Delhi High Court - Orders
Incom Cables Pvt. Ltd & Ors vs Reserve Bank Of India & Anr on 25 May, 2022
Author: Sanjeev Narula
Bench: Sanjeev Narula
$~22
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P. (C) 5380/2022
INCOM CABLES PVT. LTD & ORS. ..... Petitioners
Through: Mr. Manik Dogra, Ms. Priyadarshini
Dewan, Mr. Shankari Mishra and Mr.
Dhruv Pande, Advocates.
versus
RESERVE BANK OF INDIA & ANR. ..... Respondents
Through: Mr. Ramesh Babu, Ms. Manisha
Singh, Ms. Sanya Panjwani and Ms.
Jagriti Bharti, Advocates for R-1.
Mr. Som Raj Choudhary and Ms.
Shrutee Aradhana, Advocates for R-2.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
ORDER
% 25.05.2022
1. The Petitioner impugns a circular dated 01st July, 2016, bearing number RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.NO.l/23.04.001/2016-17 updated on 30th July, 2017 [hereinafter, "RBI Circular/ Impugned Circular"] issued by Respondent No. 1 [Reserve Bank of India] which pertains to declaration of fraud accounts - as well as consequential action of Respondents No. 2 [Canara Bank] declaring the account of Petitioner No. 1 [Incom Cables Pvt. Ltd.], of which the other Petitioners are the co- borrowers/mortgagors/guarantors, as a 'fraud' account.
2. During the hearing on 01st April 2022, counsel for Respondent No. 2/Bank sought time to obtain instructions. Today, he states that he has instructions to contest the petition and does not dispute that the Petitioner- Company has been declared to be a 'fraud' account by Respondent No. 2.
Signature Not Verified Digitally Signed W.P.(C) 5380/2022 Page 1 of 4 By:SAPNA SETHI Signing Date:30.05.2022 19:52:443. Issue notice. Mr. Ramesh Babu, Advocate, accepts notice on behalf of Respondent No. 1. Mr. Som Raj Choudhary, Advocate, accepts notice on behalf of Respondent No. 2. Counter affidavit, if any, be filed within a period of three weeks from today, and rejoinder thereto within 2 weeks thereafter.
CM APPL. 16088/2022 (for Stay)
4. Mr. Manik Dogra, counsel for the Petitioners, argues that the entire proceedings of declaring the Petitioner No. 1/Company's account as 'fraud', in terms of Master Circulars, has been done without adhering to the principles of natural justice as no notice has been issued prior to such a declaration. He further refers to the provisions of the Master Circular which enumerate the effect of such a declaration. Mr. Dogra submits that the Petitioner Company was trying to work out a settlement with the bank; however, it was taken by surprise when the Petitioner's representative was orally informed by Respondent No. 2/Bank that such settlement talks cannot continue as the Petitioner's account has been declared to be 'fraud'.
5. Mr. Dogra also submits that the legality of the RBI Circular is being examined in a batch of part-heard petitions before Hon'ble Mr. Justice Prateek Jalan which are next coming up for hearing on 13th July 2022.1 Further reliance is placed on the order dated 15th February 2019 passed in the same case, wherein the court has formed a prima facie view that declaration of an account as 'fraud' means more than the account being a 'willful defaulter'. In that light, it has been observed that if the account itself 1 W.P.(C) 306/2019 titled Apple Sponge and Power Ltd and Ors v. Reserve Bank of India and Anr.
Signature Not Verified Digitally Signed W.P.(C) 5380/2022 Page 2 of 4 By:SAPNA SETHI Signing Date:30.05.2022 19:52:44has not been declared to be a 'willful defaulter', the declaration of an account as 'fraud' cannot sustain. He further refers to several orders of other co-ordinate benches, annexed to the petition, wherein the court has deliberated upon the impugned circular and granted interim protection. Reliance has also been placed upon the dicta of the court in State Bank of India v. Jah Developers.2.
6. At this stage, counsel for the Respondents have been queried on the following aspects:
(a) Whether any show-cause notice was issued to the Petitioner by any of the Respondents before declaring the account as 'fraud'.
(b) Whether the Respondents have declared the Petitioner to be a 'willful defaulter'.
7. Mr. Som Raj Choudhary, Counsel for the Respondent No. 2, does not dispute that there are a batch of petitions which are pending consideration and the fact there are interim orders passed by this Court in several matters. At this juncture, he is also not able to dispute the factum of declaration as a 'fraud' account, without issuance of any show-cause notice. Rather, he argues that there is no requirement to issue a show cause notice under the Master Circular. This contention, on prima facie basis, has not been accepted by this court in the above-referred orders.
8. For the foregoing reasons, the Petitioner has established a prima facie case, and considering the orders referred to by Mr. Dogra, the Court is inclined to grant interim protection. Accordingly, till the next date of hearing, Respondent No. 2/Bank are restrained from taking any further steps 2 2019 SCC Online SC 787.
Signature Not Verified Digitally Signed W.P.(C) 5380/2022 Page 3 of 4 By:SAPNA SETHI Signing Date:30.05.2022 19:52:44or actions prejudicial to the Petitioner in furtherance of the order declaring Petitioner's bank account as 'fraud'.
9. It is clarified that Respondents are free to issue a show cause notice, and give necessary hearing to the Petitioner, if they are inclined to do so. If such a measure is taken, a reasoned order shall be passed as per law, which shall be communicated to the Petitioner. It is also clarified that the Respondents are free to continue/ initiate/ file any complaint/ proceedings against the Petitioner, as per law, independent of the impugned order declaring the account of Petitioner as a fraud account, and this would include the action initiated for declaring the Petitioner to be a 'wilful defaulter'.
10. The application is disposed of.
W.P. (C) 5380/2022
11. List on 20th July, 2022.
SANJEEV NARULA, J MAY 25, 2022 d.negi Signature Not Verified Digitally Signed W.P.(C) 5380/2022 Page 4 of 4 By:SAPNA SETHI Signing Date:30.05.2022 19:52:44