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Aashish Jhunjhunwala vs Reserve Bank Of India & Ors on 24 May, 2022

Author: Sanjeev Narula

Bench: Sanjeev Narula

                          $~278
                          *       IN THE HIGH COURT OF DELHI AT NEW DELHI
                          +       W.P.(C) 8184/2022 & CM APPL. 24729/2022
                                  AASHISH JHUNJHUNWALA                              ..... Petitioner
                                                   Through: Mr. Saurabh Kirpal, Senior Advocate
                                                            with Ms. Nattasha Garg, Advocate.

                                                     versus

                                  RESERVE BANK OF INDIA & ORS                 ..... Respondents
                                               Through: Ms. Arti Singh, Mr. Aakashdeep
                                                         Singh Roda, Mr. Basant Pal Singh
                                                         and Ms. Pooja Singh, Advocates for
                                                         R-2.
                                                         Mr. Aditya Kumar and Mr. Yash
                                                         Kojar, Advocates for R-3.
                                                         Mr. Rachit Bigghe, Advocate for R-4.

                                  CORAM:
                                  HON'BLE MR. JUSTICE SANJEEV NARULA
                                               ORDER

% 24.05.2022 CM APPL. 24730/2022 (under Section 151 of the Code of Civil Procedure, 1908 seeking exemption from filing dim/ illegible copies of the annexures)

1. Exemption is granted, subject to all just exceptions.

2. The Petitioner shall file legible and clearer copies of exempted documents, compliant with practice rules, before the next date of hearing.

3. Accordingly, the application stands disposed of.

W.P.(C) 8184/2022 & CM APPL. 24729/2022 (stay)

4. 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 Signature Not Verified Digitally Signed W.P.(C) 8184/2022 Page 1 of 5 By:SAPNA SETHI Signing Date:27.05.2022 11:07:28 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 to 5 declaring the account of M/s Ramsarup Industries Limited [hereinafter, "RIL"], of which the Petitioner is a promoter as a 'fraud' account.

5. Issue notice. Ms. Arti Singh, Mr. Aditya Kumar, Mr. Rachit Bigghe, Advocates, accept notice on behalf of Respondent No. 2, 3 and 4 respectively. Counter affidavit, if any, be filed within a period of three weeks from today, and rejoinder thereto within 2 weeks thereafter. Issue notice to Respondent No. 1, by all permissible modes, upon filing of process fee, returnable on the next date of hearing.

6. The case of the Petitioner is that he along with RIL have received a notice dated 02nd June, 2021 issued by Axis Bank Limited [Respondent No. 5], wherein it has been alleged that RIL "has been classified as 'fraud' by lenders United Bank of India, Bank of India and ICICI Bank", and, relying on such classification, Axis Bank has "classified the borrower as Red Flagged Account, as per extant RBI guidelines." Axis bank has called upon both RIL as well as the Petitioner to give their response along with supporting documents by 16th July 2021 for the Bank to take a decision in terms of the circular referred above.

7. Mr. Saurabh Kirpal, Senior Counsel for the Petitioner, relying upon the said communication, urges that there is no other information or notice Signature Not Verified Digitally Signed W.P.(C) 8184/2022 Page 2 of 5 By:SAPNA SETHI Signing Date:27.05.2022 11:07:28 from other banks to indicate that the Petitioner has been declared to be a 'fraud' account. That apart, Mr. Kirpal submits that Petitioner's account has not even been declared to be a 'wilful defaulter' and in such circumstances, the impugned action of the Respondent is liable to set aside. He also places reliance on the fact 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

8. 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 has not been declared to be a 'willful defaulter', the declaration of an account as 'fraud' cannot sustain. He further refers to the other orders of other coordinate 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

9. 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 RIL as a 'willful defaulter'.

W.P.(C) 306/2019 titled Apple Sponge and Power Ltd and Ors v. Reserve Bank of India and Anr.

2019 SCC Online SC 787.

10. Respondent's counsel state that they would have to take instructions. However, they do not dispute that RIL has been declared to be a 'fraud' account. Additionally, they submit that the allegations against the account holder are serious, and rely upon FIR No. RCBSK2017E0002 dated 12th June, 2017 and ECIR registered by Enforcement Directorate dated 10th February, 2020 against the borrower as well as the Petitioner, to substantiate the same.

11. The aforenoted criminal complaint and the proceedings initiated under the Prevention of Money Laundering Act, 2002 are not the subject matter of challenge in the present petition. Petitioner's grievance is regarding declaration of RIL as a 'fraud' account.

12. For the foregoing reasons, the Petitioner has established a prima facie case. Accordingly, till the next date of hearing, Respondent Banks are restrained from taking any further steps or actions prejudicial to the Petitioner on the basis of the order declaring Petitioner's bank account as 'fraud'.

13. 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 Signature Not Verified Digitally Signed W.P.(C) 8184/2022 Page 4 of 5 By:SAPNA SETHI Signing Date:27.05.2022 11:07:28 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'.

14. Re-notify on 20th July, 2022.

SANJEEV NARULA, J MAY 24, 2022 d.negi Signature Not Verified Digitally Signed W.P.(C) 8184/2022 Page 5 of 5 By:SAPNA SETHI Signing Date:27.05.2022 11:07:28