Delhi High Court - Orders
Rajiv Gupta vs Union Bank Of India Ltd & Ors on 13 May, 2024
$~153
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 6767/2024 & CM APPLs. 28207/2024 & 20208/2024
RAJIV GUPTA ..... Petitioner
Through: Mr. Darpan Wadhwa, Senior
Advocate with Mr. Abhishek Garg,
Mr. Yash, Mr. Ranesh Mankotia, Ms.
Divita Vyas and Ms. Rhea Bhalla,
Advocates.
(M): 9056299999
Email: [email protected]
versus
UNION BANK OF INDIA LTD & ORS. ..... Respondents
Through: Mr. Samarendra Kumar with Mr.
Sandeep Soni, Mr. Vishnu Jayasval,
Ms. Priyanka Singh and Mr. Adarsh
Raj Singh for Respondent No.1 bank.
(M): 9999114922
Email: [email protected]
CORAM:
HON'BLE MS. JUSTICE MINI PUSHKARNA
ORDER
% 13.05.2024 CM APPL. 28208/2024 (for exemption)
1. Exemption allowed, subject to just exceptions.
2. Application is disposed of.
W.P.(C) 6767/2024 & CM APPL. 28207/2024
3. The present petition has been filed challenging the order dated 29 th April, 2024 issued by respondent no. 1.
W.P.(C) 6767/2024 Page 1 of 10This 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 31/05/2024 at 21:25:06
4. By way of the order dated 29th April, 2024, the respondent no. 1 has declared the account of the petitioner, being erstwhile Director/Guarantor of RCI Industries and Technologies Ltd. ("the company"), and the company, as „Fraud‟.
5. Learned Senior Counsel appearing for the petitioner submits that the impugned order dated 29th April, 2024, issued by respondent no. 1, is bad in law, illegal and against the Principles of Natural Justice. It is submitted that the account of the petitioner and the company have been declared as „Fraud‟, in complete defiance of the procedure and Principles of Natural Justice.
6. Learned Senior Counsel further submits that the Audit Report, on the basis of which, the petitioner and the company, have been declared as „Fraud‟, is prejudiced/ biased, wherein the respondent no.3, arbitrarily by travelling beyond the scope of its mandate, and with incomplete information, has classified the loan account of the company as fraudulent . The impugned Audit Report suffers from various irregularities.
7. It is submitted that the impugned Audit Report, on which the order dated 29th April, 2024 is based upon, is bad in law, as the same is non- conclusive, as requisite documents, were unavailable with the respondent no. 3.
8. Learned Senior Counsel appearing for the petitioner has drawn the attention of this Court to the order dated 14th March, 2024 passed in W.P. (C) No. 3796/2024, and has relied upon the following paragraphs:-
"xxx xxx xxx
4. Learned Senior Counsel for petitioner submits that the aforesaid intimation letter dated 05th March, 2024, merely intimates to the petitioner that the company‟s account has been declared as „Fraud‟. He submits that W.P.(C) 6767/2024 Page 2 of 10 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 31/05/2024 at 21:25:06 no detailed reasoning in terms of Para 78 of the judgment of Supreme Court in the case of State Bank of India & Ors. Versus Rajesh Agarwal & Ors., (2023) 6 SCC 1 has been given.
xxx xxx xxx
8. Prima Facie this court is of the view that intimation letter dated 05 March, 2024 is bereft of any reasoning and has been issued mechanically by respondent no.1.
xxx xxx xxx"
9. Learned Senior Counsel has also relied upon the order dated 22nd April, 2024, passed in W.P. (C) No. 5524/2024, and has relied upon the following paragraphs:-
"xxx xxx xxx
11. It is submitted that the Show Cause Notice was issued by the respondent no.1 on 29th January, 2024, to which the petitioner had submitted a detailed reply. It is submitted that the petitioner is aggrieved by the impugned order dated 05th April, 2024, as the same is in the teeth of Principles of res judicata, as a Forensic Audit Report in terms of the Master Directions issued by the Respondent no.2- RBI, for the company, has already been conducted in the year 2020. No action to categorize the loan account of the company as „Fraud‟ was contemplated back then.
12. Learned Senior Counsel further draws the attention of this Court to the order dated 14th March, 2024 passed by this Court in W.P.(C) No. 3796/2024, wherein, with respect to the same company and same Audit Report, but a different consortium bank, this Court has already passed interim orders in favour of the company with respect to the process regarding the declaration of „Fraud‟ of the account of the company. xxx xxx xxx
16. Considering the submissions made before this Court, it is directed that the operation and any consequent proceedings arising from the impugned order dated 05th April, 2024 issued by the respondent no.1, shall be stayed till the next date of hearing.
xxx xxx xxx"
10. Learned Senior Counsel for the petitioner has also drawn the attention of this Court to the order dated 03rd May, 2024, passed in W.P. (C) No. W.P.(C) 6767/2024 Page 3 of 10 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 31/05/2024 at 21:25:07 6230/2024, and has relied upon the following paragraphs:-
"xxx xxx xxx
4. Learned Senior Counsel for petitioner submits that the aforesaid order has been passed by respondent no.1 in complete defiance of the Guidelines issued by Hon‟ble Supreme Court in relation to Master Directions on Fraud issued by respondent no.2/Reserve Bank of India ("RBI"). It is submitted that the impugned letter is bad in law and against the Principles of Natural Justice, as the same declares the petitioner and the account of the company as „Fraud‟, in complete defiance of the procedure and Principles of Natural Justice.
5. It is further submitted that the petitioner is also challenging the Forensic Audit & Transaction Report dated 16th August, 2023, of respondent no.3, which forms the basis of the impugned letter, for being bad in law, without any authority, non-conclusive and travelling beyond its scope.
6. Learned Senior Counsel for the petitioner submits that based upon the aforesaid impugned Audit Report, the respondent no.1 had issued cryptic Show Cause Notice to the petitioner. Even though the petitioner had replied to the said Show Cause Notice, an effective opportunity of personal hearing was never afforded to the petitioner, which is mandatory in terms of the Judgment of the Supreme Court in the case of State Bank of India and Ors. Versus Rajesh Agarwal and Ors., 2023 SCC OnLine SC 342.
7. It is submitted that the respondent no.1 is solely relying upon the impugned Audit Report, on the basis of which the account of the petitioner and the company has been declared as „Fraud‟.
xxx xxx xxx
12. Considering the submissions made before this Court, it is directed that the operation of the impugned order and other proceedings thereto arising from the order dated 25th April, 2024, issued by respondent no.1, shall remain stayed till the next date of hearing. xxx xxx xxx"
11. By relying upon the aforesaid orders, it is submitted that in similar circumstances, when the other banks declared the account of the petitioner and the company as „Fraud‟, this Court has taken into account the various irregularities committed by the respondents, and that interim orders have W.P.(C) 6767/2024 Page 4 of 10 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 31/05/2024 at 21:25:07 been passed in favour of the petitioner.
12. Per contra, learned counsel appearing for the respondents has drawn the attention of this Court to the letter dated 29th April, 2024 issued by the respondent bank, wherein, the decision of the Fraud Monitoring Group has been relied upon. Thus, learned counsel for the respondents has relied upon the following paragraphs from the letter dated 29th April, 2024, which read as under:-
"xxx xxx xxx Decision of the Fraud Monitoring Group (FMG) FMG examined the irregularities in the accounts of the customer within the ambit of the RBI Master Directions on Fraud 2016 and rules laid down by the Hon'ble Supreme Court of India in Rajesh Agrawal case on 27-03-2023. While declaring the accounts as fraud, principles of natural justice has been followed.
Bank gave an opportunity to customer to represent against the irregularities in the accounts vide its letter dated 18/12/2023 & 26/12/2023. Customer replied to the notices of the bank vide letter dated 28/12/2023 received with us on 08.01.2024.
xxx xxx xxx"
13. By reference to the aforesaid, learned counsel appearing for the respondent-bank submits that due opportunity was granted to the petitioner, and the petitioner has already replied to the notices, which were issued by the bank.
14. Learned counsel for the respondents has also drawn the attention of this Court to reply of the petitioner by E-mail dated 06th January, 2024, filed by the petitioner. He submits and draws the attention of this Court to the following paragraphs:-
"xxx xxx xxx CONCLUSION W.P.(C) 6767/2024 Page 5 of 10 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 31/05/2024 at 21:25:07
102. In light of the submissions made by me, it is clear that the Report is nothing but a biased Report which has been prepared with the sole intention to, incorrectly and without any basis, hold the Corporate Debtor guilty. A bare perusal of the Report makes it clear that it has been prepared with a premediated and arbitrary mind, and is not a Report which can be relied upon for any purpose at all.
103. In this light, I request you to disregard the Report in its entirety for any and all purposes.
xxx xxx xxx"
15. Learned counsel for the respondent-bank, submits that all the contentions, as raised by the petitioner, have been taken into account. The only intention of the bank is to investigate the matter through some independent agency. He submits that the petitioner is guilty of fraudulent transactions to the tune of approximately ₹ 284 crores, wherein the public funds have been diverted. He further submits that the petitioner, as on date, is liable for payment of approximate amount of ₹ 200 crores.
16. Responding to the aforesaid submissions made by learned counsel for the respondent, learned Senior Counsel for the petitioner, refers to the impugned order dated 29th April, 2024 and submits that the said order is only a conclusion by the bank and contains no reasoning. He draws the attention of this Court to the following paragraphs from the impugned order dated 29th April, 2024:-
"xxx xxx xxx In absence of any satisfactory clarification from the Corporate Debtor, we are of the opinion that such writing off is done intentionally to avoid realization or recovery of funds. Therefore, the intentional writing off of the receivable balances infers the malafied intention of the corporate debtor and can construe to be fraud. The auditor has concluded as: We have provided conclusion in every point mentioned above on the basis of data made available to us. As per point wise observations mentioned in previous points, the account shall be classified as Fraud as an overall conclusion to findings of the report.W.P.(C) 6767/2024 Page 6 of 10
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 31/05/2024 at 21:25:07 xxx xxx xxx"
17. Learned counsel for the petitioner has also relied upon the judgment in the case of Ratul Puri Vs Punjab National Bank, reported as 2024 SCC OnLine Del 1412 and has relied upon the following paragraphs:
"xxx xxx xxx
109. From a reading of the orders passed by the Identification Committee and the Review Committee, it is evident that the Respondent Bank attributed acts of Wilful Default to the Petitioner only on the basis of the Forensic Audit Report. The question which arises at this juncture is whether the observations made in the Forensic Audit Report can be the sole basis for the Respondent Bank to conclude an event of Wilful Default.
110. The nature of the Forensic Audit Report in respect of a company is discussed by the Calcutta High Court in Prashant Bothra & Anr. v. Bureau of Immigration & Ors. MANU/WB/1907/2023 It was held that a Forensic Audit Report, at best, is a piece of evidence in liquidation proceedings, and is in no manner a conclusive proof of any illegality committed under a law. The Forensic Audit Report is merely an opinion of the author, which is based on several disclaimers and it cannot be a conclusive proof of its observations. The relevant observations are reproduced as under:-
"21. The very premise of the request was a forensic audit report allegedly authored by a particular concern. The said report, at best, is a piece of evidence in the liquidation proceeding and is in no manner conclusive proof of evidence of any illegality committed by any entity. In fact, it is common experience that each and every such forensic audit report contains several disclaimers, restricting the operation of the same to the proceeding in which they are filed, as well as confined to the impression of the authors thereof on the basis of the documents which are available to them.
22. Under no stretch of imagination can such a report be conclusive proof of the allegations against the petitioners."
111. This Court is inclined to agree with the aforesaid proposition of law. Even under the Indian Evidence Act, 1872, the opinion of an expert witness under Section 45 is not a conclusive proof. It is subject to cross- examination and the opinion and conclusions of an Expert are subject to W.P.(C) 6767/2024 Page 7 of 10 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 31/05/2024 at 21:25:07 challenge. In the present scheme of things, the Master Circular casts a specific obligation on the Respondent Bank to act independently and objectively under Clause 2.1.3 read with Clause 2.5 as discussed above. It would, therefore, be unsafe if lender banks start to declare borrowers as Wilful Defaulter merely on the basis of observations made in the Forensic Audit Report without there being an independent application of mind. The lender banks must follow the mandate of Clause 2.1.3 read with Clause 2.5 of the Master Circular and independently find acts of Wilful Default which are "intentional, deliberate and calculated" and the said conclusion should be based on "objective facts and circumstances of the case". Any other view would lead to consequences where mere cases of default would be categorised as acts of Wilful Default under the Master Circular. The Master Circular is not to be invoked in every case of default but only when the default is Wilful Default as construed under the scheme of the Master Circular.
xxx xxx xxx"
18. Learned counsel has also relied upon the judgment in the case of Mekaster Trading Corporation Versus Union of India and Others, reported as 2003 SCC OnLine Del 794, and has relied upon the following paragraphs:-
"xxx xxx xxx
28. xxx xxx xxx Perusal of the impugned order shows that after making recital of the events which transpired after the show cause notice, i.e. filing of replies by the petitioner, giving of hearings to both parties who explained their respective cases, the penultimate para records that case has been examined and heard and the sum and substance of the allegation made against the petitioner was that petitioner could not fulfill its contractual obligation as Indian agent and replies submitted by the petitioner as well as oral representation made by them during hearing of the case have not been found convincing. All the arguments of the petitioners are brushed aside by the following utterances "the reply submitted by them vide their letters dated 18.8.2001 and 6.2.2002 and oral representation by them during hearing of the case on 4.3.2002 have not been found convincing. The available evidence does not reveal that the firm has fulfillled its contractual obligations."
xxx xxx xxx
30. It is abundantly clear that the aforesaid summation cannot be W.P.(C) 6767/2024 Page 8 of 10 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 31/05/2024 at 21:25:07 called as "reasons" in support of the order. It can, at best, be termed as conclusion. Apart from this conclusion there is nothing in the order to indicate any supportive reason. Thus, there is no indication in the order as to what are the elements which persuaded the competent authority to reject the contentions of the petitioner. The requirement that the reasons must meet the substance of the principle argument that the competent authority was required to consider is clearly lacking. No link between the material on which conclusions are based and the actual conclusion drawn is based, is found. If that has remained at the back of the mind of the authority passing the order, and has not surfaced on the records of the case, the ingredients of a reasoned order are not met. Reading of such an order would naturally not satisfy the aggrieved party's desire to know as to why decision was reached and what was the justification in rejecting his point of view. It would harbour the feeling that the authority proceeded with the matter with closed mind, whatever is stated in the show cause notice is final and giving of opportunity to show cause was empty formality as the defense was rejected summarily by labelling the same as 'not convincing'. It has to be emphasised that reasons for a decision are distinct from the conclusions recorded in the order. Apart from repeating that the petitioner had not fulfillled its contractual obligation as Indian Agent which was stated in the show cause notice (may be in detail), what was required was to at least indicate in a concise manner as to why the defense of the petitioner was unconvincing.
xxx xxx xxx"
19. By referring to the aforesaid judgments, it is submitted that when all the defence raised by the petitioner has been rejected summarily by the respondent, the said decision by the respondent, can at best be in the nature of the conclusions recorded, and which are bereft of any reasons.
20. I have heard learned counsel for the parties and the matter requires consideration.
21. Accordingly, issue notice to the respondents.
22. Notice is accepted by learned counsel appearing for respondent no. 1.
23. Let notice be issued to respondent nos. 2 and 3.
24. Considering the submissions made before this Court, it is directed that the operation of the impugned order dated 29 th April, 2024, issued by W.P.(C) 6767/2024 Page 9 of 10 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 31/05/2024 at 21:25:07 respondent no. 1, shall remain stayed, till the next date of hearing.
25. List on 16th July, 2024 along with W.P.(C) No. 3796/2024, W.P.(C) No. 5524/2024 and W.P.(C) No. 6230/2024.
MINI PUSHKARNA, J MAY 13, 2024 c W.P.(C) 6767/2024 Page 10 of 10 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 31/05/2024 at 21:25:07