M/S Idupulapadu Cotton Mills Pvt Ltd. vs The Reserve Bank Of India
2024 Latest Caselaw 7168 AP

Citation : 2024 Latest Caselaw 7168 AP
Judgement Date : 13 August, 2024

Andhra Pradesh High Court - Amravati

M/S Idupulapadu Cotton Mills Pvt Ltd. vs The Reserve Bank Of India on 13 August, 2024

 APHC010347032024


                    IN THE HIGH COURT OF ANDHRA PRADESH
                                  AT AMARAVATI             [3329]
                           (Special Original Jurisdiction)

             TUESDAY ,THE THIRTEENTH DAY OF AUGUST
                TWO THOUSAND AND TWENTY FOUR

                                 PRESENT

       THE HONOURABLE SRI JUSTICE VENKATESWARLU
                     NIMMAGADDA

                        WRIT PETITION NO: 17724/2024

Between:

M/s Idupulapadu Cotton Mills Pvt Ltd.                  ...PETITIONER

                                    AND

The Reserve Bank Of India and Others            ...RESPONDENT(S)

Counsel for the Petitioner:

1. PILLIX LAW FIRM

Counsel for the Respondent(S):

1.

The Court made the following:

WRIT PETITION NO: 17724/2024

INTERIM ORDER:

Heard learned counsel for the petitioner(s) and

Smt.V.Dyumani, learned Standing Counsel for the respondents.

Learned senior counsel appearing for the petitioner

submits that the respondents have declared the bank account of

the petitioner as fraudulent account without observing principles

of natural justice and without furnishing any forensic audit report.

He further placed his reliance on the judgment rendered by the

Hon'ble Apex Court in State Bank of India and others v. Rajesh

Agarwal and others1, the relevant portion of the said order is

extracted hereunder:

"iv. Such a debarment under Clause 8.12.1 of the Master Directions on Frauds is akin to blacklisting the borrowers for being untrustworthy and unworthy of credit by banks. This Court has consistently held that an opportunity of hearing ought to be provided before a person is blacklisted;

v. The application of audi alteram partem cannot be impliedly excluded under the Master Directions on Frauds. In view of the time frame contemplated under the Master Directions on Frauds as well as the nature of the procedure adopted, it is reasonably practicable for the lender banks to provide an opportunity of a hearing to the borrowers before classifying their account as fraud;

vi. The principles of natural justice demand that the borrowers must be served a notice, given an opportunity to explain the conclusions of the forensic audit report, and be allowed to represent by the banks/ JLF before their account

(2023) 6 SCC 1 is classified as fraud under the Master Directions on Frauds.

In addition, the decision classifying the borrower's account as fraudulent must be made by a reasoned order; and vii. Since the Master Directions on Frauds do not expressly provide an opportunity of hearing to the borrowers before classifying their account as fraud, audi alteram partem has to be read into the provisions of the directions to save them from the vice of arbitrariness."

He further submits that as per the ratio laid down by the

Hon'ble Apex Court as stated supra, the respondents are under

obligation to comply with two conditions i.e., observation of

principles of natural justice and providing opportunity of hearing

by way of calling explanation, by furnishing forensic audit report

which are the basic requirements to be complied with before

declaration of any account as 'fraud account'.

On the other hand, learned Standing Counsel for the

respondent-bank submits that the respondent bank complied the

procedure as directed under the ratio laid down by the Hon'ble

Apex Court in the judgment referred supra. She further submits

that in respect of other compliance, as per the direction of the