Suresh Chhajuram Singal vs Bank Of Maharastra Through ...
2023 Latest Caselaw 5579 Guj

                                                                                  NEUTRAL CITATION




     C/SCA/8624/2022                             JUDGMENT DATED: 03/08/2023

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             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

               R/SPECIAL CIVIL APPLICATION NO. 8624 of 2022


FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE NIKHIL S. KARIEL
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1     Whether Reporters of Local Papers may be allowed No
      to see the judgment ?

2     To be referred to the Reporter or not ?                   No

3     Whether their Lordships wish to see the fair copy No
      of the judgment ?

4     Whether this case involves a substantial question No
      of law as to the interpretation of the Constitution
      of India or any order made thereunder ?

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                       SURESH CHHAJURAM SINGAL
                                Versus
                 BANK OF MAHARASTRA THROUGH MANAGER
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Appearance:
MR. BHADRESH RAJU, ADVOCATE FOR DHANESH R PATEL(8226) for
the Petitioner(s) No. 1,2
MR AMAR N BHATT(160) for the Respondent(s) No. 2
MR BHARGAV HASURKAR(5640) for the Respondent(s) No. 1
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    CORAM:HONOURABLE MR. JUSTICE NIKHIL S. KARIEL

                             Date : 03/08/2023

                            ORAL JUDGMENT

1. Heard learned Advocate Mr. Bhadresh S. Raju for and on

behalf of Mr.Dhanesh R. Patel, learned Advocate for the petitioners;

Mr. Bhargav Hasurkar, learned Advocate for and on behalf of the

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respondent No.1 and Mr.Amar N.Bhatt, Learned Advocate for and

on behalf of the respondent No.2.

2. By way of this petition, the petitioners have sought for the

following prayers:-

(A) Your Lordships be pleased to issue a writ of mandamus, or any other appropriate writ, order or direction, quashing and setting aside the impugned action of respondent No.1-Bank in declaring the petitioners accounts as fraud and reporting it to respondent No.2 as fraud account as being illegal, arbitrary, suffering from vices of malafides, in breach of principles of natural justice and also violative of Artc.14 and 19(1)(g) of the Constitution of India;

(B) Your Lordships be pleased to issue a writ of mandamus, or any other appropriate writ, order or direction, quashing and setting aside the impugned circular dated 1.7.2016 issued by the respondent No.2 as being unconstitutional, violative of Art.14 and 19(1)(g) of the Constitution of India, in breach of principles of natural justice and bad in law;

(C) Yours Lordships be pleased to stay the implementation, operation and execution of impugned action of respondent No.1- bank in declaring the petitioners as fraud, pending the admission, hearing and final disposal of this petition;

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(D) Your Lordships be pleased to further direct the respondents to delete/remove the name of the petitioners from CFR (Central Fraud Registry) constituted by respondent No.2 through Master Circular dated 1.7.2016.

(E) Your Lordship be pleased to grant such other and further reliefs as may be deemed fit in the interest of justice;

3. It would appear that the petitioners were Directors in three

companies namely (1) M/s. Micro Polyester Pvt. Ltd. (2) M/s.

Prime Polyweave Ltd. and (3) M/s. Good Luck Synthetics Pvt.

Ltd. and whereas, the said companies had availed financial facility

from the respondent No.1- Bank in the early 2000 and whereas, it

would also appear that the respondent-bank had also later on

increased the sanctioned limit to the companies. It appears that

somewhere in the financial year 2004-05, the companies according

to the petitioners had suffered huge financial loss and resultantly,

all the accounts of the Companies were declared Non Performing

Assets (NPA) on 30th September, 2005. It also appears that the

companies had also disputes with other banks from whom, they had

obtained the financial facilities. It appears that as far as the present

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respondent no.1 bank is concerned, the petitioners, had submitted a

proposal for OTS for all the three companies and whereas, vide a

communication dated 17.12.2008 issued by the the Managing

Committee of Board of Directors, the same was accepted and

whereas,the full and final settlement had been arrived at somewhere

in the year 2008-2010. It would also appears that in the

interregnum, the respondent Bank has also initiated the proceedings

before the Debt Recovery Tribunal, Ahmedabad by filing Original

Application Nos. 3 of 2007; 4 of 2007 and 104 of 2008 against the

companies respectively. It would appear that while the petitioners

had settled with the respondent No.1-Bank and the matter had stood

as such in the interregnum, the Central Bureau of Investigation

(referred to hereinafter "the CBI") had registered a suo moto FIR

against the petitioners as well as some of the officers of the

respondent No.1-Bank and whereas, it would appear that as of now,

vide an order dated 25.8.2017, the Hon'ble Apex Court had stayed

all the proceedings pending before the learned Additional Chief

Judicial Magistrate, Ahmedabad in CBI Special Case No. 2 of 2010

arising from the FIR registered by the CBI referred to hereinabove.

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3.1. It would appear that when the things stood as such, another

company namely M/s. Akshat Paper Ltd. in which the petitioner

no.1 was a Director had approached the Bank of India for grant of

financial facilities and whereas, the petitioner no.2 had stood as

guarantor for the financial facilities and whereas, the said

application had been rejected by intimating the petitioners that the

name of the petitioners are reflected in the Central Fraud Registry

implemented through Master Circular dated 1.7.2016 issued by the

respondent No.2-Reserve Bank of India. It appears that upon the

petitioners coming to know about their names being reflected in the

Central Fraud Registry, they had resigned from the directorship of

the said company i.e. Akshat Paper Ltd. It also appears that the

petitioners had sought for information from the Bank of India as

regards the rejection of their application and as regards the name of

the applicants being reflected in the CFR and whereas, it would

appear that vide an email dated 20.01.2022 the Bank of India had

intimated to the petitioners that the names of the petitioners exists

in the CFR due to the incident reported by the Bank of Maharashtra

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in connection with the above referred three companies.

3.2. It is upon coming to know about the name of the petitioners

being reflected in the CFR that the petitioners have approached this

Court by way of this petition.

3.3. While it would appear that initially vide an order dated

4.5.2022, a learned Co.ordinate Bench of this Court had issued

notice to the respondents and whereas, vide order dated 15.6.2022

another learned Co.ordinate Bench of this Court after hearing the

parties, had issued interim directions against the names of the

applicants being reflected in the CFR.

4. It would further appear more particularly, as informed by

learned advocate Mr.Amar Bhatt for and on behalf of the respondent

No.2 that having due regard to the interim order passed on

15.6.2022, the names of the three companies referred to hereinabove

and the petitioners are no more appearing in the Central Fraud

Registry.

5. It is the case of the petitioners relying upon the decision of the

Hon'ble Apex Court in case of State Bank of India Vs. Rajesh

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Agarwal and others reported in (2023) 6 SCC pg.1. that the bank

could not have directed the names of the petitioners to appear in the

Central Fraud Registry, without giving appropriate opportunities to

the petitioners more particularly the application of audi alteram

partem rule was stated to be mandatory. Considering such a

submission, it would appear that the learned advocate for the

respondent No.1 -Bank was directed to produce such documents on

the basis of which the petitioners as well as the companies in

question had been classified as fraud account and were required to

be reflected in the CFR.

6. In pursuance to such directions being issued by this Court

vide order dated 20th June, 2023, learned advocate Mr.Bhargav

Hasurkar for the respondent No.1, under instructions would submit

that as such, the bank does not have any documents on the basis of

which the name of the petitioners were directed to be reflected in

the CFR more particularly according to the learned advocate since

the documents were of the 2008 the bank could not trace the

documents having regard to the long delay in the interregnum.

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7. In view of this matter, learned advocate Mr.Bhadresh Raju

would submit that since while it is true that a long time had elapsed

between the name of the petitioners being entered into the Central

Fraud Registry but, at the same time, it would also appear that there

is nothing on record as such to show that at the relevant point of

time the bank had given adequate opportunity to the petitioners or

not. Learned advocate would rely upon the conclusion by the

Hon'ble Apex Court in the case of State Bank of India Vs. Rajesh

Agarwal and others (Supra) whereby, the Hon'ble Apex Court had

clearly stated that the application of audi alteram partem cannot be

implidely excluded under the Master Directions on Frauds. Learned

advocate would further submits that as per the decision of the

Hon'ble Apex Court, the Bank, before classifying an account as

fraud; under the Master Directions on frauds is required to adhere

to the principles of natural justice inasmuch as the borrower is

required to be issued a notice, and given an opportunity to explain

the conclusions of the forensic audit report, and be allowed an

appropriate chance of representation. It also appears that the bank is

also under obligation to pass a reasoned order whereby, the

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borrowers account is classified as a fradulent account. Learned

advocate would submits that considering the lack of any documents

with the respondent No.1-Bank and also having regard to the fact

that even after the accounts had been classified as fraud and the

names of the petitioners as well as the companies were directed to

be reflected in the CFR, the bank had entered into one time

settlement with the petitioners and all the dues with regard to the

account in question had been paid up as far as between the year

2008 to 2010. Learned advocate would further submit that even at

the relevant point of time, the petitioners were not intimated about

the accounts being classified as fraud and the names of the

petitioners as well as companies in question being reflected in the

CFR.

8. Having regard to the same, learned advocate would submit

that the position has intimated by the RBI more particularly, as per

the interim direction of this Court vide order dated 15.6.2022 may

be confirmed.

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9. As against the same, Mr. Hasurkar would submit that while it

is true that the bank does not have any documents to content at the

relevant point of time either the petitioner had given the adequate

opportunities or the reason had been passed to classify the accounts

as fraudulent accounts, more particularly in view of the long time

gap in the interregnum and whereas, though learned advocate would

submit that as far as the respondent No.1-Bank is concerned since

the accounts have been closed, they may not have anything further

to add but in any case, learned advocate would submit that the

liberty reserved by the Hon'ble Apex Court at para No. 95 of the

judgement in favour of the bank, i.e., in case the proceedings are

quashed on account of the borrower not getting an adequate

opportunity the banks were granted liberty to take fresh steps in

accordance with law, may be reserved in favour of respondent No.1-

Bank

10. Considering the submissions made by learned advocates for

the respective parties, while it appears that the names of the

petitioners and of the companies were reflected in the CFR, as

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recommended by the respondent No.1-Bank, yet, as of now, there

is no material, which could be produced by the respondent No.1 -

Bank to show that at the relevant point of time either adequate

opportunity had been provided to the petitioners or that a reasoned

order had been passed by the bank. Undoubtedly, the fact of

almost a decade and half, intervening in between also could not be

brushed aside more particularly, the bank could be reasonably be

heard to state that after 15 years, there were not required to keep

these documents in question. At the same time, it would also appear

that there is nothing on record to show that from the time the name

of the petitioners and the companies in question were entered in the

CFR, after classifying them as fraudulent accounts the petitioners at

any point of time were intimated about the same. It also appears that

even when the bank had decided to enter into one time settlement

with the petitioners as regards the accounts of three companies

referred to hereinafter at that time also, the bank had not intimated

to the petitioners above the aspect of the petitioner's name being

reflected in the CFR. Under such circumstances, since there is no

material, which could be provided by either side and it appears that

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the outstanding had been settled with the bank as for as back in the

year 2010, in the considered opinion of this Court, an order which

would balance the equities is required to be passed, inasmuch as the

name of the petitioners ought to be directed to be removed from the

Central Fraud Registry and whereas the respondent-bank should also

be granted liberty to take fresh steps in accordance with law, if they

so deem it appropriate.

11. In view of the aforesaid discussion, the considered opinion of

this Court, the following directions are required to be passed:-

1. The action of the respondent No.1-bank of classifying the accounts of the the petitioners as regards the three companies namely (1)M/s. Micro Polyester Pvt. Ltd. (2) M/s. Prime Polyweave Ltd. and (3) M/s. Good Luck Synthetics Pvt. Ltd as fraudulent accounts and further directing the names of the petitioners to appear in the Central Fraud Registry are hereby quashed and set aside.

2. Appropriate action for removal of the names of the petitioners from CFR to be carried out by the RBI.

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3. Liberty is reserved in favour of respondent No.1-Bank to take appropriate action under the Master Directions on frauds against the petitioners as well as Companies hereinabove in case, it is deemed appropriate. The prayer with regard to challenge to Master Circular of RBI date 1.7.2016 not being contested is not entertained.

With these observations and directions, present petition stands disposed of.

(NIKHIL S. KARIEL,J) BEENA SHAH