Delhi High Court - Orders
Ms Shree Nathjee Roller Flour Mills ... vs Reserve Bank Of India & Ors on 7 July, 2020
Author: Jayant Nath
Bench: Jayant Nath
$~A-28
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 3991/2020
MS SHREE NATHJEE ROLLER FLOUR MILLS
LIMITED & ORS. ..... Petitioner
Through Mr. Malak Bhatt, Ms. Neeha Nagpal
Mr. Vishvendra Tomar and Mr. Atreyo Banerjee
versus
RESERVE BANK OF INDIA & ORS. ..... Respondent
Through Mr.Ramesh Babu, Ms.Manisha Singh
and Ms.Sanya Panjwani, Advs. for RBI/R-1
Mr.Sanjeev Sabharwal, Senior Panel Counsel for
UOI/R-2
Mr.PBA Srinivasan & Avinash Mohapatra,
Advocates for Union Bank of India/R-3
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
ORDER
% 07.07.2020 This hearing is conducted through Video Conferencing. CM Nos.14320/2020-14322/2020 Exemption allowed, subject to all just exceptions. Applications stand disposed of.
W.P.(C) 3991/2020 & CM No.14319/2020 (stay)
1. This Writ Petition is filed by the petitioner seeking to challenge the RBI Master Circular on Fraud dated 3.7.2017. It is the case of the petitioner that the petitioner company has been declared as a fraud without any issue of show cause notice or without any hearing or speaking order being communicated to the petitioner. It is pleaded by learned counsel for the petitioner that for the first time they got information that the petitioner company has been declared a fraud when CBI conducted a raid on W.P.(C) 3991/2020 Page 1 28.2.2020. Reliance is placed on an order of this court dated 15.02.2019 in W.P.(C)306/2019 titled Apple Sponge and Power Limited v. RBI.
2. Reference may be had to the relevant portion of the order in the aforenoted case where this court held as follows:-
"9. The contentions and counter-contentions notwithstanding, in my prima facie view there clearly appears to be something amiss inasmuch as RBI's Master Directions dated 01.07.2016 relating to classification and reporting of 'fraud' does not contain any provision for issuance of show-cause notice or affording a hearing to the affected party, even though a decision by a bank, whether taken individually or collectively with other banks, to classify an account as 'fraud' is a significant administrative decision taken in the commercial realm, having serious consequences for the account holder. That is to say, while a bank may most certainly report fraudulent transactions in an account to law enforcement agencies under the criminal law regime without issuing a show cause notice or hearing an affected party, but if an account is to be declared 'fraud' by an administrative decision in the framework of civil law, such action it appears on first principles, cannot be taken without giving to the affected party an opportunity of hearing to show cause against it.
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11. It is noteworthy that while the RBI circular dealing with 'wilful defaulters' provides a mechanism whereby a hearing is given to the affected party, no opportunity of hearing appears to be available in the circular that deals with declaring an account as 'fraud', which latter is a much more serious matter.
W.P.(C) 3991/2020 Page 2
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17. To me it prima facie appears that declaring an account as 'fraud' would arise in a case of egregious default on the part of an account holder, something more than the account holder being a 'wilful defaulter'. For an account to be declared as 'fraud' must entail an element of criminality on the part of the account holder, which ought to be inferred only on the basis of some substantial material which must be put to the errant account holder; and after considering any explanation such account holder has to offer; and not unilaterally by a stroke of the pen.
xxx
19. In the circumstances, without prejudice to the rights and contentions of the parties, all of which are kept open, it is directed that respondent No. 2/bank shall not take any further steps or actions prejudicial to the petitioners based upon the petitioners' account being declared 'fraud' until the next date of hearing."
3. Issue notice. Learned counsel for respondents No.1, 2 and 3 respectively accept notice.
4. Counter-Affidavit be filed within four weeks. Rejoinder thereto if any be filed within four weeks thereafter. Till the next date of hearing the respondent No.3 will not take any further steps regarding the declaration of the petitioner as a fraud account. List on 07.09.2020.
JAYANT NATH, J
JULY 07, 2020
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W.P.(C) 3991/2020 Page 3