Telangana High Court
Nandi Grain Derivatives Pv T Ltd vs Bank Of Baroda on 24 March, 2026
Author: Nagesh Bheemapaka
Bench: Nagesh Bheemapaka
IN THE HIGH COURT OF JUDICATURE FOR THE STATE OF
TELANGANA
HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA
WRIT PETITION No. 31921 OF 2024
24.03.2026
Between:
Nandi Grain Derivatives Pvt. Ltd.,
Rep. by its Authorised Representative /
Signatory Mr. Vydana Venkata Rao
..... Petitioner
And
Bank of Baroda,
Rep. by its Asst. General Manager,
Zonal Office Stressed Asset Recovery Branch,
Hyderabad.
..... Respondent
O R D E R:
Challenge in this Writ Petition is to the communication dated 14.10.2024 whereby Respondent Bank rejected the request of petitioner and appointed M/s Sagar and Associates, Chartered Accountants, an IBA-empanelled Forensic Auditor, to conduct a fresh forensic audit. It is the case of petitioner that the said action was taken despite the directions of this Court in Writ Petition No. 294 of 2024 and Writ Petition No. 26069 of 2024 directing Bank to consider the re-forensic audit report dated 30.04.2022 prepared by the Bank's recommended audit firm. Petitioner contends that the earlier 2 communication dated 09.10.2023 rejecting the same request had already been set aside by this Court, therefore the impugned communication amounts to repeated rejection and disobedience of the orders passed by this Court. 1.1. Petitioner further states that the action of the Respondent Bank in not considering the request in accordance with the orders of this Court and appointing a new auditor is arbitrary, illegal and a colourable exercise of power, therefore the impugned communication is liable to be set aside. It is stated, the company and its employees are facing serious livelihood difficulties due to the continued classification of the account.
1.2. Petitioner company was stated to have been incorporated in 2010 under the Companies Act, 1956 and is engaged in the manufacture of starch and its by-products used in food, pharma and textile industries. Respondent Bank is a financial institution which granted financial facilities including cash credit to petitioner. For expansion of business, petitioner approached Respondent Bank for credit facilities and the Bank sanctioned Rs.27 Crores vide sanction letter dated 27.11.2012. Due to escalation in raw material costs, lack of increase in product value and adverse market conditions, petitioner 3 company could not generate expected income and failed to meet interest obligations, resulting in the loan account being classified as Non-Performing Asset on 31.03.2015. In 2020, nearly five years after the account became NPA, Respondent Bank ordered a forensic audit and appointed M/s M.K. Agarwal and Company, Chartered Accountants, New Delhi to conduct the audit for the period from 08.11.2012 to 31.03.2015. 1.3. Petitioner states that forensic auditor was appointed on 17.02.2020 and submitted the report on 31.07.2020. Prior to the audit, the Founder Director of petitioner company Sri S.P.Y. Reddy passed away and therefore, the family members were unable to provide the necessary documents to the auditor. According to petitioner, the auditor reported that borrower was not cooperating, factory was closed and in possession of the bank and several vital documents required for the audit were not available. The auditor therefore, concluded that there was no basis to examine the transactions and relied on the information provided by the bank and the MCA portal.
1.4. Based on the forensic audit report dated 31.07.2020, the Respondent Bank informed the Reserve Bank of India, Credit Rating Information Services India Limited (CRISIL), 4 Credit Information Bureau of India Limited (CIBIL) and investigating agencies that petitioner was a defaulter and was treated as a wilful defaulter. Thereafter, representations were made to Respondent Bank explaining that due to the demise of its Chairman Sri S.P.Y. Reddy, the required data could not be provided during the audit. Considering the request, the Bank addressed e mail dated 14.03.2022 to the same auditor M/s M.K. Agarwal and Company seeking re-forensic audit stating that company was now in a position to provide the required data.
1.5. It is stated, upon such request, M/s M.K. Agarwal and Company conducted a re-forensic audit based on the documents provided by petitioner and submitted report dated 30.04.2022 concluding that there was no evidence of fraud or diversion of funds. CRISIL and CIBIL are credit information companies registered under the Credit Information Companies (Regulation) Act, 2005 and under Section 2(d) of the Act "credit information" includes information relating to loans, securities, guarantees and credit worthiness of borrowers. According to petitioner, under the circular guidelines issued by the Reserve Bank of India under the Reserve Bank of India Act, 1934, banks are required to furnish credit information to credit information 5 companies. It is petitioner's case that based on the first forensic audit report dated 31.07.2020, the Bank furnished information to RBI, CRISIL and CIBIL alleging fraud and diversion of funds. However, the re-forensic audit report dated 30.04.2022 recorded that no fraud or diversion of funds was found.
1.6. Petitioner therefore, contends that in view of the re- forensic audit report dated 30.04.2022, the Bank was required to reclassify the status of petitioner's account so that CRISIL and CIBIL could update the credit information. Despite several personal visits and written representation dated 30.06.2022 requesting reclassification based on the re-forensic report, the Respondent Bank did not take action. During the period between the first forensic audit report dated 31.07.2020 and the re-forensic audit report dated 30.04.2022, Respondent Bank accepted the One Time Settlement proposal of petitioner and issued OTS sanction letter dated 20.03.2021. According to petitioner, dues under the OTS were cleared and Respondent Bank issued No Dues Certificate on 30.12.2021. 1.7. Petitioner states that due to non-consideration of the representation dated 30.06.2022, petitioner company filed Writ Petition No. 34012 of 2022. By order dated 14.07.2023, this Court directed Respondent Bank to consider the 6 representation dated 30.06.2022 taking into consideration the re-forensic audit report of M/s M.K. Agarwal and Company and to communicate the decision within three months. Pursuant to the said order, the Bank issued letter dated 09.10.2023 stating that its Special Investigation Team Committee considered the representation but opined that remarks and justifications of the forensic auditor were not satisfactory and therefore, declined to recommend removal of petitioner company's name from the Fraud List of Reserve Bank of India.
1.8. It is also stated, petitioner company is a running company with annual turnover of Rs.116.83 crores for the year 2022-23 and employing more than 150 persons directly and about 200 persons indirectly including vendors and farmers. The company pays taxes including GST and paid GST of Rs.9.17 crores for 2022-23 and incurs monthly electricity expenditure of about Rs.80 lakhs. Aggrieved by the said letter dated 09.10.2023, petitioner filed Writ Petition No. 294 of 2024 to set aside the said proceedings and to direct the Bank to consider re-forensic audit report dated 30.04.2022 and remove petitioner company's name from the RBI Fraud List. By order dated 15.07.2024, this Court set aside the communication dated 09.10.2023 and directed Respondent Bank to consider re- 7 forensic audit report dated 30.04.2022 afresh and pass appropriate orders in accordance with RBI guidelines and law. 1.9. Petitioner is stated to have submitted representations dated 05.08.2024, 12.08.2024 and 19.08.2024 requesting removal of company's name from RBI fraud list but Respondent did not pass any order and orally stated that they were not bound to do so as no time limit was fixed in the High Court order. According to petitioner, due to non-consideration of the request, Writ Petition No.26069 of 2024 was filed before this Court wherein this Court observed that Writ Petition No.294 of 2024 had already been allowed directing reconsideration of the re-forensic audit report dated 30.04.2022 and held that non- consideration of the representations amounts to contemptuous action and violation of Article 14 of the Constitution. The Court directed the Bank to comply with the order dated 15.07.2024 in Writ Petition No.294 of 2024 within two weeks, while granting liberty to petitioner to initiate action under the Contempt of Courts Act, 1971 in case of non-compliance.
1.10. Petitioner further states that despite the said directions, the Bank rejected the request through communication dated 14.10.2024 and appointed M/s Sagar and Associates, Chartered Accountants, an IBA-empanelled forensic 8 auditor, to conduct a fresh forensic audit instead of considering the re-forensic audit report dated 30.04.2022.
2. Respondent - Bank filed counter stating that M/s M.K. Agarwal & Company was appointed on 17.02.2020 to conduct forensic audit and the auditor submitted report dated 31.07.2020 finding diversion of funds and fraud in terms of the Master Circular of RBI. Based on the said report, information was furnished to the Reserve Bank of India and other agencies regarding the defaults committed by petitioner in compliance with RBI regulations. It is stated, on petitioner's representation stating that due to the demise of its Chairman, the relevant material could not be furnished earlier, auditor was requested to conduct the audit again after accepting the material from the petitioner and accordingly the auditor submitted re-forensic audit report dated 30.04.2022 stating that no fraud or diversion of funds was found.
2.1. However, it is stated, the auditor while submitting the re-forensic audit report dated 30.04.2022 did not refer to any material which would negate the specific findings recorded in the earlier report dated 31.07.2020 and mechanically, concluded that there was no fraud or diversion of funds. According to Respondent Bank, clarification was sought from 9 the auditor regarding the change in findings but satisfactory replies were not received and therefore the bank was unable to accept the re-forensic audit report.
2.2. It is further stated that bank is not obligated to act upon an unsatisfactory report and acting upon such a report without justification for the change in findings from the earlier report indicating diversion of funds would amount to illegality. The account stood settled and closed after petitioner paid the dues under the One Time Settlement. Special Investigation Team Committee considered re-forensic audit report but found the justifications and remarks made by the forensic auditor unsatisfactory and therefore, declined to recommend removal of petitioner company from Fraud List of the Reserve Bank of India. It is further stated, the events relating to petitioner's turnover, employment and tax payments are subsequent matters and petitioner is put to strict proof of the same. 2.3. Writ Petition No. 294 of 2024 was disposed of on 15.07.2024 setting aside the letter dated 09.10.2023 and directing reconsideration of the re-forensic audit report dated 30.04.2022. The Respondent denies the allegation that the bank stated that it was not bound to comply with the order dated 15.07.2024. This Respondent also states that Writ Petition No. 10 26069 of 2024 was disposed of without notice to Respondent Bank and based only on the petitioner's averments. It is stated that the same relate to events after the account became NPA and after settlement under OTS and therefore, Respondent Bank is not aware of those matters and the petitioner is put to strict proof of the same.
2.4. The Respondent states that in compliance with the order dated 15.07.2024 in Writ Petition No. 294 of 2024, they reconsidered the re-forensic audit report dated 30.04.2022 and found the conclusions unsatisfactory. Therefore, the bank entrusted the audit to M/s Sagar & Associates, Chartered Accountants, an IBA empanelled forensic auditor, for conducting a fresh forensic audit and communicated the same to petitioner through the impugned letter dated 14.10.2024 along with detailed explanation showing why the re-forensic audit report dated 30.04.2022 was not acceptable. It is stated, petitioner cannot take advantage of an incorrect report and seek benefits through the present Writ Petition. If petitioner has not committed the frauds detailed in the annexure to the impugned letter dated 14.10.2024, there would be no reason to oppose the appointment of another agency for conducting forensic audit. Petitioner is attempting to evade the proposed forensic audit 11 and therefore, the present Writ Petition is an abuse of process of law and is liable to be dismissed.
3. Heard Sri A.P. Reddy, learned counsel for petitioner and Sri Srinivas Chitturu, learned Standing Counsel for respondent bank.
4. The prime grievance of petitioner is against the decision of Respondent Bank to appoint another forensic auditor instead of accepting the re-forensic audit report dated 30.04.2022. It is evident from the pleadings that the first forensic audit report dated 31.07.2020 recorded findings of diversion of funds and fraud in terms of the Master Circular of the Reserve Bank of India. Based on the said report, Respondent Bank informed the Reserve Bank of India and other agencies regarding the defaults committed by petitioner. It is also not disputed that re-forensic audit report dated 30.04.2022 was prepared on the basis of material subsequently furnished by petitioner.
5. However, Respondent Bank has specifically stated that re-forensic audit report dated 30.04.2022 did not explain the reasons for departure from the earlier findings recorded in the report dated 31.07.2020 and the explanations sought from the auditor were not satisfactory. The Bank has also stated that 12 acting upon such a report without justification would be contrary to law and regulatory requirements.
6. It is to be observed, the decision whether to accept or reject a forensic audit report lies primarily within the domain of the financial institution which commissioned the audit. The Court exercising jurisdiction under Article 226 of the Constitution does not sit in appeal over such technical and financial decisions unless the decision is shown to be arbitrary, mala fide or contrary to statutory provisions. In the present case, Respondent Bank has placed on record reasons for not accepting the re-forensic audit report dated 30.04.2022 and for appointing another independent forensic auditor. The impugned communication dated 14.10.2024 also encloses a detailed explanation indicating the reasons why the conclusions of the re-forensic audit report were found to be unsatisfactory. Therefore, the action of Respondent Bank cannot be said to be arbitrary or without application of mind.
7. The contention of petitioner that Respondent Bank has disobeyed the orders passed in Writ Petitions No. 294 of and 26069 of 2024 is also not acceptable. The order dated 15.07.2024 in Writ Petition No. 294 of 2024 directed Respondent Bank to consider the re-forensic audit report dated 13 30.04.2022 and pass appropriate orders in accordance with RBI guidelines and law. The said direction did not mandate the Bank to accept the re-forensic audit report or to remove petitioner's name from the Fraud List of Reserve Bank of India. The Bank has stated that re-forensic audit report was reconsidered but found unsatisfactory, therefore, another forensic audit was ordered. Such action cannot be construed as violation of the directions issued by this Court.
8. The further contention of petitioner that the company is a running concern with turnover of Rs.116.83 crores for the year 2022-23, employing more than 150 persons directly and 200 persons indirectly and paying GST of Rs.9.17 crores cannot, by itself, determine the legality of the impugned action. The issue before this Court is limited to the legality of the decision taken by Respondent Bank in the matter of forensic audit and fraud classification.
9. In matters involving financial irregularities and compliance with regulatory requirements issued by the Reserve Bank of India, the bank is required to exercise due diligence and take appropriate steps to ascertain the correctness of financial transactions. If the bank, after examining the available material, finds that the earlier report raising allegations of diversion of 14 funds requires further verification, it is open to the bank to entrust the matter to another independent forensic auditor.
10. In view of the reasons recorded by Respondent Bank and the absence of any material demonstrating arbitrariness, mala fides or violation of statutory provisions, this Court finds no ground to interfere with the impugned communication dated 14.10.2024. For the aforesaid reasons, the Writ Petition fails and the same is therefore, liable to be dismissed.
11. The Writ Petition is accordingly, dismissed. No costs.
12. Consequently, the miscellaneous Applications, if any shall stand closed.
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NAGESH BHEEMAPAKA, J 24th March 2026 ksld