Madhya Pradesh High Court
Madanlal Goyal vs Idbi Bank Ltd. on 1 March, 2024
Author: Sushrut Arvind Dharmadhikari
Bench: Sushrut Arvind Dharmadhikari
1
IN THE HIGH COURT OF MADHYA PRADESH
AT INDORE
BEFORE
HON'BLE SHRI JUSTICE SUSHRUT ARVIND DHARMADHIKARI
&
HON'BLE SHRI JUSTICE DEVNARAYAN MISHRA
ON THE 1 st OF MARCH, 2024
WRIT PETITION No. 4699 of 2024
BETWEEN:-
1. MADANLAL GOYAL S/O JUHARMAL GOYAL,
AGED ABOUT 76 YEARS, OCCUPATION: RETIRED
R/O 106 M.G. ROAD SENDHWA DISTT. BARWANI
(MADHYA PRADESH)
2. PRINCE GOYAL S/O MADANLAL GOYAL, AGED
ABOUT 52 YEARS, OCCUPATION: BUSINESS
RESIDING AT 106, M.G. ROAD SENDHWA DIST.
BARWANI, R/O A-42, AHUJA TOWER,S WORLIKAR
CHOWK, PRABHA DEVI, MUMBAI 25, MUMBAI
(MAHARASHTRA)
3. DR. SHAILY GOYAL W/O PRINCE GOYAL, AGED
ABOUT 50 YEARS, RESIDING AT 106, M.G. ROAD
SENDHWA, DIST. BARWANI A-42, AHUJA TOWERS,
WORLIKAR CHOWK, PRABHA DEVI, MUMBAI 25,
MUMBAI (MAHARASHTRA)
.....PETITIONERS
(SHRI ABHISHEK SALIAN, LEARNED COUNSEL FOR THE PETITIONERS)
AND
1. IDBI BANK LTD. THROUGH MANAGER
DIRECTOR IDBI TOWER WTC COMPLEX CUFF
PARADE MUMBAI 400005 (MAHARASHTRA)
2. IDBI BANK LTD. THROUGH GENERAL MANAGER
IDBI TOWER, WTC COMPLEX CUFF PARADE,
MUMBAI (MAHARASHTRA)
3. IDBI BANK LTD. THROUGH DEPUTY GENERAL
MANAGER IDBI TOWER, WTC COMPLEX CUFF
PARADE, MUMBAI (MAHARASHTRA)
Signature Not Verified
Signed by: SEHAR HASEEN
Signing time: 06-03-2024
16:57:47
2
.....RESPONDENTS
( SHRI BHAVIL PANDEY, ADVOCATE FOR THE RESPONDENT(S) NO. 1-3)
This petition coming on for admission. this day, Justice Sushrut
Arvind Dharmadhikari passed the following:
ORDER
Heard on the question of admission and interim relief.
The present petition under Article 226 of the Constitution of India has
been filed praying for the following reliefs:
(a) This Hon'ble Court may be pleased to issue a writ of certiorari
and/or any other writ in the nature of Certiorari calling for the record
and proceedings culminating into action of declaration of the
petitioners' accounts as fraud vide declaration dated 29.04.2020 and
reporting of the account as fraud on 12.05.2020 with the RBI's Central
Fraud Registry and quash and set aside the declaration dated
29.04.2020 and reporting dated 12.05.2020 including any action taking
with respect to the petitioners under the Master Directions including the
classification of the petitioners and/or linkage to an allegedly fraud
account(s) under the Central Fraud Registry maintained by the RBI;
(b) This Hon'ble Court may be pleased to issue a writ of
Certiorari and or any other writ in the nature of certiorari calling for
the record and proceedings culminating into filing of the FIR dated
28.09.2023and quash and set aside the FIR dated 28.09.2023 including
any action taken with respect to the petitioner's under the said FIR.
(c) Pending the hearing and final disposal of the present petition,
the Hon'ble Court may be pleased to stay the effect, operation and
implementation of the declaration dated 29.04.2020 and reporting of the
account as fraud on 12.05.2020 with the Reserve Bank of India's Central
Fraud Registry.
(d) Costs of this petition be provided for.
2. Brief facts of the case are Petitioner no.1 was the Director of SPG
Multi Trade Private Ltd. Company and had advanced a personal guarantee for
loan facilities availed by the company from the respondents/bank. Petitioner
no.2 was the Chief Executive Officer of the SPG Multi Trade Private Ltd.
Company and had advanced a personal guarantee for renewal of loan facilities
advanced to the company by the respondent. Petitioner no.3 remained Director
of the company between 01.03.2007 to 01.04.2009.However, he was never
involved in the day to day functioning of the company. Between 14.12.2009 and
07.09.2017, the company availed credit facilities from the respondent/bank
which kept on renewing from time to time as per the financial requirements of
the company. On 27.05.2019, respondents initiated proceedings under the
Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest, Act, 2002(hereinafter referred to as " SARFAESI Act").
Petitioners have filed reply to the demand notice and made attempts to settle the
debts by OTS, but respondent/bank did not agree to the same. In the meantime,
SPG Multi Trade Private Ltd was admitted by the NCLT, Mumbai under
Section 9 of the Insolvency and Bankruptcy Code, 2016 [referred to as "Code,
2016" hereinafter]vide order dated 03.03.2020. Petitioners in furtherance of their
attempt to settle the matter has given OTS proposal which was accepted by the
respondent/bank and first installment of Rs. 4.60 crores has been duly paid by
petitioner no.3 on 15.01.2024. Petitioners came to know that pursuant to the
said admission of company under the Code of 2016, respondent/bank in
relation to financial facilitates advanced to the company has declared the
account of the company as 'fraud' and resultantly has classified the petitioners
as 'fraud' under the Master Directions on Fraud- Classification and Reporting
by commercial banks and select FI's dated 01.06.2016. It further came to their
knowledge that an FIR has also been registered by the respondent/bank against
the petitioners alongwith other persons. Hence, the present petition is filed.
3. Learned counsel for the petitioners submitted that on 01.04.2009,
04.12.2010, 25.07.2012, 29.01.2013, 20.11.2013, 05.08.2014, 08.04.2013,
02.04.2016, 12.07.2016 and 07.09.2017, the respondent/bank, considering the
healthy financial status of the company has extended financial facilities to the
tune of about 70 crores. At the time of renewal of the financial facilities, the
respondent/bank has done its due diligence inter-alia examining the financial
health of the Company and the conduct of the management and after being duly
satisfied, has renewed the financial facilities. Since 2013 to 2019, the
respondent/Bank has been regularly conducting stock audit reports of the
company. A stock audit conducted by a bank includes a third party verifying
the physical stocks of the company, examining the books of the company
alongwith the sale and cash flow and as such is an examination of the financial
health of the company. As the company had healthy financial status, at no point
of time before commencement of CIRP, the respondent/bank has raised any
issue of fraud. On 16.08.2016, the company had sought 'No objection
certificate' from the respondent/bank to enable a listed company to takeover the
said company. In the said request letter, it was brought to the notice of the
respondent/bank that financial facility extended by them will be taken over by
the SBI. The respondent/bank after duly verifying with the financial health of the
company has refused to give 'NOC' and has insisted that the then existing
management(petitioners) continue. Furthermore, on 25.09.2018, considering the
cash crunch in the company, the company itself requested the respondent/bank
to reduce their financial facilities, which has not been processed by the
respondent/bank timely which itself indicates that the company at all times
servicing their financial facilities. Thus, there is no element of fraud in dealing of
the company. On 03.03.2020, the company was admitted under Section 9 of the
Code, 2016 and on 04.12.2020, the liquidation has commenced. However, even
after the company has been going through the process of liquidation, in good
faith, the petitioners have attempted to settle the financial facilities granted to the
company. In fact, the respondent/bank has entered into OTS on 25.01.2024
with the petitioners and has even taken money in furtherance of the said OTS.
Therefore, there is no question of fraud being attributed to the petitioners.
However, the respondent/bank has arbitrarily, without giving any notice,
intimation, hearing or even after taking action under the Master Circular,
informing them, while the OTS deliberations were going on and subsequently
finalized has declared/classified the petitioners and/or their accounts as 'Fraud'
on 29.04.2020 and on 12.05.2020 reported the petitioners' account as 'Fraud'
account to the RBI and lodged an FIR on 28.09.2023. Therefore, the said
action on behalf of respondents deserve to be quashed in terms of the law laid
down by the Hon'ble Apex Court in the case of State Bank of India & Ors
Vs. Rajesh Agrawal reported in (2023) 6 SCC 1.
4 . Learned counsel further submitted that classification of petitioners'
account as 'Fraud Account' without any prior notice and without adhering to the
principles of natural justice i.e. without affording opportunity of hearing to
explain the conclusions of the forensic audit report, if any , putting is in the
teeth of the judgment passed by the Apex Court in the case of State Bank of
India & Ors Vs. Rajesh Agrawal(supra), all the actions initiated by the
respondent/bank under the Master Circular inter-alia declaration/classification
of petitioners and/or their accounts as 'Fraud' on 29.04.2020, reporting of
petitioners' accounts as 'Fraud' account to RBI on 12.05.2020 and consequent
thereto lodging of FIR on 28.09.2023 against the petitioners is illegal and
arbitrary.
5. It is further submitted that even otherwise, a perusal of the facts
mentioned above, it is clear that petitioners have at all times conducted the
business of the company within the contours of law. The respondent/bank has
consciously, after duly verifying and confirming about the financial health and
conduct of the management has continuously extended financial facilities to the
company and had at no point of time prior to the admission of the Company
under CIRP raised any grievance with respect to the conduct of the company
or any kind of fraud. In fact, in order to settle the Bank Account of the
Company, the petitioners from their personal assets have offered an OTS which
has been duly accepted by the respondent/bank and monies have been accepted
in furtherance thereof. Despite having entered into an OTS and having accepted
the first installment, fraud of any kind is not attributable to the petitioners. The
rule of audi alteram partem is fundamental to the Rules of law and an action
taken or order passed without opportunity of hearing is ultra vires to the Article
14, 19(1)(g) and 21 of the Constitution of India. Hence, the present petition
deserves to be allowed and necessary directions be issued to setting aside the
orders declaring the account of petitioners as 'fraud' and consequent thereupon
to quash FIR No. RC0682023E0010 dated 28.09.2023.
6 . Learned counsel for the respondent/bank as far as the contention of
petitioners as regards opportunity of hearing not being afforded before filing of
complaint is concerned, the same is misconceived in the light of the Judgment
passed in the case of State Bank of India & Ors. Vs. Rajesh
Agrawal(supra) wherein, it has been clearly directed that before filing of FIR,
no opportunity of hearing is required to be given to the accused persons.
Hence, the present petition is liable to be dismissed.
7. Heard, learned counsel for the parties and perused the record.
8. The learned counsel for the respondent/bank has fairly stated on
instructions that no opportunity of hearing was granted to the petitioners before
filing of the FIR. In the present case, admittedly, the principles of natural justice
has not been followed.
9. In this regard, the Apex Court had laid down the dictum that application
of audi alterm partem cannot be impliedly excluded under the master directions
on fraud and whereas the lender banks are required to follow the principles of
natural justice, more particularly by serving a notice upon the borrower and after
considering the objections of the borrower, a reasoned order is required to be
passed. Relevant extracts of the judgment are reproduced below for convenience
and ready reference:
i. No opportunity of being heard is required before an FIR is lodged and
registered;
ii. Classification of an account as fraud not only results in reporting the crime to
investigating agencies, but also has other penal and civil consequences against
the borrowers;
iii. Debarring the borrowers from accessing institutional finance under Clause
8.12.1 of the Master Directions on Frauds results in serious civil consequences
for the borrower;
iv. Such a debarment under Clause 8.12.1 of the Master Directions on Frauds is
akin to blacklisting the borrowers for being untrustworthy and unworthy of
credit by banks. This Court has consistently held that an opportunity of hearing
ought to be provided before a person is blacklisted;
v. The application of audi alteram partem cannot be impliedly excluded under
the Master Directions on Frauds. In view of the time frame contemplated under
the Master Directions on Frauds as well as the nature of the procedure
adopted, it is reasonably practicable for the lender banks to provide an
opportunity of a hearing to the borrowers before classifying their account as
fraud;
vi. The principles of natural justice demand that the borrowers must be served a
notice, given an opportunity to explain the conclusions of the forensic audit
report, and be allowed to represent by the banks/ JLF before their account is
classified as fraud under the Master Directions on Frauds. In addition, the
decision classifying the borrower's account as fraudulent must be made by a
reasoned order; and
vii. Since the Master Directions on Frauds do not expressly provide an
opportunity of hearing to the borrowers before classifying their account as
fraud, audi alteram partem has to be read into the provisions of the directions
to save them from the vice of arbitrariness
10. So far as the case in hand is concerned, from perusal of the record it
is ambiguous that respondent /bank has not afforded any opportunity to the
petitioners before declaring the account of the company as 'fraud', though it is the
contention of respondent/bank that as per the Master Directions issued by the
RBI, such a procedure was not envisaged. But, in view of the recent
pronouncement by the Apex Court in the case of State Bank of India and Ors
Vs. Rajesh Agrawal(supra), this Court is not required to dwell into whether the
stand of respondent /bank is correct or not.
11. In view of the aforesaid, in the considered opinion of this Court
without entering into the details of the issue raised in the present petition, this
petition is disposed off in terms of the law laid down in the case of State Bank of
India Vs. Rajesh Agrawal (supra).
12. Accordingly, FIR No. RC0682023E0010 registered at Police Station
EOB, Mumbai as well as the complaint filed by Respondent /bank pursuant to the
illegal classification of the loan account of the Company and the petitioners as
'fraud' is hereby quashed. No order as to cost.
(S. A. DHARMADHIKARI) (DEVNARAYAN MISHRA)
JUDGE JUDGE
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