Ridge Innovations Pvt. Ltd vs Jcr And Company And Anr
2021 Latest Caselaw 4485 Bom

                IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                      ORDINARY ORIGINAL CIVIL JURISDICTION
                    INTERIM APPLICATION (L) NO. 4579 OF 2021
                                                  IN
                                   SUIT (L) NO. 4577 OF 2021



Ridge Innovations Pvt. Ltd.                             ...    Applicant/Plaintiff
         vs.
JCR and Company and Anr.                                ...    Respondents


Dr. Birendra Saraf, Senior Advocate a/w. Mr. Mukal Taly, Mr. Vaibhav
Charalwar, Mr. Vithoba Masurkar, Mr. Aziz Mohomed and Sayali
Gharpure for the Plaintiff.
Mr. P. Janardhanan a/w. Mr. Rohan Janardhanan, Mr. Yadunath Bhar-
gavanan and Mr. Saurabhsai Ganesan i/b. Rex Legalis for Defendant
no. 1. (JCR and Company)
Mr. Nitin Thakkar, Senior Advocate a/w. Mr. Charles De souza, Mr.
Vinod Kothari, Ms. Sonal Sanap and Ms. Suyesha Kakaria i/b. M/s. Apex
Law Partners for Defendant No. 2. (IFCI Limited)


                                                   CORAM : A. K. MENON, J.

DATED : 11th MARCH, 2021 P.C. :

1. Called for ad-interim reliefs.

2. The plaintiff has filed the present suit for a declaration that; (a)

the appointment of defendant no. 1 as a Forensic Auditor by IFCI is ab-

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai intio, illegal and a fraudulent device adopted by IFCI to harm the

plaintiff, (b) the ex-parte Forensic Report dated 19 th December, 2020

issued by defendant no. 1 to IFCI ("IFCI") in relation to the plaintiff is ab-

intio, illegal, null and void and not binding upon the plaintiff. The

plaintiff seeks quashing of the said Forensic Audit Report dated 19 th

December, 2020.(hereinafter referred to as "the FAR") IFCI having

issued a Show Cause Notice dated 29 th January, 2021 on the basis of the

said FAR, the plaintiff seeks a declaration that the said Show Cause

Notice is also illegal, null and void and seeks quashing of the same. A

permanent injunction is sought against the defendants from directly or

indirectly taking any action to classify the account of the plaintiff as a

"fraud" account in the pursuance of the aforesaid impugned Show Cause

Notice. Temporary injunctions are also sought in this behalf to restrain

the defendant from classifying the plaintiffs account as a fraud account

pursuant to the aforesaid Show Cause Notice and from taking any action

against the plaintiff on the basis of the FAR.

3. In the interim application the plaintiff seeks a temporary

injunction restraining the defendants from (i) classifying the plaintiff

account as a fraud account as aforesaid, (ii) from reporting the account

as a fraud account to the Reserve Bank of India and (iii) seeks to restrain

the defendant from taking any action against the plaintiff on the basis of

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai the FAR issued by defendant no. 1. The application is being opposed on

behalf of the defendants.

4. Defendant no. 1 is a firm of Chartered Accountants. Its partner

has filed an affidavit in reply dated 27 th March, 2021. The IFCI is IFCI

Ltd a non banking financial institution governed by the provisions of

the RBI Act. An affidavit dated 1 st March, 2021 has been filed to oppose

the ad-interim relief.

5. Having dealt with the description of the parties before the Court it

will be appropriate to refer to the facts leading upto the filing of the

present suit. One Datar Switchgear Private Limited was declared as a

Sick Industrial Company under the provision of Sick Industrial

Companies Act, (Special Provisions) Act 1985 (SICA). Pursuant to a

scheme of Rehabilitation and Amalgamation sanctioned by the Board of

Industrial and Financial Reconstruction (BIFR) the company under went

a de-merger by which its Electrical Division was hived off and merged

with Larsen & Toubro Limited. The Electronics division of the erstwhile

Datar Switchgear Limited was then incorporated DSL Enterprises Private

Limited (DSL) on 25th September,2006. The scheme formulated under

the auspices of the BIFR was under implementation and in the course of

such implementation DSL changed its name to Ridge Innovations

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai Private Limited- the current name of the plaintiff. Under the scheme the

plaintiff was required to make certain payments by way of restructured

debt. This it failed to do. In the meanwhile the Sick Industrial

Companies (Special Provisions) Act came to be repealed and in the

process a saving provision was inserted in the Insolvency and

Bankruptcy Code, 2016. vide section 242 to the effect that any scheme

sanctioned under sub-section 4 or under sub section 12 of section 18 of

the Sick Industrial Companies (Special Provisions) Act, 1985 would be

deemed to be an Approved Resolution Plan under section 31(1) of the

Insolvency and Bankruptcy Code.

6. It is the case of IFCI that the plaintiff is corporate debtor and is

required to pay to IFCI a sum of Rs.212,28,01,828/- comprising of

Rs.170,69,11,664/- and Rs.41,58,90,164/- towards their liability to IFCI

as the original lender and as an assignee of IIBI Limited. In this behalf it

appears that the IFCI has also filed a Company Petition before the

National Company Law Tribunal (NCLT) under section 33(3) of the

Code seeking liquidation of the plaintiffs. although there is a large

outstanding DEBT payable to IFCI the plaintiff has avoided making

payment of the same and now diverted funds from the available assets of

the company.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai

7. According to the plaintiff IFCI and IIBI received full upfront

payments of Rs. 625.46 lakhs and Rs.206.19 lakhs under the scheme

and also received certain Zero-Coupon Bonds contemplated in the

scheme. It is also contended that a sum of Rs.1016 crores was recovered

by IFCI through payments made by IDBI bank, IIBI and those recovered

by defendant no.2. According to the plaintiff under the Schedule X of

the scheme read with clause 8.3 and 3.56 the IFCI was obliged to give

credits for amounts received by it directly and through IIBI and as a

consequence nullify all the claims under the term loan facility. IFCI

however has allegedly refused to do so. The plaintiff then filed a suit in

the Court of the Civil Judge, Senior Division, Nashik seeking certain

reliefs interalia to the effect that certain amount had already been

recovered by IFCI and IIBI.

8. It is alleged that IFCI has attempted to secure modification of the

scheme unilaterally and without the consent of the plaintiff. This is the

case with which the plaintiff has approached this Court. The plaintiff

has contended that IFCI was not entitled to seek any payments under the

BIFR scheme towards the Zero-Coupon bonds since IFCI has allegedly

refused to give credit for amounts recovered under the scheme. It is

contended that the Zero-Coupon bonds issued under the BIFR scheme

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai had matured on 29th September, 2013 but recovery of the same had

become barred by limitation on expiry of a period of three years on 29 th

September, 2016 a contention that appears untenable. According to the

plaintiff the claim was time barred and in a letter addressed by the IFCI

it forwarded a statement of account showing default in payment of

interest and principal sum from 15th September, 2008 in relation to the

term loan and 29th September, 2013 in relation to the Zero-Coupon

bonds.

9. Meanwhile the Sick Industrial Companies Repeal Act came into

force with effect from 1st December, 2006 and as a consequence the

BIFR and the Appellate Authority for Industrial and Financial

Reconstruction were both dissolved. The saving provision under the Act

did mention that orders sanctioning the scheme shall not be effected as a

repeal of the Act.

10. According to the plaintiff and as canvassed by Dr. Saraf between

2008-2016 IFCI did not make any grievance about alleged non

compliance with the BIFR scheme nor did they approach BIFR to seek

any relief in this respect. Dr Saraf submitted that on 21 st November,

2019 IFCI demanded payment of Rs.212 crores said to be due as on 7 th

November, 2019. No particulars were furnished in relation to such

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai demand. The principal sum, rate of interest or period of interest was

not specified.

11. Faced with this demand the plaintiff called upon IFCI to provide

particulars vide their Advocate's letter of November 2019 in response

to which IFCI provided a statement of account wherein the plaintiff

found that amounts already recovered prior to the scheme being

sanctioned by the BIFR had not been adjusted. Furthermore the interest

component claimed was contrary to the terms of the scheme and was

without any prior approval of the BIFR. In the meanwhile IFCI also filed

a Company Petition in the National Company Law Tribunal for

initiating liquidation proceedings against the plaintiff in which the

plaintiff has filed application seeking rejection of the petition.

12. While this remains pending the plaintiff received Show cause

notice dated 4th September, 2020 based on circulars of the Reserve Bank

of India dated 1st July, 2005 and 29th September, 2016 proposing to

declare the plaintiff company and its directors willful defaulters. On a

writ petition being filed in this Court, by order dated 17 th December,

2020 this Court has stayed the said Show Cause notice on the ground

that the RBI Circulars applicable to banks forming the basis of the

notice was issued may not be applicable to defendant no.2. This

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai because IFCI is a non banking financial company and not a bank. In the

next round IFCI filed an original application before the Debt Recovery

Tribunal(DRT) Mumbai claiming a sum of Rs. 239 crores and obtained

an exparte interim order on 14th September, 2020 allegedly by

suppressing various material facts and documents.

13. The plaintiff has then filed an application for recall of the interim

order and for dismissal of the original application on the ground of

alleged fraud. The plaintiff claims that in the original application IFCI

has admitted that the amounts recovered by them from the erstwhile

Datar Switchgear Private Limited were adjusted towards loan liabilities

of that company. The plaintiff has also filed an interlocutory

application in the said original application seeking initiation of perjury

proceeding against defendant since according to them application has

been made by suppressing vital facts. The plaintiff has concluded that

the filing of the original application is but one other attempt to arm

twist the plaintiff into submitting to the alleged illegal demands of IFCI.

14. The plaintiffs have contended that IFCI's demand are entirely

untenable. However without prejudice to their contention the plaintiff

made a conditional offer to pay to IFCI a sum of money after waiving

certain sums provided IFCI gave up its various proceedings against the

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai plaintiffs. That all other claims of IFCI were barred by limitation. The

without prejudice offer has since been rejected by IFCI. The present suit

arises from a Show Cause notice issued on 29th January, 2021.

15. According to the plaintiff IFCI has continued to harass the

plaintiff and persists in their misconceived demands. The Show Cause

Notice dated 29th January, 2021 proposes to classify the plaintiff

account as a fraud account in terms of RBI Guidelines dated 29 th

September, 2016. In support of such a Show Cause Notice the IFCI is

believed to have obtained ex-parte FAR dated 19 th December,2020. This

FAR is the back bone of the show cause notice and according to Dr. Saraf

the ex-parte FAR is unsustainable issued against all prevailing practices,

procedures and guidelines under which a Forensic Audit is to be

conducted. Dr Saraf has assailed the FAR as being in contravention

with all provisions of the Chartered Accountant's Act and the rules made

thereunder.

16. The FAR has been issued to suit the purposes of IFCI. No

opportunity has been given to the plaintiff to explain their stand. Dr.

Saraf submitted that the Forensic Audit was carried out collusively and

behind the back of the plaintiff referring to documents which only suit

the purposes of IFCI and without considering the plaintiffs side of the

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai story. It is contended that the FAR is a "hatchet job" and that defendant

no. 1 accounting firm has rendered professional services to IFCI only to

support IFCI's malafide action. Dr Saraf submitted that FAR has far

reaching consequences is highly prejudicial to the plaintiff. The

defendant no. 1 firm did not call upon the plaintiff to express their stand

on the allegations or beliefs of IFCI in support of the claim and there

has been violation of principles of natural justice and no audit could

have been conducted in such an ex-parte manner. Dr Saraf further

submitted that on 1st February, 2021 the plaintiff wrote to defendant

no.1 informing them that the FAR was obtained by suppressing material

documents and called upon defendant no. 1 to recall the ex-parte FAR.

17. In response defendant no. 1 vide email of 2 nd February, 2021

declined to recall the FAR and the plaintiff meanwhile brought informed

IFCI vide letter of 1st February, 2021 that material documents enlisted

in the letter were not brought to the notice of defendant no. 1 firm at

the time of conducting Audit and that the non submission of such

document may be inadvertent and in any event not deliberate. The

plaintiff requested IFCI to indicate whether it would consider submitting

these documents as well to the Chartered Accountant However there has

been no response from the plaintiff to these request.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai

18. Assailing the FAR Dr. Saraf submitted that the contents of the FAR

is a product of fertile imagination of defendant no. 1. It is false on the

face of the record. It is vitiated due to absence of any attempt to carry

out due diligence exercised, facts have been distorted with the

intention of reaching a pre-meditated conclusion and in order to enable

IFCI to reach its conclusion to classify the plaintiff account as fraud

account. According to Dr. Saraf the FAR was tailor made to suit the

purposes of IFCI. It was mischievous and issued without following

guidelines that were applicable to the firm of Chartered Accounts. The

plaintiff have therefore issued a demand cum Show Cause Notice dated

3rd February, 2021 calling upon defendant no. 1 to show cause as to

why appropriate legal proceedings should not be initiated against the

firm for issuing the mischievous opinion. It is contended that the

plaintiffs awaited a response from IFCI to provide documents to

understand the contents of the show cause notice in particular to the

extent it pertained to IIBI and the claim to ownership. The plaintiff

contended that unless such documents were furnished by IFCI they

would presume that no such documents existed.

19. Dr. Saraf invited my attention to the Show Cause Notice dated 29 th

January, 2021 and submitted that the factual basis of the Show Cause

Notice is erroneous it is incorrectly contended that the addressee of the

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai notice viz the plaintiff and their director and guarantor had failed and

neglected to repay outstanding dues of IFCI and continued to be in

persistent default of such outstanding dues despite sufficient

opportunity granted. That the company had received full and final

payment of amounts due under the arbitration award despite having

received this amount DSL Enterprises now known as Ridge Innovations

Pvt. Ltd had not made payment due to IFCI in terms of the scheme. That

the act of non-payment amounts to misappropriation and criminal

breach of trust with the intention of causing wrongful loss to IFCI.

Reference is made to the independent auditors report dated 1 st

September,2017 and 5th September, 19 in respect of the company which

demonstrated according to IFCI malafide intention. In addition reliance

is placed on the FAR issued by defendant no. 1 and the conclusion in the

report that misappropriation and criminal breach of trust and

manipulation of books of accounts through fictitious accounts has been

established and therefore the Accountants concluded that the plaintiff

company had perpetrated a fraud on ICFI Ltd.

20. The Show cause notice contends that the malafide intent of the

plaintiff is apparent from such misappropriation to defraud a creditor

and cause wrongful loss to IFCI because liability cannot be extinguished

until it is paid. The notice called upon the plaintiff to show cause within

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai 21 days as to why action should not be initiated against the plaintiff to

classify the account as fraud account in pursuance to Chapter III of the

RBI circular referred to therein. We shall shortly consider the effect of

this circular. The Notice stated that if no cause is shown within 21 days

as aforesaid IFCI would proceed to adopt criminal action against the

addressees.

21. Dr. Saraf then invited my attention to the summary of findings in

the FAR the conclusion drawn by defendant no.1 and contended that

the entire effort is to procure a report that suits the purposes of IFCI

and in order to reach a premeditated conclusion that the account of the

plaintiff was required to be classified as fraud account. Dr Saraf

submitted that the attempt lacks transparency. No opportunity was

given by defendant no. 1 to present the company's point of view so as to

enable defendant no. 1 a professional organisation to arrive at a finding

uninfluenced by the IFCI version. Dr. Saraf invited my attention to the

conclusion that an amount of Rs.137.87 crores has been written off and

transferred to reserves on the ground that liability had abated under

the Sick Industrial Companies (Repeal Act) 2003 with effect from 1 st

December,2016 and that in view of the said abatement and in view of

the provisions of Limitation Act as legally advised. However the report

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai concludes that even if the act came into force on 1 st December, 2016 the

liability could not have been written off to reserves as of 31 st

March,2016 since Act was still in force as of 31 st March,2016 at the

time of filing the balance sheet. It was repealed only with effect from 1 st

December, 2016. To demonstrate the falsity of the finding Dr Saraf

invited my attention to Exhibit TT of the report of the board of directors

of the plaintiff in its earlier avatar as DSL Enterprises Private Limited

and invited me to examine the explanation, comments and

qualifications included therein.

22. My attention was invited to clause 17 and qualification no. 2

wherein it is reported that the auditor had commented upon write back

of BIFR Claims of secured and unsecured creditors of the company

amounting to Rs. 137. 87 crores and had opined that for any such

action permission of BIFR must be sought without which the claims

cannot be extinguished. The company had concluded that it was

unable to accept the view and opinion of the auditor and disagreed

with it and therefore the company had written back the claims of

secured and unsecured creditors as the claims had abated. The

company claimed that write back was legally advised in view of the

provisions of the Sick Industrial Companies Act and the Limitation Act.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai Thus according to Dr. Saraf, the exercise of writing off the the said

amount to reserves was a decision of the board of directors of the

company after considering appropriate legal advise on that aspect. The

conclusion drawn therefore Dr.Saraf submitted, was not justified.

23. The second aspect in the Summary of Findings that Dr. Saraf

assailed is the allegation that the company had siphoned of monies

instead of accounting for them by encashing fixed deposits as of 1 st

April, 2017 and amount of Rs.1,56,50,000/- was shown as

remuneration and Rs. 1,70,34,500/ was shown as interest on

remuneration payable to one K. R. Ghaisas for the period 1997-98 to

2005-06. Dr Saraf submitted that these amounts were paid to Mr.

Ghaisas who was member of board of directors and had worked without

any remuneration during the entire process of restructuring that the

company underwent right from the registration of the company as a

Sick Industrial Company with the BIFR. Dr.Saraf described as appalling

the attempt of the Auditors and therefore of IFCI to describe an amount

of Rs. 2.75 crores paid to professionals who appear in this Court and

the Supreme Court as payments as "Advances" amounting to Rs.2.75

crores to three suppliers without any business activities. This appears in

item no. 4 of the Summary of Findings.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai

24. Dr. Saraf invited my attention to the relevant entry in the balance

sheet and profit and loss account to show that these three suppliers to

whom auditors has made reference to are Advocates and Counsel of the

Court who have been appearing on behalf of the plaintiff not only in

this Court but also in the Supreme Court. The lack of application of

mind is sought to be demonstrated by this very entry. Dr. Saraf

submitted that the approach of the defendant no. 1 and on instructions

of IFCI is very clear viz. to indict the plaintiff, not withstanding what the

record indicates Dr. Saraf therefore submitted that this is a clear case of

a procured report to suit the purposes of the IFCI. He submitted that

should there have been a preliminary application of mind to the balance

sheet and profit and loss account the Auditors would have found that

the amount of Rs. 2.75 crores was in fact paid to professionals and was

not an advance to suppliers as it is sought to be made out.

25. Dr. Saraf assailed the conclusion reached by the auditors and

stated that the opinion based on examination of such incomplete

records of a distorted view taken by the auditors and has resulted in

gross injustice to the plaintiff. The engagement of defendant no. 1 was

on the basis that no explanation is required to be called for from

plaintiff since the plaintiff would not provide any such information. This

was once again prejudging the issue and the auditor had himself in

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai clause 6 of the report stated IFCI had approached them to conduct a

Forensic Audit to identify whether the plaintiff had perpetrated a fraud

against IFCI in terms of the relevant RBI circulars and since the plaintiff

had litigation with IFCI there was no possibility of the plaintiff providing

access to the books of accounts and therefore the review of books of

account was not conducted and the report was based only on material

available in the public domain, i.e. audited financial statement,

information and document received from IFCI, documents available on

the MCA website. There was no possibility of making any oral

inquires. Dr. Saraf submitted that this approach smacks of high

handedness and an attempt to prejudge the issue.

26. In support of the application Dr.Saraf assailed the Chartered

Accountants report by also contending that even under the Chartered

Accountants Act 1949 and the second schedule thereto the Accountant

would be deemed to be committing an act of professional misconduct if

he failed to obtain sufficient information necessary for expressing an

opinion or if there is material sufficient to negate the expression of an

opinion. He therefore submitted that on all counts the opinion of the

Chartered Accountant in the FAR is unsustainable. Dr.Saraf invited my

attention to Exhibit II to the plaint which is described as a preface to the

Forensic Accounting and Investigation Standards said to have been

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai approved by the Digital Accounting and Assurance Board of The

Institute of the Chartered Accountant's of India. It seeks to set out the

broad framework for Forensic Accounting and Investigation in India

which are required to be followed by professionals with minimum

standards of undertaking a forensic audit. Dr. Saraf submitted that the

counsel of the Institute of Chartered Accountants had constituted the

board as a non statutory board for fostering a cohesive global strategy

on the aspect of digital accounting and assurance.

27. Dr Saraf submitted that the complaint highlights several of the

imputation made by defendant no. 1 which were wholly unwarranted.

In support of his contentions Dr. Saraf relied upon two circulars issued

by the Reserve Bank of India, the first of this circulars pertains to Master

Directions on Frauds classification and reporting by commercial banks

and select financial institution. The relevant circular he submitted was

dated 29th September, 2016 and was notified as a Master Direction for

monitoring of frauds in NBFCs. Inviting my attention to the circular Dr.

Saraf submitted that the circular was issued pursuant to the powers

conferred under section 45-K, 45-L and 45-M of the Reserve Bank of

India Act, 1934 that it would be applicable to all NBFCs and was

therefore was required to be followed by all NBFCs. Dr. Saraf submitted

that the attempt of IFCI duly aided by defendant no. 1 was to enable the

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai IFCI to report if fraud to the Reserve Bank of India. Chapter III of the

said notification issued by the Reserve Bank of India intended to classify

frauds in order to have uniformity in reporting frauds on the basis of

the various classes mentioned therein. He submitted that in the instant

case, the allegation is one of misappropriation and criminal breach of

trust under chapter 3. Dr. Saraf submitted that under Chapter 4 any

such frauds committed by unscrupulous borrowers as described therein

would have to be reported to the RBI with appropriate particulars. In

the present case he submitted that the report issued by defendant no. 1

is being relied upon in order to enable the IFCI to file criminal

compliant. The intention was obvious, to pressurise the plaintiff into

submitting to the illegal demands of IFCI. He invited my attention to

Chapter 7 of the said notification which provides for guidelines for

reporting fraud to the police authorities. He submitted that the attempt

in the present case as demonstrated from the Show Cause Notice is to

initiate criminal proceedings against the plaintiffs and in support

thereof defendant no. 1 had obliged and provided a report to suit the

purposes of IFCI.

28. Dr Saraf submitted that in the case of banks and financial

institutions the Telangana High Court has had occasion to consider the

manner in which such an investigation had to be conducted. He relied

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai upon the case of Rajesh Agarwal vs. Reserve Bank of India in Writ

Petition no. 19102 of 2019. He invited my attention to paragraph 16 of

the said judgment. Dr. Saraf submitted that the issue before the Court

was whether the principles of natural justice and the requirement of

giving an opportunity of hearing to the other side should be read into

master circular or not. Secondly whether the joint lenders forum in

that case was justified in concluding that the borrowers account was a

fraudulent account and whether the institution was justified in

concluding that the borrower was a holder of a fraudulent account.

29. In this respect it is observed that the issue whether the company

was a willful defaulter or not had not been urged before the Court and

it was kept open. The Court had observed that principles of natural

justice are clear as sunshine and will pervade and permeate all aspects

of the case to kill or to prevent injustice that it would reign in arbitrary

and discriminatory and irrational decisions to protect an individual

from the might of the state.

30. Making reference to the various decisions of the Supreme Court

on the aspect and referred to them the Court concluded that while

interpreting the Master Circular in question principles of natural

justice must be observed although these are not codified they are

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai applicable to administrative and quasi judicial decisions that unless

expressly ousted by legislation of circular the requirement of providing

hearing to the other side would have to be observed and that while

interpreting a Master Circular these principles requiring compliance

with the rule of audi alteram partem would have to be followed. The

Court observed in paragraph 35 that merely because the title of the

master circular is fraud classification, it did not necessarily mean that

the function of the Joint Lenders Forum was to discover fraud and report

the same. Adverting to the purpose of the master circular the Court

observed that it is intended to detect fraud and report fraud early so as

to take timely action. In any event the requirement of calling upon the

affected party to file their say or to grant a hearing cannot therefore be

avoided. This Dr. Saraf submitted is clearly a case which would apply to

the facts at hand.

31. Dr. Saraf then relied upon decision of Supreme Court in Siemens

Limited vs. State of Maharashtra 2006 12 SCC 33 in support of his

contention that a Show Cause Notice issued with a pre meditated

intention is liable to be set aside. He submitted that the Court had

observed that when a Show Cause Notice issued with pre meditation, a

writ petition would be maintainable in order to quash and set aside such

a notice. He invited my attention to the observation that though

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai ordinarily a writ court may not exercise jurisdiction in relation to Show

cause notice unless it appeared that it was issued without jurisdiction

and that in a given case even if the Court directs a statutory authority

to hear the matter afresh ordinarily such a hearing would yield any

useful purpose. In the facts of that case it appeared that it was evident

that the respondent had made up its mind. Dr. Saraf submitted that the

case at hand is similar to that one in Siemens. That the IFCI had made

up its mind to classify the account as a fraud account as evident from

the instructions given to defendant no. 1. Dr. Saraf also relied upon

decision of the Supreme Court in Oryx Fisheries Private Limited vs.

Union of India 2010 13 SCC 427 in which the Supreme Court was

considering effect of a Show Cause Notice and held that the notice must

take the charges and not definite conclusion of the guilt. In that case

the Supreme Court held that in show cause proceedings, the noticee

must be given a reasonable opportunity of making an objection against

the proposed charges in the notice and that includes an opportunity of

denying the guilt and establishing innocence. That case involved

cancellation of a registration certificate and it was found in non

speaking cancellation merely quoting a proceeding show cause notice

and avoiding reference to the noticee's reply is not satisfactory and

hence the cancellation was found to be appealable.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai

32. In conclusion Dr Saraf submitted that the FAR is manufactured by

defendant no.1 at the instance of defendant no 2 in gross violation of the

Digital Accounting and Assurance board standards and guidelines. He

submitted that defendant no. 1 had acted with malafide intent

disregarding documents and avoiding a complete due diligence exercise

issued exparte in violation of principles of natural justice without

affording the applicant an opportunity of being heard makes various

imputations posing himself to be an expert in criminal law without any

qualification but elementary principles of due diligence had not

followed.

33. Making reference to the affidavit of rejoinder filed on behalf of

the plaintiff Dr Saraf submitted that defendant no. 1 has described

himself as a prosecution witness in support of IFCI's attempt to initiate

criminal proceeding. This itself goes to show that the attempt was

premeditated and the intention of the defendants was clear. This and

for various reasons set out Dr Saraf submitted that he is entitled to the

reliefs prayed for as otherwise there would be gross violation of rules of

natural justice and a premeditated conclusion would follow.

34. The application is being opposed by defendant nos. 1 and 2. On

behalf of defendant no.1 Mr. Janardhan submitted that the attempt of

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai the plaintiff is to browbeat defendant no. 1 who was a professional and

had issued his opinion in his capacity as an empaneled Chartered

Accountant with IFCI. He submitted that defendant no. 1 specialises in

multi disciplinary professional services including forensic audit.

Defendant no. 1 had been empaneled by IFCI since February, 2018 and

he is an experienced Forensic Auditor and the scope of work with which

he was entrusted was restricted to the work specified in a mandate

issued on 26th February, 2018. IFCI had invited quotations for

undertaking the assignment and in response to a proposal submitted

defendant no. 1 was awarded the assignment. He submitted there was

no privity of contract between plaintiff and defendant no. 1 since he has

acted strictly within the scope of a letter of assignment dated 18 th

December, 2020. He highlighted the methodology adopted in the

document examined as provided to defendant no. 1 by the client IFCI.

He made reference to the fact that RBI had in its circular provided the

basic framework for classifying such accounts as that of the plaintiff.

35. According to Mr. Janardhan defendant no. 1 has merely followed

the instructions of the client and acted in professional manner. The fact

that the report was been sought ex-parte was specifically mentioned in

the letter of assignment especially since parties were involved in serious

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai litigation and according to the client defendant no 2 the plaintiff was

unlikely to provide any information. He submitted that instead of

meeting the case on merits, the plaintiff has chosen to assail the report

of the Chartered Accountant's firm issued in the course of discharging

their professional assignment. The plaintiff has attempted to intimidate

defendant no. 1. This becomes fairly evident from the fact that the

plaintiff has since issued a demand notice and show cause notice to the

Chartered Accountant's Firm. According to him and in support as stated

in the affidavit, defendant no. 1 is assisting in the administration of

justice and has no personal interest in the matter. He has relied upon

copies of the letter dated 26 th February, 2018 empaneling him which

provides that the scope of work would be restricted to the work

specified in the mandate by IFCI. Moreover the assignment of the Audit

work contemplated in the letter dated 18 th November, 2020 clearly

specifies the scope of work which was restricted to review and audit of

financial data available in the public domain including that of the

Ministry of Corporate Affairs website, review and audit of data

available with IFCI, such as BIFR scheme and loan documentation and

litigation records.

36. It was clarified that since the borrower was in litigation with IFCI

the borrower will not provide access to books of accounts and therefore

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai review of books of accounts not available in the public domain does not

form part of the scope of work. The relevant balance sheet for the past

three years were provided to the auditor for reference. In this view of

the matter Mr. Janardhan contended that there was no occasion to

implead defendant no. 1 in the report just because it was inconvenient

for the purposes of the plaintiff. He therefore submitted that no relief be

granted in the suit against defendant no. 1.

37. The application is also opposed on behalf of IFCI by Mr. Thakkar

who submitted that the suit and interim applications are not

maintainable. Relying upon contents of affidavit in reply dated 1 st

March on behalf of IFCI Mr. Thakkar contended that under section 45-

M of the RBI Act it is the duty of non banking financial institution to

furnish statements information and particulars called for by the Reserve

Bank of India under the master circular issued under section 45-K, 45-L

and 45-M of the RBI Act. These circulars have statutory force and IFCI

is bound to comply with these. An injunction sought against IFCI

would in effect operate as a stay against the RBI provisions and the

statutory obligations of IFCI as an NBFC. Mr. Thakkar also submitted

that under section 58A of the RBI Act the suit is barred and no

injunction can be granted against proceeding with prosecution of any

legal proceeding. He submitted that the Master Circular does not oblige

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai IFCI to grant any prior hearing before taking any action and that IFCI

has issued suit show cause notice only in good faith and providing

opportunity of being heard. He submitted that the suit assailing such

an action is not maintainable. Inviting my attention to section 41(d) of

the Specific Relief Act Mr. Thakkar correctly submitted that no suit can

be filed or order passed to prevent institution of any criminal

proceeding since IFCI would only be complying with the mandate of

law being required to follow the RBI circulars issued from time to time.

If a complaint were to be filed. He submitted that the plaintiff had

merely attempted to stall the process of and is abusing the process of

Court by seeking ad-interim and interim reliefs. He submitted that the

plaintiff had chosen to attack the professional firm of Chartered

Accountants who had been engaged by IFCI in an attempt to browbeat

the Chartered Accountant and frustrate the performance of IFCI

obligation under the RBI circular.

38. Mr. Thakkar submitted that for reasons set out in the affidavit the

amounts received under Arbitration Award in question and which has

engaged substantial amount of attention of the Courts, the plaintiff was

required to make payment to IFCI however the plaintiff had omitted to

make payment to IFCI nor did they arrange to redeem Zero Coupon

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai Bonds issued by the plaintiff. That the write off the amounts due to the

IFCI in the books of the plaintiff during the financial year 2015-16 was

clearly fraudulent. Mr. Thakkar invited my attention to the independent

Auditors Report by the Auditors of the company itself which qualifies

the treatment in the books of accounts. He submitted that the extract of

this has been duly quoted in the show cause notice. He invited my

attention to these two aspects. Firstly, the repayment had been made to

few select creditors and not as scheduled. The report also indicates that

the company had transferred liabilities of specified secured and un

secured creditors to reserves as of 31 st March, 2016 on the ground that

these liabilities vested under the BIFR scheme had abated and therefore

incorrectly claims to have extinguished liability of Rs.137.87 crores.

This Mr. Thakkar submitted was clearly malafide and demonstrated

misappropriation of amounts.

39. Mr. Thakkar submitted that shockingly, after having

surreptitiously written off the amounts due to IFCI in its books of

accounts the plaintiff transferred an amount of Rs.449,85,38,339.52 to

its director as "compensation for loss of goodwill and reputation towards

indemnity". He invited my attention to the Articles of Association of the

plaintiff company at Exhibit SS to the plaint and Article 116 which

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai provides for indemnification. The said article he submitted provides for

the directors managers, company secretary and other officers of the

company to be indemnified out of funds for the company in the event of

such person becomes liable by any reason for any contract entered into

or act or deed done by him in his capacity as such director, manager or

other officer in discharge of his duty in such capacity and including

expenses. The transfer of the amount to the plaintiff director and the

second noticee in the show cause notice under the heading of

compensation for loss of goodwill and reputation towards indemnity

was clearly not covered under Article 116. Thus clearly malafide.

40. Mr. Thakkar assured the Court that IFCI had no ill intention. It

had not issued show cause notice with any pre meditated motive. He

submitted that the engagement of defendant no. 1 was carried out in the

normal course and cannot be suspected as being pre meditated. He

submitted that as a professional Chartered Accountant the defendant no.

1 had issued its opinion based on material available with IFCI and

provided to it. He submitted that allegations against defendant no. 1 are

only attempt to derail the ongoing investigation into the treatment of

amounts owing to the IFCI in the books of the plaintiff. He submitted

that the Show cause notice has been issued although under the relevant

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai circular the IFCI was not obliged to issue such show cause notice Mr.

Thakkar then submitted that the explanation or comment on the

qualification and reservation and adverse remarks made made by the

auditors of the company is itself very clear inasmuch as the auditor has

objected to the write back of amounts to the tune of Rs. 137.87 crores

but although the Auditor has so opined the company had contended that

the unable to accept the view and had unilaterally decided that the

write back was legally sustainable under the provisions of SICA Repeal

Act and the Limitation Act. That the allegation made by the plaintiff that

the write back was not in accordance with law was incorrect. Adverting

to the submission of Dr. Saraf that the write back was justified not only

by the SICA Repeal Act and also the limitation Act whereas the

Chartered Accountant has specified only SICA Act. Mr. Thakkar

submitted that the allegation has no basis. He submitted that the

Auditors of the company M/s. Dharde and Associates had themselves

opined that the treatment accorded to the amounts were incorrect.

Moreover the show cause notice itself had quoted from the independent

auditors report dated 1st September, 2017 and 5th September, 2019. He

invited my attention to the report itself which is annexed to the plaint

and submitted that the company had transferred liability of specifed

secured as well as unsecured creditors to reserves on 31 st March, 2016

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai on the ground that the liability vested under the BIFR scheme had abated

and therefore extinguished and total liability of Rs.137,87,60,579/- as

detailed in clause 34 of the notes of accounts. Particulars of these

amounts were specified. These included secured loans, unsecured loans

and Zero coupon bonds in question. He submitted that the auditors had

objected to this treatment. Mr. Thakkar also invited my attention to the

second report annexed to the plaint wherein clause 5 the company had

reportedly paid a sum of Rs. 449. 85 crores to Mr. Rajan Datar one of

the directors during the financial year 2017-18 as compensation for

loss of good will and reputation towards indemnity.

41. Mr. Thakkar submits that certain liability under the BIFR scheme

had not been paid by the company. These aspects were also highlighted

by the independent auditor thereby leading to a suspicion that these

diversions were deliberate and were actionable under the circular in

question. Seeking to justify the issuance of show cause notice Mr.

Thakkar fairly submitted that IFCI was not obliged to issue notice prior

to taking action under the circular. He invited my attention to the

circular itself.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai

42. Mr. Thakkar submitted that the contents of the Circular will

reveal that under provisions of the RBI Act the Reserve Bank of India

had required all NFBC to put in place a reporting system for accounting

fraud and fixing accountability in relation to the delays in reporting

cases of fraud. He invited my attention to Chapter 3 and in the instant

case IFCI believed that there is misappropriation and criminal breach of

trust that the plaintiff has committed and accordingly the IFCI is

entitled to and is bound to investigate the same . That under Chapter 4

such frauds are required to be reported to the Reserve Bank of India and

this would include cases of attempted fraud. He submitted that the

guidelines for reporting fraud are well documented. The IFCI as an

NFBC is bound to comply with an obligation under this master

direction. He submitted that the action proposed to be taken is entirely

within the framework of law. He denied allegation of bias by the IFCI

and any predetermined approach in the case. He submitted that

although a Show Cause notice was not required to be issued IFCI had

issued the same in the interest of giving an opportunity to the plaintiff

of presenting their view. In relation to the allegations of bias and pre

determined action by IFCI.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai

43. Mr. Thakkar invited my attention to the show cause notice itself.

He referred to the inclusion of the independent Auditor's report issued

by Dharde and Associates in respect of the plaintiff company which

according to IFCI clearly shows malafide intentions. Preference being

had to the write back of the amounts allegedly on legal advise and

secondly the payment of huge sum of Rs.449.85 crores to its director as

compensation when in fact the articles did not contemplate such a

payment. He submitted that the actions of both write back as aforesaid

and the payment to its director both appear to constitute acts of

misappropriation and manipulation of account and this is what the

Chartered Accountant's had merely highlighted based on the accounts

available on the public domain. He denied allegation of bias or

malafides. Referring to the concluding portion of the show cause notice

and the objection highlighted by the plaintiff to the fact that Mr.

Thakkar submitted that the plaintiff has misread the contents of the

show cause notice that the conclusion that there has been

misappropriation and an attempt to defraud a creditor and cause loss to

IFCI is not based only on the Chartered Accountant report but the report

of the independent auditor as aforesaid. It is in this context that the

Show cause notice came to be issued since IFCI proposed to classify the

account as a fraud account. Mr. Thakkar further submitted that the

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai hearing to be granted will not be by the authority issuing the show

cause notice but will be an independent authority and under the

guidelines set up for reporting of such system. He allayed fears of a

predetermined and biased approach is sought to be made out by the

plaintiff. He therefore submitted that no relief be granted in the present

application.

44. In support of his contentions Mr. Thakkar submitted that the

observation of the Telangana High Court wherein the case of a circular

relating to banks and financial institutions and not in the case of NBFC.

Notwithstanding that he submitted that the rule of Audi alteram partem

would be observed and merely because the report had been furnished

by the Chartered Accountant without calling upon the plaintiff to

disclose documents or answer queries is no reason to conclude that a

fair opportunity would not be given to the plaintiff. In this behalf Mr.

Thakkar relied upon decision of the Supreme Court in Union of India in

vs. Kunisetty Satya Narayana (2006) 12 SCC 28 and the decision of the

Supreme Court in Addl. Dir. General, Dte, General of Central Excise vs.

Kiran Machines (2016) 1 SCC 580. In support of his contention that

filing of a writ petition impugning a the show cause notice is not

ordinarily maintainable and that is only in rare and exceptional

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai circumstances. The show cause notice is required to be quashed. In the

present case there is no occasion to prevent the exercise that IFCI has

now proposed to undertake. He submitted that the filing of a civil suit in

the case .of a show cause notice is clearly barred He therefore

submitted that the plaintiff will be afforded a complete opportunity of

defending themselves prior to any decision being taken and hence no

interference is called for.

45. Having heard the long submissions on behalf of the plaintiff and

that on behalf of the defendants I find that the issue involved is fairly

straight forward. The plaintiff is aggrieved by the fact that defendant

no. 1 has conducted a Forensic Audit of the plaintiff's affairs but has

done so without notice to the plaintiff, without calling for any records

from the plaintiff and reached conclusions only on the basis of material

available in the public domain and those provided by IFCI. These

records include the filings with the Registrar of Companies and as

available on the website of the Ministry of Corporate Affairs. It includes

proceedings before the BIFR which would have substantial data

pertaining to the financial affairs of Datar Switch Gears Limited. The

provisions in the scheme and the consequences of the de-merger and

the financial statements in relation thereto. These are the basic records

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai on the basis of which the Forensic Audit is believed to have been carried

out.

46. The objection on behalf of the plaintiff is to the effect that rules of

natural justice have been violated and that prior to issuing FAR the

Auditor ought to have called upon the plaintiff to provide explanation

to any aspect that the Auditor deemed it fit and in keeping with the

obligations of an Auditor as provided for in the Chartered Accountants

Act and in particular in the Second Schedule to which I have made

reference above. The other aspect of the challenge is that the digital

Accounting Board standards have not been complied. In that respect it

is submitted that the defendant no. 1 has committed an act of

professional misconduct in not having called for information from the

plaintiff company.

47. In this behalf it appears defendant no. 1 has been engaged as

professional to render services upon their empanelment with IFCI.

The terms of empanelment have been elaborated in the engagement

letter. After empanelment and after inviting quotations the IFCI have

opted to call upon defendant no. 1 to furnish an Audit Report based on

the scope of work specified. This is a contractual agreement between

IFCI and its empanelled Auditor. There is no privity of contract

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai between defendant no. 1 and the plaintiff. Defendant no. 1 prima facie

does not appear to have been obliged to discuss the scope of work that

the plaintiff. Defendant no. 1 was constrained within the scope of work

that was defined in the engagement letter. This engagement letter

would therefore circumscribe the limits to to which the defendant no. 1

would engage in the process of arriving at the conclusions in the

Forensic Audit Report. The Forensic Auditor could have called for

information, reports clarification on various aspects on which he has

opined. However, the question is one of contractual obligation that

defendant no. 1 owed to IFCI. Defendant no. 1 owed no duty to the

plaintiff in that respect. However that having been said, the question is

whether the plaintiff can be indicted on the basis of this report alone

48. The Master Circular and the Specific Circular which applies to

the NBFCs clearly empower the plaintiff to engage in an investigation

and seek appropriate reports from any professional that it chooses to but

before action is taken defendant no.2 has thought it fit to issue the

subject Show Cause Notice. Although it is the case of Mr. Thakkar that

no Show Cause Notice was required IFCI has made it clear that every

opportunity will be granted to the plaintiff to make its point. In that

respect Mr. Thakkar has assured the Court that the inquiry at the

hearing of the Show Cause Notice will not be restricted only to the

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai aspects in the FAR and to my mind it will be open for the plaintiff to

bring before the Competent Authority under the Fraud Risk

Management Policy of IFCI which is been referred to during the course

of submissions. In that respect Mr. Thakkar assurance that all

opportunity will be afforded to the plaintiff to present its case with

documentation will have to be accepted.

49. The Supreme Court in Oryx (supra) found that portions of the

show cause notice clearly indicated that the respondent in that case had

made up its mind and reached a definite conclusion about the guilt of

the appellant and this rendered subsequent proceeding and empty ritual

and on ideal formality. In paragraph 27 the Supreme Court observed

that it is no doubt true at the stage of show cause the person must be

told about the charges against him so as to enable him to set up his

defence and prove his innocence. The authority issuing a charge sheet

cannot instead of doing so confront him with definite conclusions of his

alleged guilt and if that is done the entire proceeding initiated by the

show cause notice gets vitiated by unfairness and bias and subsequent

proceedings become an idle ceremony. The Court also observed that a

show cause notice cannot be read hyper technically it must be read

reasonably but one thing becomes clear upon reading of the show cause

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai notice a person who is subjected to it must get a impression that he will

get an effective opportunity to rebut the allegations contained in the

show cause notice. If on a reasonable reading of the show cause notice

a person of ordinary prudence gets the feeling that the reply will be an

empty ceremony then he will be entitled to protection against such a

procedure. That while issuing a show cause notice the authorities must

take care to keep an open mind, act fairly so as to ensure that principle

of justice is followed. Not only it must be followed but it must be

appeared to be done. This is applicable to quasi judicial proceedings as

well especially where the person concerned has the power to take a

punitive step against the noticee.

50. The question is whether in view of the allegations against

defendant no. 1 of having stigmatized the conduct of the plaintiff

whether the IFCI will be prejudiced by such action and whether that

prejudice will effect its decision making process. In this respect I must

observe that references in the FAR damning the conduct of the plaintiff

will have to be kept aside at the time the competent authority hears the

Show Cause Notice. The plaintiff would therefore be entitled to every

opportunity to present their case as if the FAR did not exist but would be

obliged to answer all aspects they are called upon to. There is at least

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai one obvious mis-characterisations that have been pointed out to me by

Dr. Saraf in the course of his submissions. Whether these are due to

inadvertence or deliberate or omissions which ought to have been

avoided is a matter to be considered at the later stage. Prima facie I

find that reference to the Digital Accounting and Assurance Board and

its standards may not be entirely accurate since those accounting

standards appear to be in a draft form and hence have not been

considered in detail at this stage .

51. Today we are concerned with the hearing proposed to be granted

by IFCI on the Show Cause Notice to the plaintiff and whether the

Show Cause Notice is required to be quashed and set aside. That is the

final relief in the suit. On a prima facie view I must record that there is

nothing to prevent IFCI from proceeding to issue a Show Cause Notice in

fact the Show Cause notice must proceed and representation of the

noticee must be heard by a Competent Authority uninfluenced by the

FAR which in any case is based on subjective satisfaction of the

Chartered Accountant based on material available to them. There may

be areas in which the accountant has exceeded his brief. However,

these are not aspects that are not to be gone into at this stage. Suffice it

to say that the plaintiff cannot be prejudiced at the hearing of the Show

Cause Notice by the observations in the FAR as if they are gospel truth.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai

52. On a query from the Court Mr. Thakkar submitted a reporting

system does exist and in this behalf he invited my attention to the Fraud

Risk Management policy effective from 9th June, 2018 and which is

published vide circular of that date. The reporting system envisages

thereunder and provides for definition of fraud, classification of fraud

and the objectives and the manner in which IFCI is to deal with the

same. A Competent Authority would hear all aspects of the defence to

the show cause notice and take an informed decision. Mr. Thakkar

allayed all fears of any pre determined decision and submitted that

show cause notice would only enable the plaintiff to make complete

disclosure and a free and frank disclosure would be permitted and a

decision would be taken after personally hearing the plaintiffs

representative.

53. The plaintiff must be given every opportunity to answer the

Show Cause Notice by filing written submissions supported by

documents and must be heard personally before any order is passed.

The order to be passed one would expect would be a reasoned one. In

these circumstances I am of the view there is no cause made out for

grant of any relief in terms of prayer clause a(1) however as far as

prayer clause a(2) is concerned, I am of the view that IFCI shall proceed

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai to hear the Show Cause notice if it so desires uninfluenced by the

observation in the FAR . There is no doubt that as observed by the

Telangana High Court and as a cardinal rule of natural justice the

principles of audi alteram partem cannot be denied to the plaintiff and

indeed IFCI has made it clear that at the hearing of the Show Cause

Notice that it does not intend to.

54. In these circumstances I find there is no case for grant of the ad-

interim relief as sought by the plaintiffs as that will effectively put paid

efforts of the IFCI to investigate into the matter and arrive at a finding.

It is made clear that this Court has not examined the merits of the

contentions of the IFCI or that of the plaintiff in relation to the

treatment of the Account and the debt said to be owing to the plaintiff.

The Show Cause Notice will be decided on the merits of the case

uninfluenced by any observation in this order. This order has also not

considered the scope of defendant no. 1 assignment in conducting the

FAR or his obligation under the Chartered Accountants Act or any other

guidelines that is required to be followed. Accordingly I pass the

following order :

(i) IFCI will decide the Show Cause notice as issued without being

influenced by the report of the Forensic Auditor dated 19 th December,

2020.

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai

(ii) IFCI will permit the plaintiff to file written submission in response

to the Show Cause Notice supported by documentation and thereafter

grant personal hearing and decide the Show Cause notice in accordance

with law.

(iii) Time to file reply to the Show Cause notice and documents is

extended up to 31st March, 2021.

(iv)     List the IA in the regular course for hearing.



                                                            (A. K. MENON, J.)

                Digitally
                signed by
                Rajeshwari
Rajeshwari      R. Pillai
R. Pillai       Date:
                2021.03.12
                19:27:36
                +0530

2-IAL-4579-2021-SL-4577-2021-12032021 final.odt rrpillai