Vishambhar Saran vs Punjab National Bank And Anr
2023 Latest Caselaw 3132 Cal/2

                     In the High Court at Calcutta
                    Constitutional Writ Jurisdiction
                             Original Side

The Hon'ble Justice Sabyasachi Bhattacharyya

                          W.P.O. No.1626 of 2023
                        VISHAMBHAR SARAN
                                VS
                   PUNJAB NATIONAL BANK AND ANR

     For the petitioner              :   Mr. Sabyasachi Choudhury, Adv.
                                         Mr. Rajarshi Dutta, Adv.
                                         Mr. V.V. V. Sastry, Adv.
                                         Mr. Debjyoti Saha, Adv.
                                         Mr. Aniruddha Goyal, Adv.

     For the respondent              :   Mr. Samrat Sen, Sr. Adv.

Ms. Parna Roy Choudhury, Adv

Hearing concluded on : 16.10.2023

Judgment on : 17.11.2023

Sabyasachi Bhattacharyya, J:-

1. The petitioner has challenged a complaint dated June 18, 2021made

against him by the respondent no.1-Punjab National Bank (PNB). The

Central Bureau of Investigation (CBI) registered a First Information

Report (FIR) on August 18, 2023 on the basis of the said complaint. It

is contended by learned counsel for the petitioner that the premise of

the complaint was the Master Circular on Wilful Defaulters issued by

the Reserve Bank of India (RBI) on July 1, 2015 which contemplates,

as a consequence of declaration of a person/unit as wilful defaulter,

that the Bank/financial institution lodges a complaint against the

borrower-entity. Learned counsel for the petitioner, by placing

reliance on the allegations made in the impugned complaint, argues

that the genesis of the same was entirely the declaration of the

petitioner as wilful defaulter under the RBI Master Circular and not

general criminal law, that is, the Criminal Procedure Code (CrPC) or

the Indian Penal Code (IPC).

2. However, it is contended that subsequent to the lodging of the

complaint, the declaration of wilful defaulter was challenged by way of

a writ petition bearing WPO No. 291 of 2021 which was disposed of by

granting liberty to the petitioner to approach the Review Committee

(RC) under the Master Circular.

3. However, the Wilful Defaulter Identification Committee (IC) suo motu

recalled its order dated May 29, 2021, whereby the petitioner was

declared as a wilful defaulter, vide order dated November 9, 2022. In

the said order, the IC noted the Transaction Audit Report (TAR) dated

August 24, 2018 was the basis on which a complaint had been lodged

against the petitioner for alleged preferential and undervalued

transactions. On July 25, 2019, the National Company Law Tribunal

(NCLT) rejected the plea of the liquidator against the petitioner in

respect of the said transactions. The National Company Law Appellate

Tribunal (NCLAT) affirmed the order of the NCLT on September 30,

2019. Thus, it was noted by the IC that in view of the said orders the

wilful defaulter proceedings was dropped against the borrower

company, the petitioner and another with liberty to the PNB Zonal

Sastra to re-examine the wilful default aspect on the basis of

independent documentary evidence (apart from the TAR), if any, which

proves wilful default as per the RBI Master Circular.

4. The petitioner‟s account was declared to be a fraudulent account

under another Master Direction of the RBI on frauds dated July 1,

2016 (updated as on July 3, 2017). The Master Direction was

challenged before the Delhi High Court which, while taking up a

cluster of similar petitions, disposed of the same in terms of an order

of the Supreme Court which had come in the meantime, holding that

the principle of Audi Alteram Partem had to be read into the said

Master Direction and, inter alia, setting aside the declaration of the

petitioner‟s account as fraud.

5. Learned counsel for the petitioner further argues that a Look Out

Circular (LOC) issued against the petitioner on the premise of such

default was also set aside by this Court. Hence, it is contended that

since the very premise of the complaint has spent force, the complaint

itself ought to be set aside.

6. It is further argued that the CBI acted without authority in registering

an FIR more than two years after the complaint, since at the relevant

juncture of registering such FIR, the allegations made in the

complaint had all been obliterated.

7. In this context, learned counsel for the petitioner places reliance on

the Delhi High Court judgment and the orders referred to in his

arguments.

8. Learned counsel also cites Lalita Kumari Vs. Government of Uttar

Pradesh and others, reported at (2014) 2 SCC 1, where the Supreme

Court observed that in the case of commercial offences, a preliminary

enquiry is to be conducted, which was not done in the present case

before registering the FIR.

9. Learned senior counsel appearing for the respondent no.1-Bank

contends that no legal right of the petitioner has been infringed by

lodging the complaint impugned herein. The said complaint, in any

event, was relevant at the juncture when the same was lodged and, as

such, ought not to be set aside. Subsequent events, it is argued, did

not take away the basis of the complaint.

10. Insofar as the IC decision to drop the wilful defaulter proceeding is

concerned, it is pointed out that leave was granted to the Bank to

undertake a similar exercise afresh on the basis of independent

documents, if any. Thus, the petitioner was not absolved altogether.

11. It is argued that under Section 154 of the Code of Criminal Procedure,

a complaint by any party is an information for initiating an

investigation. The respondent no.1-Bank, under the general law, was

at liberty to make such a complaint and there is no occasion to set

aside the complaint as such.

12. Learned senior counsel appearing for the Bank further argues that

upon registration of the FIR by the CBI, the complaint has merged into

the same and has lost significance. Due to non-impleadment of the

CBI, the petitioner cannot challenge the registration of the FIR as

such.

13. In any event, it is argued that the petitioner has adequate remedy

under the general criminal law to challenge the FIR and/or to argue

on the merits of the charge-sheet, as and when filed upon completion

of the investigation.

14. It is submitted that the well-settled position of law is that an FIR is

not an encyclopaedia of all the offences committed by the accused but

is only an initiation of the proceedings. Hence, the writ court ought

not to quash the FIR and/or the complaint at this inchoate stage,

since investigation has been taken up by the CBI and is continuing.

15. Learned senior counsel appearing for the respondent contends that in

Lalita Kumari (supra), the Supreme Court observed that the Code of

Criminal Procedure gives the power to the police to close a matter both

before and after investigation. The Section itself, it was observed,

states that a police officer can start investigation when he has a

reason to suspect the commission of an offence. Therefore, the

requirements of launching an investigation under Section 157 of the

Code are higher than the requirement under Section 154 of the Code.

16. It is argued that in the present case, the CBI has already initiated

investigation on the higher footing of Section 157. As such, the mere

requirement of giving information under Section 154 of the Code,

which comprised of the impugned complaint, cannot now be

challenged at all.

17. Learned senior counsel argues that the petitioner is seeking to

challenge the FIR in an oblique manner since he cannot do it directly.

18. Learned senior counsel appearing for the Bank places reliance on

State of Haryana and others v. Bhajanlal and others, reported at 1992

Supp (1) SCC 335, where the Supreme Court observed that the power

of quashing a criminal proceeding should be exercised very sparingly

and with circumspection and that too in the rarest of the rare cases.

The court will not be justified in embarking upon an enquiry as to the

reliability or genuineness or otherwise of the allegations made in the

FIR or the complaint and that the extraordinary or inherent powers do

not confer an arbitrary jurisdiction on the court to act according to its

whim or caprice.

19. It is submitted that the complaint lodged by the bank and the FIR

registered on the basis of the same are valid even beyond the Master

Circular of the RBI, since the Sections clubbed against the petitioner

are under the Indian Penal Code. It is pointed out that there are also

ingredients of allegations under the Prevention of Corruption Act,

since certain officials of the Bank were also allegedly involved in the

offence, being hand-in-glove with the petitioner.

20. Upon hearing learned counsel for the parties, it is found that although

the writ petition has challenged the complaint as well as all

consequential actions, arguments have primarily been advanced in

respect of the complaint. Learned counsel for the petitioner, in fact,

clarified during arguments that subject to the outcome of the present

writ petition, the petitioner would take appropriate steps in respect of

the FIR. As such, since the challenge is limited to the complaint, it

cannot be said that the non-impleadment of the CBI, that is, the

Investigating Agency, renders the writ petition bad for misjoinder of

necessary party.

21. A perusal of the complaint dated June 18, 2021 clearly betrays the

intention of the Bank to rely solely on the declaration of the petitioner

as wilful defaulter as the basis of such complaint, contrary to the

submissions of learned senior counsel appearing for the Bank. In the

very first paragraph of the complaint, the Bank indicates that the

request for lodging an FIR is for the offence of fraud "by siphoning and

diversion of funds, criminal misappropriation, criminal breach of

trust, cheating etc., for causing loss to public money to the tune of

more than Rs. 1964 Cr.". The expressions „siphoning and diversion of

funds‟ and „loss to public money‟ point to grounds of the RBI Master

Circular on Wilful Defaulter dated July 1, 2015. In the second

paragraph of the complaint, it is clarified that the FIR was being

lodged by the PNB on behalf of itself and other consortium member-

Banks for the offences indicated above.

22. Notably, „diversion of funds‟ and „siphoning of funds‟ are the two

plinths of declaration of wilful defaulter under the Master Circular.

23. Clause 4 of the Master Circular contemplates criminal action against

wilful defaulters.

24. Clause 4.1 contains the JPC (Joint Parliamentary Committee)

recommendations which also mention that it is essential that offences

of „breach of trust‟ or „cheating‟ construed to have been committed in

the case of loans should be clearly defined under the „existing statutes‟

governing the Banks, providing for criminal action in all cases where

the borrowers divert the funds with mala fide intentions.

25. Clause 4.2(ii) provides that it is essential to recognize that there is

scope even under the existing legislations to initiate criminal action

against wilful defaulters depending upon facts and circumstances of

the case under the provisions of Sections 403 and 415 of the IPC and

that Banks are advised to seriously and promptly consider initiating

criminal action against wilful defaulters or wrong certification by

borrowers, wherever considered necessary, based on the facts and

circumstances of each case under the above provisions of the IPC to

comply with the instructions of the JPC.

26. In the impugned complaint, the Bank also mentions the insolvency

proceeding before the NCLT initiated subsequent to classification of

the account of the borrower-company as NPA (Non-Performing Asset).

The CIRP against the borrower-company was also mentioned, along

with the liquidation proceeding. The Bank mentioned in the

complaint that a Forensic Auditor was appointed during the CIRP

process and the findings of the Auditor comprised of the allegations of

fraudulent transactions which collectively formed the basis of the

complaint.

27. The Bank mentions in the last paragraph of internal page no.8 of the

complaint that in view of the facts and circumstances, it is clear that

the accused persons have jointly hatched conspiracy against Public

Sector Banks with intent to cheat the bank by diverting/siphoning of

money and committed various offences under relevant provisions of

IPC including criminal breach of trust, criminal misappropriation and

cheating on the Bank.

28. The Bank went on further to mention the issuance of an LOC at the

behest of the Bank.

29. The entire allegation of fraud, cheating and criminal misappropriation

was attributed to diversion and siphoning of funds allegedly done by

the petitioner and the borrower-company. Importantly, in the

penultimate page of the complaint, the bank states that since the

amount involved in the alleged offences is more than Rs.1964 Cr., the

FIR was being lodged before the "competent authority of CBI".

30. The importance of the said statement can be found within the four

corners of the RBI Master Direction on Frauds dated July 1, 2016

(updated on July 3, 2017) itself. Chapter VI of the same deals with

guidelines for reporting frauds to police/CBI and delineates in a chart

as to which complaint should go to which of the Investigating

Agencies, alternatively the State Police, SBIO (Ministry of Corporate

Affairs), State CID, Economic Offences Wing of the State or the CBI.

In case of offences in respect of Public Sector Banks for alleged frauds

of Rs. 30 million and above, the competent investigating agency before

which the complaint should be lodged as per the said Master Direction

is the CBI.

31. The TAR and the fraud classification of the account were relevant

criteria considered by the IC for classifying the petitioner as a wilful

defaulter. Thus, the very language of the complaint clearly reveals

that the same was initiated in terms of the Master Circular for Wilful

Defaulters dated July 1, 2015, following from the fraud classification

under the Master Direction on Frauds dated July 1, 2016.

32. The arguments made by the Bank to the effect that the Bank also had

the legal right as an informant to lodge a complaint under the general

criminal law is belied by the very averments of the complaint, which

entirely revolve around the grounds made out by the Bank in the

wilful defaulter proceeding. The very basis of the complaint was the

Wilful Defaulter declaration which in turn was based on the NCLT

proceedings and the Fraud Classification of the company‟s account.

33. A further clear pointer in that regard is the complaint being lodged

before the CBI and not before the State Police or any other authority,

on the specific assertion in the complaint that the offences being more

than Rs. 1964 Cr., the complaint was being lodged before the

"competent authority of CBI".

34. The different components of the alleged offences averred against the

petitioner in the impugned complaint had and have already lost their

efficacy and spent their force when the FIR against the petitioner was

registered two years after (solely on the basis of such complaint). The

reasons for so finding are as follows:

35. The wilful defaulter declaration, which was the very premise of the

complaint, was recalled by the IC itself. It is noteworthy that although

liberty was given to the bank by the IC to proceed afresh in a similar

proceeding on the basis of independent documents, if any, no such

proceeding has been initiated against by the Bank, despite about one

year having passed after the said observation of the IC dated

November 9, 2022.

36. In its observations, the IC itself took note of the fact that the

allegations of preferential and undervalued transactions of shares

against the borrower-company and the petitioner were turned down by

the NCLT, which was affirmed by the NCLAT as far back as on July

25, 2019 and September 30, 2019 respectively. While doing so, the

TAR, which was the very basis of the allegations, dated August 24,

2018, was categorically disbelieved by the NCLT and NCLAT.

37. Thus, by necessary implication, the recall of the wilful defaulter

declaration also further endorsed the fact that TAR was an invalid

basis of making the allegations against the petitioner.

38. Thirdly, even the fraud classification under the Master Direction dated

July 1, 2016 was set aside by the Delhi High Court.

39. Interestingly, in the FIR dated August 18, 2023, which followed the

Delhi High Judgment dated May 12, 2023, under the column

"Reasons for delay in reporting by the complainant/informant" the

CBI attributed the delay to the pendency of the matter before the Delhi

High Court. Thus, the CBI/Investigating Agency clearly admits that

the classification of fraud of the account by the PNB was the premise

of the complaint lodged. In the present case, however, the wilful

defaulter declaration has been suo motu recalled by the IC, the fraud

classification has been set aside by the Delhi High Court and all the

forums, including the NCLT and the NCLAT have disbelieved the TAR,

which was the only premise of all the allegations against the

petitioner. Thus, on the date of registration of the FIR, that is, August

18, 2023 none of the bank‟s allegations in the complaint survived to

justify registration of the FIR on such premise.

40. In any event, the allegations of offences under the Prevention of

Corruption Act, 1988 were primarily against the officials of the bank

and not against the petitioner on a standalone footing.

41. It is palpable from the observations in the FIR under the heading

"reasons for delay" that the very premise on which the FIR was lodged

was erroneous. It was specifically stipulated therein that the First

Information Report which has been lodged and the proceedings

thereunder remained unaffected in terms of the Delhi High Court

order, which is palpably wrong.

42. In paragraph 6 of its judgment, the Delhi High Court observed that

any First Information Report which has been lodged, and proceedings

pursuant thereto, remain unaffected by the order. The order of the

Delhi High Court is dated May 12, 2023 whereas the FIR was

registered on August 18, 2023, that is subsequently. Hence, neither

the FIR nor the proceedings pursuant thereto, if any, fell within the

exception contemplated in the Delhi High Court order.

43. However, since the petitioner has not categorically challenged the FIR

in the present case while arguing, the veracity of the FIR need not be

gone into further.

44. In view of the above discussions, the arguments of the Bank that the

complaint was mere information under Section 154 of the Code of

Criminal Procedure cannot be accepted, since the complaint came

categorically within the contemplation of the RBI Master Direction

dated July 1, 2016 and Master Circular dated July 1, 2015 and was

lodged solely in terms of those Circulars/Directions.

45. Thus, the support sought to be drawn by the Bank from Lalita

Kumari‟s case is misplaced.

46. Insofar as Bhajanlal (supra) is concerned, the Supreme Court

reiterated that the test to be applied for quashing a prosecution is

whether the uncontroverted allegations as made prima facie

established the offence.

47. In paragraph 103 of Bhajanlal (supra), relied on by the Bank itself, the

parameters of interference by the Court were laid down. It was

observed that the court would not be justified in embarking upon an

enquiry as to the reliability or genuineness of the allegations made in

the FIR.

48. In the present case, no fact-finding enquiry into the genuineness or

reliability of the allegations need be entered into at all in view of the

admitted position that none of the grounds made out in the complaint

subsist today or subsisted on the date of registration of the FIR.

Moreover, the complaint being made clearly within the contemplation

of Clause 4.2(ii) of the Master Circular dated July 1, 2015, read with

Chapter VI of the RBI Master Direction dated July 1, 2016, has been

rendered infructuous in view of the declarations of wilful defaulter and

fraud having been recalled/set aside before even the registration of the

FIR.

49. The argument of the Bank that no legal right of the petitioner has

been infringed cannot be accepted either. The right to live with dignity

is an integral part of any human being, enshrined and guaranteed by

Article 21 of the Constitution of India. Equality before the law is

another important aspect, guaranteed under Article 14 of the

Constitution. The moment arbitrariness and/or mala fides is

exhibited against a citizen of India, a contravention of Article 14

occurs as in the present case. The impugned complaint against the

petitioner dated June 18, 2021, thus, being palpably vitiated as on

today as well as on the date of filing of the writ petition and the

registration of the FIR, cannot be sustained as against the petitioner.

50. In view of the above observations, WPO No.1626 of 2023 is allowed on

contest, thereby setting aside the impugned complaint lodged by the

PNB requesting the CBI to register FIR dated June 18, 2021 insofar as

the writ petitioner is concerned. Liberty is granted to the petitioner to

approach the appropriate forum seeking quashing of the

consequential FIR only so far as the petitioner is concerned and any

ancillary action or investigation, which has been commenced against

the petitioner on the basis of such FIR.

51. There will be no order as to costs.

52. Urgent certified server copies, if applied for, be issued to the parties

upon compliance of due formalities.

( Sabyasachi Bhattacharyya, J. )