9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (10) TMI 1469 - HC - Companies LawQuashing the Impugned Action of the Respondent Bank by which it has arbitrarily, unfairly and unreasonably invoked the Fraud Circular against the Petitioner and declared his account as fraud - no event of wilful default or fraud qua the account of MBSL - HELD THAT - The counter-affidavit by the respondent-bank contains no indication that any SCN was issued to the petitioner proposing his classification or categorization as fraud , nor was he informed about the uploading of his name on the Central Fraud Registry of the RBI. There is no iota of an averment that any relevant documents, including the copy of the forensic audit report, were ever supplied to him. Evidently, no hearing was afforded to the petitioner, nor was he ever communicated of the decision of the respondent-bank dated 20.06.2019. In the causa c l bere STATE BANK OF INDIA ORS VERSUS RAJESH AGARWAL ORS 2023 (3) TMI 1205 - SUPREME COURT , the Supreme Court was dealing with a matter where the petitioner had been classified or categorized as fraud under the same Master Directions on Fraud by the RBI and after examining a plethora of case laws on the subject, it was held that the principles of natural justice have to be read, while interpreting and enforcing the Master Directions on Fraud by the RBI. There is no gainsaying that the civil consequences jeopardize the future of the business of the borrower, and the principles of natural justice necessitate providing an opportunity for a hearing before declaring the borrower ineligible to access institutional finance under Clause 8.12.1 of the Master Directions on Frauds. The present writ petition is allowed and the impugned order dated 20.06.2019 passed by the respondent-bank and the consequential action declaring, classifying or categorizing the petitioner as fraud is hereby set aside/quashed.
Issues Involved:
1. Invocation of writ jurisdiction under Articles 226 and 227 regarding the respondent bank's classification of the petitioner's account as 'fraud'. 2. Alleged violation of principles of natural justice in the classification process. 3. Examination of forensic audit findings and their implications. 4. Application of principles from the Supreme Court judgment in State Bank of India v. Rajesh Aggarwal concerning classification as 'fraud'. Detailed Analysis: 1. Invocation of Writ Jurisdiction: The petitioner sought relief under Articles 226 and 227 of the Constitution of India, challenging the respondent bank's decision to classify his account as 'fraud'. The petitioner argued that this action was arbitrary, unfair, and unreasonable, and sought a writ of mandamus or certiorari to quash the impugned action. 2. Alleged Violation of Principles of Natural Justice: The petitioner contended that the respondent bank's actions violated principles of natural justice. He claimed that he was not issued a Show Cause Notice (SCN) regarding his classification as 'fraud', nor was he informed about the uploading of his name on the Central Fraud Registry. The petitioner emphasized that no relevant documents, such as the forensic audit report, were provided, and he was not afforded a hearing or informed of the bank's decision dated 20.06.2019. 3. Examination of Forensic Audit Findings: The respondent bank's counter-affidavit highlighted findings from a forensic audit conducted by M/s. Haribhakti & Company. The audit revealed that MBSL, the company in question, allegedly diverted funds, made irrational investments, and engaged in transactions without proper documentation. These findings led to the classification of both MBIL and MBSL as 'fraud' and were reported to the RBI. The petitioner, however, disputed these findings and argued that the forensic audit's conclusions were reached without his involvement or opportunity to respond. 4. Application of Supreme Court Judgment in State Bank of India v. Rajesh Aggarwal: The judgment extensively referenced the Supreme Court's decision in State Bank of India v. Rajesh Aggarwal, which emphasized the necessity of adhering to principles of natural justice when classifying accounts as 'fraud'. The Supreme Court held that such classification has severe civil consequences, akin to blacklisting, and necessitates providing the borrower an opportunity to be heard. The judgment underscored that the principles of audi alteram partem (the right to be heard) must be read into the RBI's Master Directions on Frauds to prevent arbitrariness. Conclusion: The High Court concluded that the respondent bank failed to adhere to the principles of natural justice before classifying the petitioner's account as 'fraud'. The court found that no SCN was issued, no hearing was provided, and the petitioner was not informed of the decision or given access to relevant documents. Consequently, the writ petition was allowed, and the impugned order dated 20.06.2019, classifying the petitioner as 'fraud', was quashed. The court directed the respondent bank to remove the petitioner's name from the Central Fraud Registry within 15 days, and the petition was disposed of with each party bearing their own costs.
|
