9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (7) TMI 1005 - HC - Insolvency and BankruptcyValidity of SCN - petitioner No. 1 has been addressed as an Ex Independent Director - certain acts of financial irregularities have been committed by the petitioner on different dates during the period from November, 2014 to 31st March 2017 - HELD THAT - The decision in the case of Shantanu Prakash 2024 (5) TMI 1323 - DELHI HIGH COURT , heavily relied upon by the learned counsel for the respondent, was one wherein this Court reiterated the decision in the case of Rajesh Agarwal 2023 (3) TMI 1205 - SUPREME COURT and the petitioner, who was also an Ex-Director and a guarantor of the company, had availed various credit facilities from consortium of banks, of which the respondent banks were also members and it was found that there was not only a violation of the principles of nature justice inasmuch as relevant documents were not supplied to the petitioner, but also that the petitioner was not given any opportunity before classifying his accounts as fraud - this Court passed directions against the respondents to allow the petitioner and/or authorized representative to inspect the records of the company besides the records which are available and in possession of the IRP and once that bridge was passed, the petitioner was called upon to make representation and to be afforded an opportunity of hearing before passing appropriate directions. It is apparent that despite a clean chit given by the forensic auditor and the fact that the CIRP proceedings had been initiated from 20.04.2018, coupled with the fact that the petitioner No. 1 is described as Ex. Independent Director, a prima-facie ground is made that the impugned SCN is vulnerable in law. Further, the copies of the documents which have been relied upon, have not been supplied. The respondent is also duty bound to supply the report of the forensic audit conducted against it so as to consider what changes in the circumstances, if any, were brought out and in what manner if at all, the report was found to be not correct or unreliable. This Court finds that this is a fit case for issuance of notice and the same is apparently accepted by learned counsel for the respondent. Let a reply be filed within four weeks from today. Respondent is further directed to place on record the complete report of the forensic audit conducted by Grant Thornton LLP. Re-notify on 20.08.2024 - the operation of impugned SCN dated 19.06.2024 shall remain in abeyance.
Issues Involved:
1. Legality of the Show Cause Notice (SCN) issued by the respondent-bank. 2. Allegations of financial irregularities and fraud against the petitioners. 3. Compliance with principles of natural justice. 4. Applicability of Master Directions on Frauds. 5. Prematurity of the writ petition. Issue-Wise Detailed Analysis: 1. Legality of the Show Cause Notice (SCN): The petitioners invoked the extraordinary jurisdiction of the High Court under Article 226 of the Constitution of India, seeking to quash the SCN dated 19.06.2024 issued by the respondent-bank. They argued that the SCN was illegal, invalid, and null and void. The petitioners sought relief to quash any steps or actions taken pursuant to the impugned SCN. 2. Allegations of Financial Irregularities and Fraud: The respondent-bank alleged that the petitioners, particularly petitioner No. 1, committed financial irregularities during the period from November 2014 to March 31, 2017. The corporate borrower, EPC Constructions India Limited (formerly Essar Projects (India) Limited), had availed loan facilities from a consortium of eight banks, including the respondent-bank. The petitioners contended that the company faced economic hardships due to reasons beyond its control and that a forensic audit conducted by Grant Thornton LLP had cleared them of fraud allegations. 3. Compliance with Principles of Natural Justice: The petitioners argued that the SCN was issued in a mindless and mechanical manner without considering the forensic audit report, which found no financial irregularity. They contended that the SCN overlooked the fact that the petitioners were not directors since December 2017 and that the company was under the Corporate Insolvency Resolution Process (CIRP) from April 20, 2018. The petitioners emphasized that the principles of natural justice required an opportunity to be heard and access to relevant documents before classifying the account as fraud. 4. Applicability of Master Directions on Frauds: The petitioners referred to clauses 8.96 and 8.12.1 of the Master Directions on Frauds, arguing that penal provisions could only be applied to non-whole-time directors in rare cases based on conclusive proof of their complicity. They also pointed out that no action was taken by the bank within six months from the date when the account was first reported as fraud on the Central Repository of Information on Large Credits (CRILC) platform. 5. Prematurity of the Writ Petition: The respondent-bank's counsel argued that the writ petition was premature since only an SCN had been issued, and the petitioners had not appeared for a personal hearing despite filing a reply. The counsel cited several case laws to support the argument that the petitioners could not challenge the SCN through a writ petition. Analysis & Decision: The Court found that the issues raised by the petitioners required deeper examination. It referred to the Supreme Court's observations in Rajesh Agarwal's case, emphasizing that the principles of natural justice must be observed even if not expressly provided in the Master Directions on Frauds. The Court noted that the SCN was issued despite a clean chit given by the forensic auditor and the initiation of CIRP proceedings. The Court held that the respondent-bank was duty-bound to supply the forensic audit report and other relevant documents to the petitioners. The Court issued a notice and directed the respondent to file a reply within four weeks and place on record the complete forensic audit report. The operation of the impugned SCN was stayed until the next hearing on August 20, 2024. The matter was kept in the category of 'Part-Heard' for detailed submissions.
|
