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TMI Blog2024 (5) TMI 1323X X X X Extracts X X X X X X X X Extracts X X X X ..... e such party to submit a proper reply to answer all the allegations raised against it. If the relevant documents are not provided to a party, then, the whole procedure of issuance of a SCN and filing a reply thereto, would be reduced to an empty formality. No party can be expected to respond to a SCN in an effective manner, in the absence of the underlying documents, which form the basis of the said SCN. Similarly, in the case of T. TAKANO VERSUS SECURITIES AND EXCHANGE BOARD OF INDIA ANR. [ 2022 (2) TMI 907 - SUPREME COURT] , the Supreme Court has held in categorical terms that it would be fundamentally contrary to the Principles of Natural Justice, if the relevant materials were not disclosed to the noticee. The relevant documents that form the basis of issuance of a SCN, ought to be provided to the concerned party in order to enable such a party to raise its defense effectively. Such fundamental right of a party cannot be taken away by denying a proper opportunity to submit an efficacious reply, which would not be feasible in the absence of requisite documents that form the core foundation of a SCN. This assumes all the more importance, as on the basis of the defense raised by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt no. 6-IDBI Bank. 2. The petitioner is an ex-director and guarantor of the Company, which had availed various credit facilities from the consortium of banks, of which the respondent-banks are members, with respondent no. 1-SBI being the lead bank. The company was admitted into Corporate Insolvency Resolution Process ( CIRP ) under the provisions of the Insolvency and Bankruptcy Code, 2016 ( IBC ) vide order dated 30th May, 2017 passed by the National Company Law Tribunal ( NCLT ). 3. Upon the company being admitted to CIRP, the Board of Directors of the company were suspended and a Resolution Professional ( RP ) took over the management of the company under the norms of IBC. Thus, it is the case of the petitioner that RP, under the control of the Committee of Creditors, took custody of all the documents in relation to the company under Section 17 of IBC. All the books of accounts and statutory records of the company were available with the RP, to which the petitioner had no access. 4. Learned Senior Counsel appearing for the petitioner submits that the aforesaid SCNs have been issued to the petitioner, without supply of the requisite documents, on account of which the said SCNs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, learned counsel appearing for respondent no. 1-SBI, the lead bank, submits that the said bank is ready to give an inspection to the petitioner, of the records of the company available with it. 5.1 On the other hand, learned counsel appearing for respondent no. 6- IDBI Bank submits that no final decision has been taken by the respective banks as yet, and that only SCNs have been issued at this stage. He further submits that the process, as regards declaration of an account as Fraud , must be completed within a period of six months. He further submits that the judgments relied upon by the petitioner, are not applicable to the facts of the present case and that the said judgments do not provide for grant of any personal hearing to the petitioner. 5.2 Learned counsels appearing for respondents have also relied upon order dated 12th May, 2023 passed by the Supreme Court in the case of Rajesh Agarwal (Supra) to contend that grant of a personal hearing by the banks, is not mandatory. 6. I have heard learned counsels for the parties and have perused the record. 7. By way of the various SCNs, the respondent-banks have directed the petitioner to show cause as to why the account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the authority are required to be furnished to the noticee enabling him to show a proper cause as to why an inquiry should not be held against him though the Rules do not provide for the same. Such a fair reading of the provision would not amount to supplanting the procedure laid down and would in no manner frustrate the apparent purpose of the statute. xxx xxx xxx 10. Similarly, in the case of T. Takano Versus Securities and Exchange Board of India and Another (2022) 8 SCC 162, the Supreme Court has held in categorical terms that it would be fundamentally contrary to the Principles of Natural Justice, if the relevant materials were not disclosed to the noticee. Thus, it has been held as follows: xxx xxx xxx C.2. Duty to disclose investigative material 27. While the respondents have submitted that only materials that have been relied on by the Board need to be disclosed, the appellant has contended that all relevant materials need to be disclosed. While trying to answer this issue, we are faced with a multitude of other equally important issues. These issues, all paramount in shaping the jurisprudence surrounding the principles of access to justice and transparency, range from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation is not merely individualistic, that is to prevent errors in the verdict but is also towards fulfilling the larger institutional purpose of fair trial and transparency. Since the purpose of disclosure of information targets both the outcome (reliability) and the process (fair trial and transparency), it would be insufficient if only the material relied on is disclosed. Such a rule of disclosure, only holds nexus to the outcome and not the process. Therefore, as a default rule, all relevant material must be disclosed. xxx xxx xxx (Emphasis Supplied) 11. In view of the aforesaid, it is imperative that the relevant documents that form the basis of issuance of a SCN, ought to be provided to the concerned party in order to enable such a party to raise its defense effectively. Such fundamental right of a party cannot be taken away by denying a proper opportunity to submit an efficacious reply, which would not be feasible in the absence of requisite documents that form the core foundation of a SCN. This assumes all the more importance, as on the basis of the defense raised by such a party, proceedings thereto, against the said party, may be dropped in appropriate cases. 12. Emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mphasis supplied) 57. A blacklist is : (i) a list of insolvent or untrustworthy persons published by a commercial agency or mercantile association; and (ii) a list of persons unworthy of credit, or with whom it is not advisable to make contracts. Before this Court, RBI and lender banks have submitted that debarring borrowers from accessing institutional finance is necessary to not only prevent the same persons from committing frauds in other banks, but also to proscribe banks from dealing with unscrupulous borrowers in public interest. Debarring a borrower under Clause 8.12.1 of the Master Directions on Frauds is akin to blacklisting the borrower for being untrustworthy and unworthy of credit by the banks. This Court has consistently held that an opportunity of a hearing ought to be provided before a person is put on a blacklist. xxx xxx xxx 65. The competence of RBI to issue the Master Directions on Frauds is not a bone of contention in these appeals. RBI, in its estimation, has the power to determine and frame economic measures in the public interest to ensure the proper management of banking companies. The point however is that the implementation of a decision to secure the heal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court passed an ad interim order [ Shree Saraiwwalaa Agrr Refineries Ltd. v. Union of India, 2022 SCC OnLine SC 1905] 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. xxx xxx xxx (Emphasis Supplied) 13. During the course of hearing, learned counsel appearing for the lead bank, i.e., respondent no.1-SBI, submitted that the bank was ready to grant an inspection to the petitioner of the records of the company that were available with it. This Court also notes the submissions made by learned Senior Counsel for the petitioner that the records of the company are also in possession of the RP, in view of the company having been admitted into CIRP under the provisions of the IBC. 14. In view of the discussion hereinabove, thereof, following directions are passed: i. The petitioner and/or his authorized representative shall be allowed inspection of the records of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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