Madhya Pradesh High Court
Vijay Kumar Jain vs Reserve Bank Of India on 6 March, 2024
Author: Sushrut Arvind Dharmadhikari
Bench: Sushrut Arvind Dharmadhikari
1
W.P. No.23153 of 2023
IN THE HIGH COURT OF MADHYA
PRADESH
AT I N D O R E
BEFORE
HON'BLE SHRI JUSTICE SUSHRUT ARVIND
DHARMADHIKARI
&
HON'BLE SHRI JUSTICE DEVNARAYAN MISHRA
ON THE 6th March, 2024
WRIT PETITION No. 23153 of 2023
BETWEEN:-
VIJAY KUMAR JAIN S/O TRILOK CHAND JAIN, AGED ABOUT 52
YEARS, OCCUPATION: SUSPENDED DIRECTOR M/S INDISON AGRO
1.
FOODS LIMITED 18-D MAA DURGA NAGAR, NEAR JANKI NAGAR
INDORE (MADHYA PRADESH)
MAHENDRA KUMAR JAIN S/O SHRI TRILOK CHAND JAIN, AGED
2. ABOUT 46 YEARS, OCCUPATION: SUSPENDED DIRECTOR 18-D MAA
DURGA NAGAR, NEAR JANKI NAGAR, INDORE (MADHYA PRADESH)
DEVRAJ JAIN S/O SHRI TRILOK CHAND JAIN, AGED ABOUT 44
3. YEARS, OCCUPATION: SUSPENDED DIRECTOR 18-D MAA DURGA
NAGAR, NEAR JANKI NAGAR, INDORE (MADHYA PRADESH)
.....PETITIONER
(SHRI ABHINAV MALHOTRA APPEARED FOR PETITIONER.)
AND
RESERVE BANK OF INDIA MAIN BUILDING PO BOX 901 SHAHID
1.
BHAGAT SINGH ROAD MUMBAI (MAHARASHTRA)
STATE BANK OF INDIA THROUGH ITS AUTHORISED REPRENTATIVE
2. STRESSED ASSETS MANAGEMENT BRANCH 1ST FLOOR, PLOT NO. 1
ARERA HILLS, BHOPAL (MADHYA PRADESH)
CENTRAL BUREAU OF INVESTIGATION THROUGH ITS
3. SUPERINTENDENT CENTRAL BUREAU OF INVESTIGATION
ANVESHAN PARISAR, CHAR IMLI, BHOPAL (MADHYA PRADESH)
.....RESPONDENTS
(SHRI RAMESH CHANDRA SINHAL, LEARNED COUNSEL FOR THE
RESPONDENT [R-2].)
2
W.P. No.23153 of 2023
Reserved on : 22.01.2024
Pronounced on : 06.03.2024
----------------------------------------------------------------------------------------
This petition having been heard and reserved for order coming on for
pronouncement this day, Hon'ble Shri Justice S.A. DHARMADHIKARI
pronounced the following
ORDER
Matter is heard finally with the consent of parties.
In this writ petition under Article 226 of the Constitution of India,
petitioner has prayed for the following reliefs:
(a) Issue a writ, order or direction in the nature of
certiorari seeking to quash the classification of the
laon account of the Company and the petitioners as
'fradulent' and set aside after calling for production
of the relevant record from the Respondent no.2 Bank.
(b) Issue a writ of Mandamus or any other writ, or
direction in the nature of Mandamus to restrain the
Respondent no.2 from categorizing and/or forwarding
the declaration of the Company and the petitioners as
'fradulent' to Credit Information Companies and
Respondent No.2 without following the Principles of
Natural Justice.
(c) Pass a writ, order or direction in the nature of
certiorari to quash the FIR bearing registration
number RC0082020A0006 of 2020 registered at
Police Station ACB, Bhopal as well as the complaint
filed by Respondent no.2 (Annexure P/1) pursuant ot
the illegal classification of the loan account of the
Company and the petitioners as 'fradulent'.
(d) Pass any such orders which this Court may deem
fit and proper under the facts and circumstances of
the matter.
2. Brief facts of the case are that petitioners are suspended
Directors/Promoters and guarantors of the Company M/s Indison Agro
Foods Limited. The company availed credit facilities from the respondent
no.2/bank at Commercial Branch. Company struggled in repaying the loan
taken and on account thereof, the loan account of the company was
declared as NPA. Various forensic audits were conducted but no
conclusion would be drawn as regards the fraud having been committed by
the company. Insolvency proceedings were initiated against the company
by one of the members of consortium of banks under the Insolvency and
Bankruptcy Code,2016(referred to as 'Code of 2016"hereinafter) at
National Company Law Tribunal, Ahmadabad. Being aggrieved, the
present petition has been filed. While negotiations were ongoing,
respondent no.2/bank with malafide intent filed a complaint to the
respondent no.3/CBI that the account of the company has been classified
as "Fraud".Thereafter, petitioner came to know that an FIR bearing No.
RC0082020A0007 of 2020 has been registered with respondent no.3 on
15.06.2020 at the instance of respondent no.2/bank. Being aggrieved by
the action of respondent no.2 Bank in proceeding to declare the company
and petitioner's account as 'fradulent', without providing opportunity of
hearing and the registration of FIR , the present petition is filed.
3. Learned counsel for the petitioner submitted that respondent
no.2/bank has classified the loan account of company and petitioners as
'Fraud' without a show cause notice or reasonable opportunity of hearing
to the borrower which is against the principles of natural justice and
unconstitutional in the light of Article 14 of the Constitution of India. It is
further submitted that classification of loan account as "fraud" leads to
civil and criminal consequences including complete freeze on credit
facilities and also registration of a criminal case under IPC. 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.
4. In support of his submissions, learned counsel for the petitioner has
placed reliance on various judgments of Apex Court which are as follows:
State Bank of India and Ors Vs. Rajesh Agrawal and Ors. (2023) 6
SCC 1 , wherein it has been held that requirement of audi alterm partem
in the fraud classification directions while upholding the judgment of
Telangana High Court passed the judgement in the case of Rajesh
Agrawal Vs. Reserve Bank of India & Ors. Reported in 2020 SCC
Online TS 2021.
5. Learned counsel further submitted that respondent no.3 has
registered an FIR in a very mechanical manner and without application of
mind which is reflected from the complaint filed by the respondent no.2.
6. In this regard, learned counsel has relied upon the judgment passed
by the Apex Court in the case of Kapil Agrawal and Ors. Vs. Sanjay
Sharma and Ors. reported in (2021) 5 SCC 534 wherein it has been held
that when registration of an FIR is an abuse of process of law or is a
degenerate weapon of harassment then the same can be quashed in
exercise of powers under Article 226 of the Constitution or Section 482 of
the Code of Criminal Procedure.
7. Under such circumstances, necessary order or direction be issued to
quash the classification of the loan account of company and petitioners as
fraudulent and the consequential FIR be also quashed.
8. Per contra, learned counsel for the respondent no.2/bank has raised
preliminary objection regarding jurisdiction, in as much as ,writ petition
shall be filed only before that High Court in whose territorial jurisdiction
the cause of action has arisen and in the present case, the borrower
company's loan account has been identified/declared as fraud at Mumbai
therefore, the cause of action has arisen before the territorial jurisdiction
of the Bombay High Court. Even otherwise, as per bank's letter dated
09.10.2019, the loan account of the borrower company has been
identified/declared as fraud. However, vide the said letter, petitioners have
not been declared as fraud or fraudster or fraudulent and, therefore, no
individual cause of action has arisen to the petitioners for filing the
present petition.
9. So far as the contention of petitioners as regards opportunity of
hearing not being afforded before filing of complaint to the CBI is is
concerned, the same is misconceived in the light of the judgment of Apex
Court passed in the case of State Bank of India & Ors. Vs. Rajesh
Agrawal and Ors reported in (2023) 6 SCC 1, wherein it has been
clearly directed that before filing of FIR, no opportunity of hearing is
required to be given to the accused person.
10. It is further contended that the petitioners have no locus standi for
filing the present petition as the borrower company is under Corporate
Insolvency Resolution Process before the learned NCLT, Indore and the
petitioners are the suspended directors of the company. Hence, they have
no locus standi to file the present petition since the cause of action has
arisen for the borrower company due to declaration of its loan account as
fraud.
11. In view of the aforesaid, submission of learned counsel for the
petitioner are absolutely misconceived and, therefore, the petition is liable
to be dismissed.
12. Heard, learned counsel for the parties and perused the record.
13. In the present case, admittedly, the principles of natural justice had
not been followed and the petitioners had been given an opportunity of
hearing.
14. In this concern, 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
15. So far as the case in hand is concerned, from perusal of the record it
is ambiguous that respondent no.2/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 no.2/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 no.2/bank is correct
or not.
16. 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).
17. Accordingly, FIR No. RC0082020A0006 of 2020 registered at
Police Station ACB, Bhopal as well as the complaint filed by Respondent
no.2 (Annexure P/1) pursuant to the illegal classification of the loan
account of the Company and the petitioners as 'fradulent' is hereby
quashed. No order as to cost.
(S.A. Dharmadhikari) (Devnarayan Mishra)
Judge Judge
sh/-
SEHA Digitally signed by SEHAR HASEEN
R
DN: c=IN, o=HIGH COURT OF
MADHYA PRADESH BENCH INDORE,
ou=BENCH AT INDORE,
2.5.4.20=900ec6fc757798eaeb3df7a
32860bd3298415a4d1c2d91436213
f2568c8f27da, postalCode=452001,
HASE
st=Madhya Pradesh,
serialNumber=E7DBBA955B262C04
B8413251CE7FB6F0B7DBA610C57F
1559C08BF6C6F5DD40D4,
cn=SEHAR HASEEN
Date: 2024.03.06 18:35:21 +05'30'
EN
