Surendra Patwa vs Reserve Bank Of India
2021 Latest Caselaw 7874 MP

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     T H E H I G H C O U R T O F MAD H YA PRAD E S H
                   B E N C H AT I N D O R E
                    Writ Petition No.23800/2021
           (Surendra Patwa and another V/s RBI and others)
                            ORDER

Date: 26.11.2021:

• Shri Abhinav Malhotra, learned counsel for the petitioners. • Shri Bharat Chitale, learned counsel for the respondent no.1/Reserve Bank of India.

• Shri Lokesh Mehta, learned counsel for the respondent no.2/Bank of Baroda.

• Shri Milind Ramesh Phadke, learned ASG for the respondent no.3/CBI.

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Shri Chitale, learned counsel for the respondent no.1/RBI prays 4 weeks time to file reply. Shri Mehta learned counsel for bank seeks permission to file the reply. Shri Phadke learned ASG for respondent no.3/CBI has already filed the reply. Petitioner no.1 and 2 are permitted to file the reply as prayed by their counsel.

Shri Malhotra learned counsel submits that he has already received the copy of return filed by the respondent no 2 and he is willing to argue on the question of interim relief.

Heard on the question of interim relief.

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2. The petitioner no.1 and 2 are husband and wife and they are directors and promoters of the company registered under the companies act in the name of M/s. Patwa Automobiles Private Limited (hereinafter referred as the company). At present the company is undergoing Corporate Insolvency Resolution Process (CIRP) before the National Company Law Tribunal (NCLT), Bench at Indore. The company took a financial assistance from respondent no.2 for starting the business of polymer trading thereafter shifted into the business of automobiles dealership by becoming the authorized dealer of Mahindra and Mahindra Vehicles at Indore. With a view to expand its business company availed the credit facility from the creditors and financial institutions. In the year 2014 the respondent no.2 extended

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financial assistance to the company to the tune of Rs.36 crores. Since the company has failed to repay the debt amount within time hence it was declared as NPA by the respondent no.2 on 18.01.2018. The respondent no.2/bank has filed an O.A. No.95/2018 before the Debt Recovery Tribunal for recovery of outstanding amount. Thereafter an application under section 7 of the Insolvency and Bankruptcy Code, 2016 came to be filed against 'the company' before the National Company Law Tribunal (NCLT), Bench at Indore by one of the creditors of the company namely Ritwik Finance Enterprises Pvt. Ltd. By order dated 09.09.2019 the NCLT has allowed the said application. After passing of the aforesaid order the company was put under the moratorium and immediately thereafter, the CIRP was set in motion. Vide order dated 29.10.2018 a committee was constituted by respondent no.2 under the Master Circular on willful defaulter dated 01.07.2015 has declared the company as willful defaulter. The company has filed the writ petition no.29613/2018 before this court. By order dated 13.02.2019 this Court has restrained the respondents to take coercive action and made it clear that bank shall be free to make recovery proceedings.

3. According to the petitioners in 6th Company of Creditors (COC) meeting dated 19.03.2021 the company has been classified as fraud under the Master directions on Frauds-Classification and Reporting by commercial banks and select FIs dated 01.07.2016 issued by RBI. After declaring the fraud, the matter was reported to the investigation agency i.e. CBI which has resulted into registration of FIR against the petitioners at crime no.RC0082021A0013 dated 21.10.2021 by police station ACB, Bhopal under section 120-B and 420 of the IPC and sections 13(2) read with section 13(1)(d) of the Prevention of Corruption Act,1988. Hence the present petition before this Court.

4. Initially the petitioners have filed this petition seeking quashment of Master Circular on fraud dated 01.07.2015 as it violates Article 14, 19 (1)(g) and 21 of the Constitution of India consequently and quashment of declaration as a fraud and further consequential action. By way of amendment the petitioners are now seeking quashment of FIR registered at crime no.RC0082021A0013 dated 21.10.2021 registered at police station ACB, Bhopal. By way of interim relief, the petitioners are seeking that the

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respondents be restrained from taking any coercive measures.

5. Shri Abhinav Malhotra, learned counsel for the petitioners submit that the Master directions on Frauds- Classification and Reporting by commercial banks and select FIs dated 01.07.2016 nowhere provides the opportunity of hearing before declaring a company as fraud hence it violates Article 14, 19 (1)(g) and 21 of the Constitution of India. It is further submitted that the company has already been declared as willful defaulter and vide interim order dated 13.02.2019 this court has directed not to take coercive action. Since then, no fresh material has been collected by the bank for declaring the company as fraud. Hence the impugned action suffered from malafide and the petitioners are entitled for the interim relief in the nature that no coercive action be taken in pursuant to declaration of Fraud i.e. protection from arrest by the CBI.

6. In support of above contentions, Shri A. Malhotra has placed reliance on the judgment passed by the High Court of Telangana, Hyderabad reported in the year 2021 SCC TS 50 in which similar type of action has been quashed by holding that the principle of audi alteram part of the principles of natural justice is to be read in clause 8.9.4 and clause 8.9.5 of the master circular dated 01.07.2016. He has also placed reliance on the judgment passed by the Apex Court in case of Arnab Manoranjan Goswami Vs. State of Maharashtra and Others reported in 2021 (2) SCC 427 in which the Apex Court has held that the power of High Court under Section 482 of the Cr.P.C. and Article 226 of the Constitution of India are identical in order to prevail the abuse of process of law. The High Court under Article 226 of Constitution of India quashed the criminal proceedings and has also granted bail. He has further placed reliance over the recent judgment passed by the Apex Court in case of A.P. Mahesh V/s Ramesh and others reported in the year 2021 online SCC 475.

7. Shri Milind Phadke, learned A.S.G. appearing for the respondent no.3/CBI submits that the petitioners have already been declared as willful defaulters thereafter, the bank has rightly found the fraud committed by the petitioners and reported to the CBI. The circular dated 01.07.2016 is having a statutory force as it is issued under the power conferred under section 35-A of the Banking Regulation Act,1949 by the RBI. The directions in the

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circular are issued with a view to providing a frame work to banks enabling them to detect and report fraud early and taking time consequent action like reporting to the investigative agencies and once the fraud has been detected and it is reported to the investigation agency registration of an FIR cannot be denied as there is no provision under Cr.P.C. to give any show cause notice before registration of FIR. Hence the principle of natural justice has no role to play while reporting the matter to the investigating agencies in respect of the alleged commission of fraud. The petitioners have remedy under section 438 of the Cr.P.C. to apply for anticipatory bail. No protection can be granted in writ petition filed under section 226 of the Constitution of India.

8. Shri Mehta learned counsel for the respondent no.2/bank submits that bank has taken action strictly in accordance with provisions of circular dated 01.07.2016 and no malafide can be alleged.

9. In the case of M/s Neeharika Infrastructure Pvt. Ltd. Versus State of Maharashtra and others ( criminal appeal no 330/2021) the Supreme Court of India has held as under :-

16. We have come across many orders passed by the High Courts passing interim orders of stay of arrest and/or "no coercive steps to be taken against the accused" in the quashing proceedings under Section 482 Cr.P.C. and/or Article 226 of the Constitution of India with assigning any reasons. We have also come across number of orders passed by the High Courts, while dismissing the quashing petitions, of not to arrest the accused during the investigation or till the chargesheet/final report under Section 173 Cr.P.C is filed. As observed hereinabove, it is the statutory right and even the duty of the police to investigate into the cognizable offence and collect the evidence during the course of investigation. There may be requirement of a custodial investigation for which the accused is required to be in police custody (popularly known as remand). Therefore, passing such type of blanket interim orders without assigning reasons, of not to arrest and/or "no coercive steps" would hamper the investigation and may affect the statutory right/duty of the police to investigate the cognizable offence conferred under the provisions of the Cr.P.C. Therefore, such a blanket order is not justified at all. The order of the High Court must disclose reasons why it has passed an ad-interim direction during the pendency of the proceedings under Section 482 Cr.P.C. Such reasons, however brief must disclose an application of mind.

The aforesaid is required to be considered from another angle also. Granting of such blanket order would not only adversely affect the investigation but would have far reaching implications for maintaining the Rule of Law. Where the investigation is stayed for a long time, even if the stay is ultimately vacated, the subsequent investigation may not be very fruitful for the simple reason that the evidence may no longer be available.

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Therefore, in case, the accused named in the FIR/complaint apprehends his arrest, he has a remedy to apply for anticipatory bail under Section 438 Cr.P.C. and on the conditions of grant of anticipatory bail under Section 438 Cr.P.C being satisfied, he may be released on anticipatory bail by the competent court. Therefore, it cannot be said that the accused is remediless. It cannot be disputed that the anticipatory bail under Section 438 Cr.P.C. can be granted on the conditions prescribed under Section 438 Cr.P.C. are satisfied. At the same time, it is to be noted that arrest is not a must whenever an FIR of a cognizable offence is lodged. Still in case a person is apprehending his arrest in connection with an FIR disclosing cognizable offence, as observed hereinabove, he has a remedy to apply for anticipatory bail under Section 438 Cr.P.C. As observed by this Court in the case of Hema Mishra v. State of Uttar Pradesh, (2014) 4 SCC 453, though the High Courts have very wide powers under Article 226, the powers under Article 226 of the Constitution of India are to be exercised to prevent miscarriage of justice and to prevent abuse of process of law by the authorities indiscriminately making pre-arrest of the accused persons. It is further observed that in entertaining such a petition under Article 226, the High Court is supposed to balance the two interests. On the one hand, the Court is to ensure that such a power under Article 226 is not to be exercised liberally so as to convert it into Section 438 Cr.P.C. proceedings. It is further observed that on the other hand whenever the High Court finds that in a given case if the protection against pre-arrest is not given, it would amount to gross miscarriage of justice and no case, at all, is made for arrest pending trial, the High Court would be free to grant the relief in the nature of anticipatory bail in exercise of its powers under Article 226 of the Constitution of India, keeping in mind that this power has to be exercised sparingly in those cases where it is absolutely warranted and justified. However, such a blanket interim order of not to arrest or "no coercive steps" cannot be passed mechanically and in a routine manner.

10. After hearing the learned counsels for the parties we are of the con- sidered opinion that the petitioners have already been declared fraud and as a consequential action FIR has already been registered by the CBI. The prose- cution set into the motion against the petitioners. The petitioners are having remedy under section 438 of the Cr.P.C. to seek anticipatory bail from the competent court therefore, no interim relief in the nature "no coercive action be taken against the petitioners" cannot be granted in this case. When the pe- titioner is having remedy to apply to apply for anticipatory bail. Therefore, the application for interim relief is hereby rejected. If the petitioners avails the remedy of filling of application under section 438 Cr.P.C. then any thing mention in this order shall come in their way .

List this writ petition after 6 weeks.

                ( VIVEK RUSIA )                                                            ( ANIL VERMA )
                     JUDGE                                                                     JUDGE
     Ajit

AJIT
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            BENCH INDORE, ou=HIGH COURT OF MADHYA
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KAMALASA
            st=Madhya Pradesh,

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NAN serialNumber=7F0BEE2D78BD57DA058F3247441C87E 7E0817FB61F5E2ABCAEE63CAAA7B3B9FF, cn=AJIT KAMALASANAN Date: 2021.11.29 15:09:01 +05'30'