Delhi High Court - Orders
Shantanu Prakash vs State Bank Of India & Ors on 6 February, 2024
$~84
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 1730/2024 & CM APPL. 7177/2024, CM APPL. 7178/2024
SHANTANU PRAKASH ..... Petitioner
Through: Mr. Amit Sibal, Ms. Neeha Nagpal,
Mr. Malak Bhatt, Mr. Vishvendra
Tomar and Ms. Aditi Shrivastava,
Advocates. Mob: 9810030834
versus
STATE BANK OF INDIA & ORS. ..... Respondents
Through: Mr. Sanjay Kapur, Advocate with Mr.
Surya Prakash and Mr. Devesh
Dubey, Advocates for respondent no.
1-SBI
Mob: 9871789655
Email: [email protected]
Mr. Santosh Kumar Rout, Advocate
for CBI.
Mr. Kartik Bhalla, Advocate for
ICICI Bank.
CORAM:
HON'BLE MS. JUSTICE MINI PUSHKARNA
ORDER
% 06.02.2024 CM APPL. 7178/2024 (for Exemption)
1. Exemption allowed, subject to just exceptions.
2. Application is disposed of.
W.P.(C) 1730/2024 & CM APPL. 7177/2024
3. At the outset, this Court notes that in the memo of parties, the respondents have been numbered incorrectly. Accordingly, the petitioner is directed to file a fresh amended memo of parties within a period of two This is a digitally signed order.
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4. The present petition has been filed seeking quashing and setting aside of the proceedings undertaken by the respondent for declaring the account of M/s Educomp Solution Limited ("ESL") as fraud including quashing of the show cause notices dated 13th November, 2023 issued by respondent no. 1- State Bank of India ("SBI"), 13th October, 2023 issued by respondent no. 2- Canara Bank, 28th December, 2023 issued by respondent no. 3-Central Bank of India and 2nd September, 2023 issued by respondent no. 4-ICICI Bank.
5. Learned senior counsel appearing for the petitioner submits that ESL was admitted into Corporate Insolvency Resolution Process ("CIRP") under the provisions of the Insolvency and Bankruptcy Code, 2016 ("IBC") vide order dated 30th May, 2017 passed by the National Company Law Tribunal ("NCLT"). It is submitted that the CIRP, Committee of Creditors ("COC") included the respondent. Further, a Resolution Plan has been submitted and has also been approved by the NCLT vide its judgment dated 09th October, 2023.
6. It is further submitted by learned senior counsel for the petitioner that the impugned Show Cause Notices issued by the respondent banks are arbitrary and without any justification. It is the case of the petitioner that SBI and other lenders of the ESL have already waived of all the defaults and irregularities of ESL, if any, as on the date of execution of Master Restructuring Agreement ("MRA") dated 25th March, 2014. Learned senior counsel for the petitioner submits that neither complete documents have been provided to the petitioner, nor any personal hearing has been granted by the respondent banks pursuant to issuance of the aforesaid Show Cause Notices.
This is a digitally signed order.
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7. Attention of this Court has been drawn to the reply dated 7 th December, 2023 written by the petitioner to SBI, wherein there is a specific request by the petitioner for supplying the requisite documents. The relevant Paragraphs of the letter dated 7th December, 2023 written by the petitioner to SBI reads as under:
"xxx xxx xxx b. It is pertinent to note that vide my letter dated 28.09.2023. I have requested the banks to provide me the required documents which are essential and relevant for me to effectively respond to the any allegation of or pertaining to fraud.
c. I find it relevant to state even though it is a well known/reported fact that ESL was admitted into CIRP on 30.05.2017 in terms of the Insolvency & Bankruptcy Code, 2016 [„IBC‟] and as such I have since then not been associated with the affairs of ESL and/or have access to its records. Further, the queries raised by you in the SCN pertains to transactions for the year[s] Financial Years 2011 to 2017 which I have no access. Hence, for this reason as well, in the interest of justice, I request you to provide me with the material relied upon by you for making the allegations in the SCN.
d. The said documents are essential and relevant for me to effectively respond to the SCN. It is a well-established legal position 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. E. At the very outset ant the cost of repetition, I would like to state that the SCN issued by State Bank of India containing reasons for classifying account as suspected fraud account perhaps are based on observations in the Forensic Audit Report of Grant Thorton [„GT Report‟] dated 07.11.2016 and Transaction Audit report of BDO dated February, 2018 [„BDO Report‟].
F. It is submitted that after a detailed examination of the transaction audit report the Resolution professional, Mr. Mahender Khandelwal, has on affidavit dated 08.10.2018 stated to the Hon‟ble National Company Law Tribunal, Delhi that there is No transaction of fraudulent nature or preferential nature in the Company. Hence, no application under Section 45 and/or 66 of the IBC was filed in relation to ESL by the RP. ESL‟s Resolution Professional‟s Affidavit dated 08.10.2018 filed before the Hon‟ble NCLT is enclosed herewith as Annexure-1.
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 22:29:48 ............
K. Without prejudice to the aforesaid, I am Submitting my pointwise reply of reasons for classifying the account as suspected fraud account of the SCN are based on the documents/information available with us are as given below. However, I reserve my right to provide a more detailed and exhaustive response to the allegations contained in the SCN once the documents relied upon for issuing the same are provided to me. I also request you not to take any final decision declaration of ESL‟s account as fraud, which needless to say, will impact my fundamental rights, without providing the underlying documents to me. ...............
V. We are happy to cooperate with the Bank in case it requires any other clarification from myself. I wish to avail the option of a personal hearing also in the mater and hope to explain the facts before any further action is taken. However, before a personal hearing is convened, I would like Bank to furnish me a copy of the documents sought through this letter and request the bank not to take any unilateral decision on the matter in violation of the principles of 'Audi Alteram Partem' in compliance of the judgment of Hon'ble Supreme Court dated 27.03.2023.
xxx xxx xxx"
8. Attention of this Court has also been drawn to the letter dated 27 th November, 2023 written by the petitioner to Canara Bank, wherein again a similar prayer has been made to the bank for providing requisite documents. Relevant Paragraphs of the letter dated 27th November, 2023 written by the petitioner to Canara Bank reads as under:
"xxx xxx xxx
4. In the SCN, there is a list of certain allegations. I am being called upon to respond to the allegation contained therein but the underlying documents/material on the basis of which such allegations are being leveled has not been provided to me.
5. We have not been provided with the relevant documents pertaining to allegations on the basis of which bank have asked me to make submission. The said documents are essential and relevant for me to effectively respond to the SCN. It is a well-established legal position 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.
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 22:29:48 .................
28. We are happy to cooperate with the Bank in case it requires any other clarification from myself. I wish to avail the option of a personal hearing also in the matter and hope to explain the facts before any further action is taken. However, before a personal hearing is convened I would like Bank to furnish me a copy of the documents sought in the aforesaid paragraphs.
xxx xxx xxx"
9. Learned senior counsel further draws the attention of this Court to the letter dated 13th January, 2024 written by the petitioner to the Central Bank of India, relevant Paragraphs of which reads as under:
"xxx xxx xxx
3. In the SCN, NO allegations/Instances of fraud have been provided and only reference to forensic audit report of Grant Thorton India LLP ("GT") dated 07.11.2016 was made by the bank and it was alleged in SCN that "the said forensic audit report points out grave anomalies in the conduct of account, which indicate towards perpetration of fraud, under the provisions of the Indian Penal Code". The bank has not provided the forensic audit report dated 07.11.2016 submitted by GT and other relied upon documents along with the SCN on the basis of which bank has issued said SCN. I am being called upon to respond to the allegation contained therein but the underlying documents/material on the basis of which such allegations are being leveled has not been provided to me. Further it is a matter of record that in none of the joint lender meetings subsequent to the submission of forensic audit report has Central Bank of India mentioned about any grave anomalies or indication of fraud, rather the fact is that the said forensic report was adopted by the JLM without any finding of fraud. Having accepted the report without any observation of fraud by the central bank of India, it is now estopped from raising issues of fraud at a subsequent date, specially when the report has no observations of fraud.
.............
21. Without prejudice to all the legal rights reserved by us, I am happy to cooperate with the Bank in case it requires any other clarification from myself. I wish to avail the option of a personal hearing also in the matter and hope to explain the facts before any further action is taken. However, before a personal hearing is convened, I would like Bank to furnish me a copy of the documents sought through this letter. xxx xxx xxx"
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 22:29:48
10. Learned senior counsel appearing for the petitioner also relies upon the letter dated 21st September, 2023 written by the petitioner to ICICI Bank Limited, wherein it has stated as follows:
"xxx xxx xxx
3. Along with the SCN is enclosed an Annexure A, which contains a list of allegations. I am being called upon to respond to the allegation contained therein but the underlying documents/material on the basis of which such allegations are being leveled has not been provided to me. ..........
6. In light of the foregoing, I am writing this letter to you seeking an extension of 21 (twenty one) days, AFTER receipt of the documents from you, for submission of my response to the said SCN. xxx xxx xxx"
11. Learned senior counsel for the petitioner submits that despite the aforesaid letters written by the petitioner, no response has been received from the respondent-banks. Further, no documents have been provided to the petitioner.
12. He further submits that the earlier declaration of „fraud‟ of the ESL‟s accounts had been set aside by this Court in W.P.(C) 2424/2020 vide order dated 12th May, 2023. He submits that the aforesaid order was passed in favour of the petitioner, with clear directions to the respondent banks to provide the requisite documents to the petitioner in terms of the judgment of the Supreme Court in the Case of State Bank of India And Others Versus Rajesh Agarwal And Others, 2023 SCC OnLine SC 342.
13. Learned senior counsel for the petitioner further submits that after a detailed transaction audit report, the Resolution Professional, has on affidavit dated 8th October, 2018 submitted before the NCLT that there is no transaction of fraudulent nature and preferential nature in the company.
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 22:29:48 Thus, he submits that there is a categorical report submitted to the NCLT itself showing that no transaction in the nature of fraudulent character has been made by the petitioner company.
14. Attention of this Court is also drawn to the affidavit submitted by the Resolution Professional before the NCLT, wherein it has been stated as under:
"xxx xxx xxx
3. I state that initially, the accounts for the financial year 2016-17 had not been audited. Subsequently, the audit was carried out and thereafter in order to ascertain if there were any transactions falling within the ambit of Sections 43, 45, 50 and 66 of the Code, I had referred the matter to BDO India LLP and requested them to assist in indentifying any transactions which fell within the ambit of the above noted sections. The BDO India LLP‟s report circulated and discussed with the Committee of Creditors. The BDO India LLP‟s report issued in February 2018 is already on record at page 84-144 of Compilation II (Diary No. 2863) in CP (IB) 101/PB/2017. On the examination of the material and the report from BDO India LLP I was of the opinion that there was no transaction which fell within the ambit of Section 43, 45, 50 or 66 of the Code and consequently, did not move this Hon‟ble Adjudicating Authority.
4. I hereby confirm that, basis the books of accounts and other relevant material with me during the corporate insolvency resolution process of the Corporate Debtor, no transactions were observed, found or determined by me, which, in my opinion, are required to be avoided in terms of the provisions of Sections 43, 45, 50 and 66 of the Code.
xxx xxx xxx"
15. Learned senior counsel for the petitioner has also relied upon Section 45 and Section 66 of the IBC to bring home the point that there is a categorical report submitted by the Resolution Professional before the NCLT, which stands accepted by the respondent-banks, that there have been no fraudulent transactions in the account of ESL.
16. Learned senior counsel appearing for the petitioner further relies upon Clause 2.2 of the terms of the Restructured Loans and submits that once the 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 22:29:49 defaults have been waived by the banks, there is no question of proceeding against the petitioner with respect to any default.
17. He also refers to Clause 8.9.4 of the Master Circular to submit that a unified Show Cause Notice ought to have been issued by the respondent- banks, as the declaration of „fraud‟ has to be done by the majority of the consortium lenders. He, therefore, submits that individual Show Cause Notices ought not to have been issued to the petitioner.
18. Per contra, learned counsel appearing for respondent no. 1-SBI submits that the letter written by the petitioner to the SBI is prior to the issuance of Show Cause Notice issued by the SBI. He further submits that no particular documents have been specified by the petitioner, which are required by the petitioner. Learned counsel for the respondent further submits that the Forensic Audit Report has already been provided to the petitioner, which has also been attached along with the present writ petition.
19. Learned counsel appearing for respondent-SBI further submits that a collective decision is to be taken by the consortium of banks only at the time of declaration of an account as „fraud‟. However, at the time of issuance of Show Cause Notices, individual Show Cause Notices are issued by the respective banks.
20. He further submits that the present writ petition in the present form is not maintainable as Show Cause Notices of different banks have been clubbed together.
21. Responding to the submissions made on behalf of respondent-SBI, learned senior counsel for the petitioner submits that though the Forensic Audit Report has been provided, however, the relevant underlying documents have not been provided to 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 22:29:49
22. He further submits that in terms of the various judgments passed by the Supreme Court, Show Cause Notice has to be accompanied by the requisite documents, in the absence of which, the petitioner would not be able to submit an effective reply. He further submits that an opportunity of hearing has also not been granted to the petitioner.
23. 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 given by him.
24. 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 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 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 22:29:49 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, ...""
25. Accordingly, issue notice to the respondents. Notice is accepted by learned counsel appearing for respondent no. 1-State Bank of India, respondent no. 3-Central Bank of India and respondent no 4-ICICI Bank. Let notice be issued to the respondent no. 2- Canara Bank.
26. 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 the petitioner, the 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.
27. Consequently, till the next date of hearing, status quo shall be maintained with respect to proceedings that may be pending on the basis of the respective Show Cause Notices issued by the respondent- banks.
28. Re-notify on 23rd February, 2024, on top of board.
MINI PUSHKARNA, J FEBRUARY 6, 2024 ak 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 22:29:49