2022 (8) TMI 1541 - HC - Indian Laws

Challenge to action of de- empanelment by respondent No.1-Bank of Baroda - challenge to SCN having been issued with premeditation - when an Advocate acting professionally and in discharge of his/her professional duty renders an opinion by giving non- encumbrance certificate to the Bank for granting loan to a borrower certifying that he has clear marketable title which is subsequently found unacceptable could the Advocate be held liable for any action? - HELD THAT - Now a days it is a settled practice that for obtaining loan or while granting loan rendering a legal opinion has become an integral component of an Advocate s work in Banking sector. Therefore an Advocate on his part has responsibility to act to the best of his knowledge and skills and to exhibit an unremitting loyalty to the interest of his client. An Advocate is required to exercise due diligence in a manner that would advance the interest of his client. However while acting so the Advocate never assures his client that the opinion so rendered by him is after taking due precaution and care. Like any other profession the only assurance which an Advocate can give and may be implied from an Advocate while acting in professional capacity is that his possesses the requisite skill in his field of practice and while undertaking the performance of the work entrusted to him he would exercise his skill with reasonable competence. If the show cause notice dated 22.07.2020 is perused it makes reference to the guidelines and states that if it was established that there was gross negligence on the part of the petitioner or that he had colluded with the borrower in causing pecuniary damage/loss to the Bank his name could be recommended for being included in the Caution List - the Bank had already arrived at a conclusion that the title search report submitted by the petitioner was wrong and there was gross negligence on the part of the petitioner thus facilitating commission of fraud by the borrower. After recording that conclusion the Bank has called upon to show cause why his name should not be sent to the IBA for being added in the Caution List. Considering the object of the Guidelines and the consequence of sending the name of a third party for inclusion in the Caution List it would be necessary for the Bank to grant an opportunity of hearing to a professional before recording its satisfaction on the aspect of gross negligence as in the present case. If such satisfaction of the professional being grossly negligent is first recorded and the show cause notice is issued thereafter it would indicate that the Bank has made up its mind of referring the name of the professional to the IBA for inclusion in the Caution List. The opportunity of being heard thereafter would be nothing but an empty formality. Here though the Bank has referred to a fresh title search report obtained by it on 15.10.2018 the same was neither supplied to the petitioner nor has it been placed on record in the writ petition. Had it been supplied to the petitioner he would have had an opportunity to counter the same. On the contrary the petitioner has placed on record material obtained after issuance of the show-cause notice relevant records to indicate that in the Index-II register there was no reference to the sale-deeds executed with regard to the said property. A case for interfering at the stage of issuance of show-cause notice in this case has been made out. The show- cause notice dated 22.07.2020 is thus liable to be quashed by granting liberty to the Bank to take appropriate steps if so advised - Petition allowed.

Issues Involved:
1. De-empanelment of the petitioner by the Bank.
2. Issuance of show-cause notice with premeditation.
3. Allegation of negligence in the title search report.
4. Violation of principles of natural justice.
5. Impact on the petitioner's professional reputation.

Issue-wise Detailed Analysis:

1. De-empanelment of the petitioner by the Bank:
The petitioner, a registered legal practitioner since 1980, contested his de-empanelment by the Bank of Baroda communicated on 16.12.2019. The petitioner argued that the action was stigmatic and arbitrary, alleging that the Bank did not provide any opportunity for justification. The Bank contended that the petitioner's title search report was not undertaken with due diligence, leading to financial loss when the loan account of the borrower became NPA. The court found that the Bank should have given the petitioner an opportunity to justify his report before de-empanelling him. The court expunged the observations in the Bank's communication that maligned the petitioner's professional reputation without granting him an opportunity to explain.

2. Issuance of show-cause notice with premeditation:
The petitioner challenged the show-cause notice dated 22.07.2020, arguing it was issued with premeditation. The court noted that the scope for interference at the stage of issuance of a show-cause notice is limited unless it is issued with premeditation or the authority has already made up its mind. The court found that the Bank had already concluded that the petitioner's title search report was wrong and there was gross negligence on his part, thus facilitating fraud by the borrower. This pre-determined conclusion rendered the opportunity of being heard an empty formality. Consequently, the court quashed the show-cause notice, granting liberty to the Bank to take appropriate steps after giving a meaningful opportunity of being heard to the petitioner.

3. Allegation of negligence in the title search report:
The Bank alleged that the petitioner's negligence in providing a wrong title search report led to financial loss. The petitioner argued that he prepared the report with utmost care based on the available documents and recommended additional safeguards, which the Bank failed to follow. The court referred to the Supreme Court's observations in Central Bureau of Investigation, Hyderabad vs. K. Narayana Rao, highlighting that professionals like lawyers are expected to exercise their skill with reasonable competence. The court found that the petitioner had exercised due diligence and the Bank's failure to obtain the recommended affidavit contributed to the financial loss. The court concluded that mere negligence or lack of greater professional care does not amount to professional misconduct in the absence of evidence of moral delinquency.

4. Violation of principles of natural justice:
The petitioner argued that the Bank's action violated principles of natural justice as he was not given an opportunity to justify his report before de-empanelling him. The court agreed, stating that the Bank should have provided an opportunity for explanation. The court emphasized that the Bank's communication dated 16.12.2019, which stated that the petitioner did not submit the title search report with due diligence, was made without granting any opportunity to the petitioner. The court expunged the stigmatic observations in the communication.

5. Impact on the petitioner's professional reputation:
The petitioner contended that the Bank's actions maligned his professional reputation, affecting his career and social standing. The court acknowledged the significance of professional reputation and found that the Bank's observations in the communication dated 16.12.2019 tended to malign the petitioner's reputation without granting him an opportunity to explain. The court expunged these observations and quashed the show-cause notice, recognizing the far-reaching consequences of including a professional's name in the Caution List maintained by the IBA.

Conclusion:
The court allowed the writ petition, expunged the stigmatic observations in the Bank's communication dated 16.12.2019, and quashed the show-cause notice dated 22.07.2020. The court granted liberty to the Bank to take appropriate steps after giving a meaningful opportunity of being heard to the petitioner. The rule was made absolute, with no costs awarded.

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