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TMI Blog2024 (2) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... objections addressed by the borrower. Undisputedly, in the present case, no such steps have been taken by the respondent lender banks and therefore, on this limited ground of violation of principles of natural justice, the decision of the respondent banks declaring the account of the company as fraud is hereby quashed and set aside. The matter is remitted and let the respondents concerned, after furnishing the copies of the forensic audit report and supplementary forensic audit report so also reasonable opportunity to the petitioners to submit the representation, complete the proceedings by passing order. The petition stands partly allowed. - HONOURABLE MS. JUSTICE SANGEETA K. VISHEN MR MIHIR THAKORE, SR. COUNSEL WITH MS RHEA J. SEVAK FOR MR ARJUN R SHETH(7589) FOR THE PETITIONER(S) NO. 1,2 MR DHRUVKUMAR S CHAUHAN(8138) FOR THE RESPONDENT(S) NO. 10,11,12,13,14,2,5,6,7,8,9 MR A J SAIYAD(11479) FOR THE RESPONDENT(S) NO. 16 MR AMAR N BHATT(160) FOR THE RESPONDENT(S) NO. 1 MR ANIP A GANDHI(2268) FOR THE RESPONDENT(S) NO. 18 MR K I KAZI(5030) FOR THE RESPONDENT(S) NO. 16 MR LALIT M PATEL(2239) FOR THE RESPONDENT(S) NO. 4 MR S. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vocate for the petitioners submitted that in the consortium meeting held on 18.08.2020, the petitioner no.1 being the promoter and director was present, followed by the meeting dated 29.09.2020. It is submitted that the draft forensic audit report and supplementary forensic audit report were discussed with the member banks and they were of the view that the account of the company, shall be declared as a fraud on the basis of finding and opinion of the forensic auditor. It is submitted that all the member banks agreed in principle to declare the account of the company as a fraud and the main reason behind declaring the account of the company as a fraud was based on the forensic audit report dated 11.08.2020 and supplementary forensic audit report dated 18.09.2020 namely, (i) Breach of trust, sudden disappearance of stock etc.; (ii) Misfeasance; (iii) Embezzlement; (iv) Misappropriation of funds / Diversion of funds outside the borrowing units etc. and (v) Siphoning off funds through fake telegraphic/mail transfers. It is submitted that the Punjab National Bank i.e. respondent no.2 has addressed a communication dated 30.09.2020 to the stock exchange, inter alia, pointing out that fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), submitted that various meetings of the joint lenders were called wherein, officials of the company were present. It is submitted that the petitioners had filed suit before the Civil Court, Kalol which was not entertained on the ground that it is not maintainable. Aggrieved, the petitioners have preferred an appeal which also came to be disposed of. The petitioners also have approached Hon ble Delhi High Court; however, the writ petitions before the Hon ble Delhi High Court have been withdrawn reserving a liberty to avail of other remedies and therefore, the captioned application. 4.1 It is next submitted that the officials of the petitioners had remained present in the consortium meeting held on 05.07.2019 which fact, is not in dispute. Even in the communication dated 04.06.2020, the petitioners were made clear about agenda items which were proposed to be discussed in the meeting and one of the agendas, was presentation on forensic audit report by M/s G. D. Apte and Associates and discussion on the draft forensic audit report. The meeting was convened on 10.06.2020 when again, the officials of the petitioners company were present. It is thereafter on 13.08.2020, again the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch transactions would be governed under the provisions of Code of 2016 which, will have an overriding effect. It is submitted that if the fresh action is to be taken, it has to be by the respondent lender banks and not by the respondent no.20. 7. Heard the learned advocates appearing for the respective parties and considered the documents available on record. 8. The petitioners, as referred to hereinabove, have challenged the decision of the respondent lender banks taken in the meeting dated 29.09.2020 declaring the account of the company as a fraud. Contention is raised by the petitioners that while taking the decision, the petitioners have not been offered any opportunity to deal with the forensic audit report and/or the supplementary forensic audit report which otherwise, is a mandate issued by the Apex Court in the recent judgment in the case of State Bank of India and Others v. Rajesh Agarwal and Others (supra). Pertinently, except sharing the observations of the draft forensic audit report with the petitioners neither the copy of forensic audit report nor supplementary forensic audit report was provided to the petitioners. The said aspect is not disputed by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d action should not be taken. It has also been held and observed that mere participation of the borrower during the course of the preparation of a forensic audit report would not fulfil the requirements of natural justice. The decision to classify an account as fraud involves due application of mind to the facts and law by the lender banks. The lender banks, either individually or through a JLF, have to decide whether a borrower has breached the terms and conditions of a loan agreement, and based upon such determination the lender banks can seek appropriate remedies. It has also been held and observed that therefore, principles of natural justice demand that the borrowers must be served a notice, given an opportunity to explain the findings in the forensic audit report, and to represent before the account is classified as fraud under the Master Directions on Frauds. Paragraphs 81, 93 to 95 and 98 are reproduced hereinbelow for ready reference: 81. Audi alteram partem, therefore, entails that an entity against whom evidence is collected must: (i) be provided an opportunity to explain the evidence against it; (ii) be informed of the proposed action, and (iii) be allowed to repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partem ought to be read in Clauses 8.9.4 and 8.9.5 of the Master Directions on Fraud. Consistent with the principles of natural justice, the lender banks should provide an opportunity to a borrower by furnishing a copy of the audit reports and allow the borrower a reasonable opportunity to submit a representation before classifying the account as fraud. A reasoned order has to be issued on the objections addressed by the borrower. On perusal of the facts, it is indubitable that the lender banks did not provide an opportunity of hearing to the borrowers before classifying their accounts as fraud. Therefore, the impugned decision to classify the borrower account as fraud is vitiated by the failure to observe the rule of audi alteram partem. In the present batch of appeals, this Court passed an ad interim order restraining the lender banks from taking any precipitate action against the borrowers for the time being. In pursuance of our aforesaid reasoning, we hold that the decision by the lender banks to classify the borrower accounts as fraud, is violative of the principles of natural justice. The banks would be at liberty to take fresh steps in accordance with this decision. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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