated 02nd February, 2024 in W.P.(A) 28329/2023 to submit that appropriate procedure has to be followed by the banks and all the requisite documents are required to be supplied to the petitioner. He relies upon the following paragraphs of the aforesaid judgment:
"xxx xxx xxx
61. Although the process of fraud declaration is summary under the Master Directions, the principles of natural justice have to be read into it as much as possible, since such principles are the basic features of Rule of Law and cannot be short shrifted.
62. However, there is no scope of any detailed trial and, as such, the procedure is to be streamlined.
63. Keeping such backdrop in view, in the light of the judgments rendered in Rajesh Agarwal (supra) and Neptune Overseas Limited (supra), the following procedure is, in the opinion of this Court, apt to serve the purposes of the Master Directions as well as to take care of the principles of natural justice, in particular the tenet of Audi Alteram Partem and ensure that an effective opportunity of rebutting the allegations is given to the borrower and its Directors.
64. First, a show-cause notice is to be issued, enumerating the exact offences alleged against the borrower/Director. If any FAR or other document forms the basis of the show-cause, the same is to be served along with the show-cause notice. (Both the said criteria have, in fact, have been satisfied in the present case in respect of BOI, BOB and UBI.) This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:05
65. A fortnight thereafter would be ample time to give reply to the show-cause notice. In its reply, the noticee shall, apart from addressing the allegations and controverting those specifically, specify the documents which are required to be provided to the noticee by the Banks/financial institutions. If necessary, in the reply, the borrower/Director or promoter can reserve its rights to give a further additional reply upon receiving such documents.
66. Within a week from receiving such replies, the Banks can give an inspection of the documents, if extremely voluminous, and/or furnish copies of the particular documents which are sought by the borrower.
67. Within a further fortnight, if necessary, the noticee/borrower can be given an opportunity to file additional reply, in the light of the documents which have by now been inspected / served on them. Thereafter, a hearing shall be fixed by the bank on the basis of the reply.
68. Upon such hearing being concluded, a decision shall be taken whether or not to declare the borrower-company or its Director/promoter as "fraud" or "perpetrator of fraud". The aforesaid procedure would take, at the most, 8 weeks in total to be concluded, which would be sufficient compliance of the Master Directions of the RBI. Thereafter, if declared as fraud/perpetrator of fraud, the same can be intimated by the Bank to the RBI. xxx xxx xxx"
16. Per contra, learned counsel appearing for respondent- SBI submits that in terms of the judgment in the case of Rajesh Agarwal (supra), only requisite documents are to be provided to the petitioner. On the basis of the Show Cause Notice and documents provided, a representation is to be submitted by the petitioner. He further submits that in the present case the Forensic Audit Report has already been provided.
17. He further submits that the present petition would not be maintainable as different Show Cause Notices have been clubbed together. Learned counsel for respondent submits that no documents have been specified which are required by the petitioner.
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:05
18. Learned counsel for respondent-SBI further submits that in the present case, only Show Cause Notice has been issued and no final declaration of 'Fraud' has been made. Therefore, he submits that the present petition is not maintainable.
19. He relies upon the judgment in the case of Union of India and Another Versus Kunisetty Satyanarayana, (2006) 12 SCC 28 and relies upon the following paragraphs:
"xxx xxx xxx
13. It is well settled by a series of decisions of this Court that ordinarily no writ lies against a charge-sheet or show-cause notice vide Executive Engineer, Bihar State Housing Board v. Ramesh Kumar Singh [(1996) 1 SCC 327 : JT (1995) 8 SC 331] , Special Director v. Mohd. Ghulam Ghouse [(2004) 3 SCC 440 : 2004 SCC (Cri) 826 : AIR 2004 SC 1467] , Ulagappa v. Divisional Commr., Mysore [(2001) 10 SCC 639] , State of U.P. v. Brahm Datt Sharma [(1987) 2 SCC 179 : (1987) 3 ATC 319 : AIR 1987 SC 943] , etc.
14. The reason why ordinarily a writ petition should not be entertained against a mere show-cause notice or charge-sheet is that at that stage the writ petition may be held to be premature. A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so. It is quite possible that after considering the reply to the show-cause notice or after holding an enquiry the authority concerned may drop the proceedings and/or hold that the charges are not established. It is well settled that a writ petition lies when some right of any party is infringed. A mere show-
cause notice or charge-sheet does not infringe the right of anyone. It is only when a final order imposing some punishment or otherwise adversely affecting a party is passed, that the said party can be said to have any grievance.
xxx xxx xxx"
20. Learned counsel for respondent further submits that the judgment of Calcutta High Court relied upon by the petitioner itself clearly records that reply to the Show Cause Notice has to be given within a fortnight. He This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:05 further submits that a time bound exercise has to be followed and that the borrower can always reserve its right to give further additional reply upon receiving documents. Therefore, he submits that since a reply has already been filed by the petitioner, the respondent-banks can proceed further with the matter.
21. Responding to the aforesaid submissions made by learned counsel for respondent-SBI, learned Senior Counsel for petitioner submits that only the final bare report of the Forensic Audit Report has been given. However, no annexures which are attached to the said Forensic Audit Report have been provided to the petitioner. Therefore, it is submitted that complete documents which are being relied upon by the banks, have not been provided to the petitioner, nor any opportunity of hearing has been granted to the petitioner.
22. Having heard learned counsel for parties, this Court is of the view that since the main issue raised by the petitioner in the present case is with respect to non-supply of documents, it is imperative that the requisite documents are provided to the petitioner so that an effective reply can be submitted by the petitioner.
23. This Court notes that the Supreme Court in the case of Rajesh Agarwal (supra) has categorically stated that all the documents and evidence which are collected against a party, ought to be provided to such party so as to provide an opportunity to explain the evidence against it. Reference may be made to paragraph -71 of the aforesaid judgment, which reads as under:
"71. As a counter to the above legal position, RBI and lender banks have contended that the principles of natural justice could be excluded in cases where there is a requirement of promptitude or exigent This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:05 action. In support of the submission, RBI and banks have relied upon Ajit Kumar Nag v. Indian Oil Corpn. Ltd. [Ajit Kumar Nag v. Indian Oil Corpn. Ltd., (2005) 7 SCC 764 : 2005 SCC (L&S) 1020] , which in turn relied on the Constitution Bench decision of this Court in Union of India v. Tulsiram Patel [Union of India v. Tulsiram Patel, (1985) 3 SCC 398 : 1985 SCC (L&S) 672] . In Tulsiram Patel [Union of India v. Tulsiram Patel, (1985) 3 SCC 398 : 1985 SCC (L&S) 672] , this Court observed that a right to a prior notice and an opportunity to be heard could be excluded if allowing for such a right would obstruct the taking of prompt action : (Tulsiram Patel case [Union of India v. Tulsiram Patel, (1985) 3 SCC 398 : 1985 SCC (L&S) 672] , SCC p. 479, para 101) "101. ... So far as the audi alteram partem rule is concerned, both in England and in India, it is well established that where a right to a prior notice and an opportunity to be heard before an order is passed would obstruct the taking of prompt action, such a right can be excluded. This right can also be excluded where the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provisions warrant its exclusion; nor can the audi alteram partem rule be invoked if importing it would have the effect of paralysing the administrative process or where the need for promptitude or the urgency of taking action so demands, ...""
24. Accordingly, issue notice to the respondents. Notice is accepted by learned counsel for respondent no.1- SBI. Let notice be issued to respondent no. 2- Axis Bank and respondent no.3- Bank of India.
25. Considering the submissions made by learned Senior Counsel for the petitioner, it is directed that the petitioner would approach the respondent- banks within three days from today, clearly specifying the documents which are required by the petitioner. Upon receipt of the list of documents from petitioner, respondent-banks shall supply the requisite documents to the petitioner, which the petitioner is entitled to, in accordance with law, within a period of ten days.
26. Consequently, till the next date of hearing, status quo shall be This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:05 maintained with respect to proceedings that may be pending on the basis of the respective Show Cause Notices issued by the respondent- banks.
27. Re-notify on 23rd February, 2024, on top of board.
MINI PUSHKARNA, J FEBRUARY 6, 2024 au This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 07/02/2024 at 22:29:05