Telangana High Court
M/S. Nandini Industries India Pvt Ltd vs Union Of India on 25 July, 2023
THE HON'BLE SRI JUSTICE MUMMINENI SUDHEER KUMAR
WRIT PETITION No.36734 of 2022
ORDER:
This writ petition is filed seeking following relief:
".....to grant an order direction or writ more so in the nature of Writ of Mandamus declaring the action of the Fraud Identification Committee of the Respondent No.3 Bank in declaring the account of the Petitioners as Fraud in its alleged meeting dated 01.07.2019 as per master circular RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 dated 01.07.2016 (updated on 03.07.2017) as illegal, arbitrary, highhanded, in violation of principles of natural justice, in violation of rights guaranteed under Article 14 and 21 of the Constitution of India, in violation and contravention to the guidelines laid down in RBI Master circular BI/DBS/201617/28 DBS.CO.CFMC.BC.No.1/23.04.001/2016-17, dated 01.07.2016 updated on 03.07.2017 and judgment of this Hon'ble High Court in Rajesh Agarwal v Reserve Bank of India & Ors. AIR 2021 50 and the Judgement of this Hon'ble Court in M/s Agarwal Industries Pvt ltd vs Allahabad Bank (WP No/23428/2020), with a consequential prayer to set aside the declaration of the Petitioners account as fraud on 01.07.2019 and all other consequential actions of the Respondent Bank pursuant to the said declaration and to declare that the principles of natural justice have to be read into RBI/DBS/201617/28DBS.CO.CFMC.BC.No.1/23.04.00 1/2016-17 dated 01.07.2016 updated on 03.07.2017 before declaring the Petitioners account as Fraud...."
2. Heard Sri Avinash Desai, learned Senior Counsel for the petitioner No.1, Sri K. Rathanga Pani Reddy, learned counsel for respondent No.2, Sri A. Krishnam Raju, learned Standing Counsel for respondent No.3 and Sri N. Nagendar, learned counsel for respondent No.4.
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3. The present Writ Petition is filed aggrieved by the action of respondent No.3 in declaring the loan accounts of the petitioner vide Nos.31035270921, 31035275261, 31040882472, 31203172946, 31234315812, 31616174672, 31770287100, 31772004813, 32006862686, 32238442078, 30244462624, 3028267468, 30359123646, 3235474292, 32379108564, 32508380307, 32576292750, 32987165510, 33382640779, 33451099749, 33536797692, 33631367627, 31237297560, 34873269353, 007605001941, 91402031639657, 297352000000085, 00400210004135, 44605113370 as fraud in terms of the master circular issued by respondent No.2 dated 01.07.2016 on the ground that the same was issued without passing any reasoned order, without affording any opportunity to the petitioner and without furnishing a copy of the Forensic Audit Report which is the basis for declaring the accounts of the petitioners as fraud.
4. It is contended by the learned Senior Counsel for the petitioners that the issue raised in this writ petition is squarely covered by an order passed by the Hon'ble Apex Court in the case of State Bank of India and others v. Rajesh Agarwal and MSK,J W.P.No.36734 of 2022 3 others1 and in view of the said judgement of the Hon'ble Apex Court, the writ petition is liable to be allowed.
5. On the other hand, Sri A. Krishnam Raju, learned Standing Counsel appearing for respondent No.3 contended that the respondent No.3 Bank before declaring the loan accounts of the petitioners as fraud, has afforded an opportunity to the petitioners by supplying the relevant extracts of the Forensic Audit Report, basing upon which the bank categorized the loan accounts of the petitioners as fraud and took steps as mandated by respondent No.2 vide master circular, dated 01.07.2016. He further contended that even during the preparation of the Forensic Audit Report by the auditors they have called for certain information by way of bills from the petitioners and duly taking into consideration the answers provided by the petitioners, the said Forensic Audit Report was furnished.
6. In these circumstances, when this Court raised a query as to whether any reasoned order passed by the respondent - Bank for declaring the petitioners loan accounts as fraud, learned counsel for respondent No.3 fairly submitted that basing upon the report submitted to the concerned committee, the committee 1 2023 SCC OnLine SC 342 MSK,J W.P.No.36734 of 2022 4 accepted the report and except such acceptance, there is no other reasoned order passed by the respondent - Bank while declaring the petitioners loan accounts as fraud.
7. Having considered the submissions of either side and having perused the decision of the Hon'ble Apex Court in the case of Rajesh Agarwal, this Court is of the considered view that the issue involved in this Writ Petition is squarely covered by the order passed by the Hon'ble Apex Court in the said case. Hence, this Court is not inclined to go into the merits of the case. The Hon'ble Apex Court in the case of Rajesh Agarwal at paragraph Nos.84 and 85 held as under:
"Before concluding, we also want to address the argument by the borrowers that the requirement of passing a reasoned order must be read into the Master Directions on Frauds. The borrowers also relied on Jah Developers (supra) where it was held that a final decision of the Review Committee declaring the borrowers as a 'wilful defaulter' must be made by a reasoned order. We agree with this contention of the borrowers because:
(i) a reasoned order allows an aggrieved party to demonstrate that the reasons which persuaded the authority to pass an adverse order against the interests of the aggrieved party are extraneous or perverse;
and (ii) the obligation to record reasons acts as a check on the arbitrary exercise of the powers. The reasons to be recorded need to be placed on the same pedestal as a judgement of a court. The reasons may be brief but they must comport with fairness by indicating a due application of mind.
In the light of the legal position noted above, we hold that the rule of audi alteram partem ought to be read in Clauses 8.9.4 and 8.9.5 of MSK,J W.P.No.36734 of 2022 5 the Master Directions on Fraud. Consistent with the principles of natural justice, the lender banks should provide an opportunity to a borrower by furnishing a copy of the audit reports and allow the borrower a reasonable opportunity to submit a representation before classifying the account as fraud. A reasoned order has to be issued on the objections addressed by the borrower. On perusal of the facts, it is indubitable that the lender banks did not provide an opportunity of hearing to the borrowers before classifying their accounts as fraud. Therefore, the impugned decision to classify the borrower account as fraud is vitiated by the failure to observe the rule of audi alteram partem. In the present batch of appeals, this court passed an ad- interim order restraining the lender banks from taking any precipitate action against the borrowers for the time being. In pursuance of our aforesaid reasoning, we hold that the decision by the lender banks to classify the borrower accounts as fraud, is violative of the principles of natural justice. The banks would be at liberty to take fresh steps in accordance with this decision."
9. In the instant case also, there is no dispute that the petitioners herein were not afforded an opportunity before declaring the loan accounts of the petitioners as fraud, nor a copy of the Forensic Audit Report is furnished to the petitioners. It is also clear that there is no reasoned order passed by the respondent - Bank declaring the petitioners' loan accounts as fraud. In the light of the above, by following the law laid down by the Hon'ble Apex Court in the case of Rajesh Agarwal, the action of the respondent - Bank in declaring the loan accounts of the petitioners as fraud is declared as illegal and arbitrary.
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10. Accordingly, the writ petition is allowed. However, it is open to the respondent - Bank to take up appropriate steps by following the master circular', dated 01.07.2016 and the law laid down by the Hon'ble Apex Court in the case of Rajesh Agarwal.
Miscellaneous petitions, if any pending, shall stand closed. There shall be no order as to costs.
_________________________________ MUMMINENI SUDHEER KUMAR, J July 25, 2023 BMS/GSD MSK,J W.P.No.36734 of 2022 7 THE HON'BLE SRI JUSTICE MUMMINENI SUDHEER KUMAR WRIT PETITION No.36734 of 2022 July 7, 2023 BMS/GSD