Bombay High Court
National Bulk Handling Corporation Pvt ... vs Idbi Bank Limited on 3 July, 2023
Author: Neela Gokhale
Bench: G.S. Patel, Neela Gokhale
19-OSWP-1394-2023.DOC
Arun
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 1394 OF 2023
National Bulk Handling Corporation Pvt Ltd ...Petitioner
Versus
IDBI Bank Limited ...Respondent
Mr Venkatesh Dhond, Senior Advocate, with Karishma Rao, Sahil
S & Nidhi Chaudhary, i/b Pioneer Legal, for the Petitioner.
Mr Nishit Dhruva, with Niyati Merchant, Yash Dhruva & Harsh
Sheth, i/b MDP & Partners, for Respondent No.1.
CORAM G.S. Patel &
Neela Gokhale, JJ.
DATED: 3rd July 2023
PC:-
1. Heard for ad-interim relief. The principal contestant is the 1st Respondent, IDBI Bank Limited ("IDBI"). The challenge is to the inclusion of the 1st Petitioner's name along with the names of ARUN RAMCHANDRA some of its directors (Petitioners Nos. 2 and 3) on what is called a SANKPAL "fraud caution list" issued by the 1st Respondent. A copy of that list Digitally signed by ARUN RAMCHANDRA SANKPAL is at Exhibit "FF" at pages 397 and 398.
Date: 2023.07.04 09:48:53 +05302. At this stage, we are not required to examine the merits of the Petition at great length because the 1st Respondent seeks time to file Page 1 of 8 3rd July 2023 ::: Uploaded on - 04/07/2023 ::: Downloaded on - 04/07/2023 20:40:42 ::: 19-OSWP-1394-2023.DOC an Affidavit in Reply. Just a few points on facts as and by way of background will suffice.
3. The Petitioner is an approved warehouse service provider inter alia for agricultural commodities. It has several warehouses across the country but we are concerned in this Petition with the Mohamed Siddiqui Godown Nos. 1 and 2 and the Anandham Modern Rice Mill Godown in Dindigul, Tamil Nadu, and the Sree Sreevasa Godown and the Sree Sainath Warehouse in Proddatur, Andhra Pradesh. respectively, the Dindigul and the Proddatur warehouses.
4. Generally stated, the 1st Petitioner warehouses goods, frequently agricultural commodities, of third parties. These goods are typically hypothecated or secured to one or more lender banks. It is the responsibility of the Petitioner to ensure that the goods are kept safely and securely and not released without the lender bank's consent.
5. IDBI and the Petitioner initially had a Memorandum of Understanding ("MoU") dated 29th May 2007. This was followed on 8th November 2008 with a Master Service Agreement and another Master Agreement for Services on 21st December 2015.
6. We will come to the details at a later stage after we have considered the Affidavit in Reply that is to be filed, but it seems that between January 2016 and January 2017, some borrowers from IDBI who had secured their borrowing with a pledge of commodities, Page 2 of 8 3rd July 2023 ::: Uploaded on - 04/07/2023 ::: Downloaded on - 04/07/2023 20:40:42 ::: 19-OSWP-1394-2023.DOC somehow, possibly with the illicit assistance of an employee of the 1st Petitioner, removed goods from the Dindigul warehouses. These borrowers were in default to IDBI. It was the 1st Petitioner that approached the police and filed an FIR and then took further proceedings after that. There was in fact a Criminal Petition filed before the High Court in Madras and there are CBI proceedings mentioned in the Petition as well.
7. For the Proddatur warehouses, the relevant facts are set out from paragraph 11. The Petitioner was appointed by IDBI as the collateral manager for managing goods in these warehouses.
8. In September 2019, the Petitioner wrote to IDBI saying that the validity of storage receipts issued by the Petitioner for commodities pledged to IDBI and stored at the Proddatur warehouses had expired. The goods were perishable. The Petitioner mentioned the quality expiry for each commodity in its quality test report. The Petitioner said that it would not be able to revalidate, protect or manage these commodities beyond that final expiry date or "FED". These goods continued to lie in the Proddatur warehouses despite the approaching expiry date and therefore the Petitioner asked IDBI to recall the loan advances before the goods deteriorated further in value. It also clarified that as a collateral manager, it could not be held responsible for any deterioration in the quality of stock of these commodities. It therefore asked to be released in respect of the goods in these warehouses. There was no response and in January 2020 the Petitioner wrote to IDBI saying that all these goods had passed their final expiry dates. The Page 3 of 8 3rd July 2023 ::: Uploaded on - 04/07/2023 ::: Downloaded on - 04/07/2023 20:40:42 ::: 19-OSWP-1394-2023.DOC Petitioner sought release orders. It was only then that the Petitioner was informed by IDBI that the borrowers had defaulted on repayment of loans and therefore the pledged goods in the Proddatur warehouses had to be sold for recovery. There was some local resistance, and the pledged stock could not be sold, and so IDBI asked the Petitioner to revalidate the certificates for those goods. The 1st Petitioner said that it could not do so since these goods had passed their FEDs. It reiterated its request for release orders.
9. There was a dispute then about the Petitioners' invoices raised on IDBI for services rendered. These apparently remained unresolved. The matter being without resolution, the Petitioners informed IDBI by about August 2020 that they could no longer provide collateral management services. It was only then, in September 2020, that IDBI wrote to the Petitioner alleging discrepancies in stock allegedly found during a joint inspection held on 31st August 2020.
10. The Petitioner replied to these and denied that there was any discrepancy.
11. About one and a half years later, IDBI wrote to the 1 st Petitioner on 29th March 2022 now alleging negligence on the part of the 1st Petitioner in unilaterally exiting the Proddatur warehouses, as a result of which the goods were allegedly stolen by the owners of the goods allegedly in collusion with borrowers.
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12. Further correspondence then followed. This takes us to the show cause notice of 12th September 2022, a copy of which is at Exhibit "DD" at pages 391 to 393.
13. The show cause notice inter alia alleged that there was a shortfall reported in the commodities pledged at the Dindigul and Proddatur branches. These pledged goods were allegedly stolen and therefore the allegation was that the 1st Petitioner had failed to discharge its obligation and colluded with the godown owners' beneficiaries in an unlawful release of stock. IDBI's local branches had invoked indemnities and demanded recovery of losses incurred due to "deficiencies in collateral management services" provided by the Petitioner. Then there was an advisory that there were long pending claim issues. These were said to be in breach of the agreement for collateral management services. The 1st Petitioner was asked to provide an explanation. Finally, the 1st Petitioner was asked to show cause within 10 days why:
"no further action including informing company's and director's name the Indian Bank Association, other statutory and legal authorities as a Third Party Errant Entity for deficiency in providing CM services etc should not be initiated".
14. It seems that the 1st Petitioner then found out from another banker that the Petitioners' name was included in the Indian Bank Association caution list mentioned above. The narrative against this entry for the Petitioner that gives the reason for inclusion in the caution list is:
"criminal breach of trust and agreement as NBHC failed to Page 5 of 8 3rd July 2023 ::: Uploaded on - 04/07/2023 ::: Downloaded on - 04/07/2023 20:40:42 ::: 19-OSWP-1394-2023.DOC manage the stocks to protect the interest of the banks".
15. Prima facie, we do not see how the name of the Petitioners could have been included in an IBA caution list without minimally affording the Petitioners a hearing and a specific notice that there was a likelihood of inclusion on the IBA fraud or caution list. Merely asking the Petitioners to show cause why their names should not be "informed" to the IBA is insufficient. We are not persuaded at this prima facie stage to accept the proposition that a show cause notice regarding the Petitioners being a "Third Party Errant Entity" or being allegedly "deficient in providing CM services" could automatically, inevitably or necessarily result in the inclusion on an IBA caution list in relation to some alleged fraud. "Criminal breach of trust" in the caution list is merely an allegation. There is no mention of any criminal proceeding resulting in an adjudication; and, in any case, this does not automatically mean 'fraud'.
16. There is a preliminary objection taken as to maintainability of the Petition on the basis that the 1st Respondent is a private bank. Indeed it is, and its history in that regard is well settled in Mrinmayee Rohit Umrotkar v Union of India & Ors.1 Reliance is also placed on the decision of a Division Bench of this Court in All India IDBI Officers Association v Union of India & Ors.2 We will consider those submissions at an appropriate stage. However, prima facie, the All India IDBI Officers Association case deals not with a Master Circular in the public domain but with an internal circular relating to pension of IDBI staff and dues. That therefore stands on a distinct footing.
1 2020 SCC OnLine Bom 3664 : 2021 (4) Mh LJ 376..
2 2022 SCC OnLine Bom 2693 : (2023) 1 Bom CR 644.
Page 6 of 83rd July 2023 ::: Uploaded on - 04/07/2023 ::: Downloaded on - 04/07/2023 20:40:42 ::: 19-OSWP-1394-2023.DOC As regards the Mrinmayee Rohit Umrotkar case, the Division Bench was examining whether an exception carved out in a medical entrance information brochure for the NEET 2022 could be granted to an individual petitioner. She desired to become a doctor and had participated in the NEET 2020. A question arose about her domicile. IDBI was not directly concerned with the NEET 2020. The petitioner's father in that case was an employee of IDBI and was posted in Telangana at the relevant point of time. He was later transferred and posted in Maharashtra with effect from 19th November 2020. The question arose because the issue was whether the petitioner or her father could be considered to be an employee of the Government or an employee of an instrumentality of the State. Even that case prima facie appears to be distinguishable from what is being considered here. In the present case, the action taken, and further action contemplated by IDBI is not internal, but is in the public domain via a controlling Master Circular and going to the IBA, an association of all banks. The consequences of inclusion on a fraud caution list, or of that matter any caution list, involving the banking industry is well-known. Some of these consequences have been enunciated by the Supreme Court itself in both State Bank of India v Jah Developers Private Limited & Ors 3 and State Bank of India & Ors v Rajesh Agarwal & Ors.4
17. It is for these brief reasons that we believe that a time-limited ad-interim order is required in terms of prayer clause (C)(i) of the Petition which reads thus:
"C. That pending the hearing and final disposal of this 3 (2019) 6 SCC 787.
4 2023 SCC OnLine SC 342.Page 7 of 8
3rd July 2023 ::: Uploaded on - 04/07/2023 ::: Downloaded on - 04/07/2023 20:40:42 ::: 19-OSWP-1394-2023.DOC Petition this Hon'ble Court be pleased to pass appropriate order(s) and/or direction(s) that:(i) The Respondent's order/direction for including the name of the Petitioner in the Caution List be stayed and/or suspended."
18. This order will continue only until the next date. Further, the Petitioners will not claim any equities on the basis of this order. The caution list so far as regards the Petitioners will be subject to further orders in the Petition.
19. At present all contentions are left open including the question of maintainability.
20. This order will not adversely affect any other recovery proceedings that IDBI may have initiated in accordance with law against the Petitioners.
21. The Affidavit in Reply is to be filed and served on or before 17th July 2023. A Rejoinder is to be filed and served on or before 23rd July 2023.
22. List the matter on 31st July 2023.
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