Nitin Shambhukumar Kasliwal vs Union Of India
2025 Latest Caselaw 4481 MP

Madhya Pradesh High Court

Nitin Shambhukumar Kasliwal vs Union Of India on 18 February, 2025

Author: Sushrut Arvind Dharmadhikari

Bench: Sushrut Arvind Dharmadhikari

                                                               1                               WP-14287-2023
                                          IN THE HIGH COURT OF MADHYA PRADESH
                                                       AT JABALPUR
                                                       WP No. 14287 of 2023
                                  (NITIN SHAMBHUKUMAR KASLIWAL AND OTHERS Vs UNION OF INDIA AND OTHERS )



                           Dated : 18-02-2025
                                 Shri Sumit Nema - Learned Senior Counsel with Shri Ayush Gupta,
                           Shri Piyush Parashar, Shri Arun Dwivedi - Learned counsel for the
                           petitioners.
                                 Shri A.N. Sharma - Learned counsel for respondent No.2.

These writ petitions [WP 14287/2023, WP 14535/2023] contain a

challenge to the "Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions, 2016" dated 1/7/2016 (updated as on 3/7/2017). The extent of such challenge is seen to be to the limited extent of absence of principles of natural justice therein.

As per the petitioners, such RBI Master Directions do not provide for any opportunity of hearing [principles of natural justice] to any borrower before being declared as 'fraud' by the concerned lender(s), while invoking such powers under Clause no. 8 of such RBI Master Directions. As per the petitioners, by invoking such RBI Directions/Circular and without affording

any opportunity of hearing whatsoever to them, the Respondent-Banks (M/s IDBI Bank Limited in W.P. No. 14535 and M/s Union Bank of India in W.P. No. 14287/2023) are seen to have declared the loan account of M/s SKNL [Respondent no. 5-company] as being 'fraud' on 10/9/2020 (by IDBI Bank) and 28/9/2020 (by Union Bank of India), on allegations of failure to honour the terms of credit facility availed by such company from the concerned

2 WP-14287-2023 bank(s). As per the petitioners, even this impugned declaration as 'fraud' was not intimated/communicated to the petitioners by the Respondent-Banks and this declaration came to the knowledge of the petitioners only when the CBI-Magistrate, Indore issued its summons dated 28/03/2023, directing the writ-petitioners to appear before it.

At the outset, learned Senior Counsel for the petitioners submits that the nature of these petitions [WP 14287/2023 and WP 14535/2023] as well as orders under challenge therein, are distinct from those of the connected MCRC No. 45182/2023 and MCRC No. 48964/2022 - the latter of which do not involve any challenge to the RBI's Master Directions and hence, the writ petitions may be de-tagged from the MCRCs.

In the instant cases, it is seen from the perusal of the pleadings that

consequent to and strictly/solely based upon the impugned Declaration of fraud by the respective Banks, 2 FIRs were registered by the CBI against the petitioners and Respondent No. 5-Company under section 420 & 120-B of the Indian Penal Code, 1860 & under section 13(2) r/w 13(1)(d) of the Prevention of Corruption Act, 1988, as:

i) FIR in Crime No. RC2222021A0005 was registered by the CBI-Police Station, Bhopal on the basis of complaint dated 14/04/2021 by Union Bank of India. [A chargesheet dated 27/1/2023 has been filed before the Special Magistrate CBI, Indore in Case No. SC CBI/8/2023 only in respect of the concluded investigations in FIR/Crime No. RC2222021A0005 (filed at the instance of M/s Union Bank of India); AND

3 WP-14287-2023

ii) FIR in Crime No. RC2222022A0003 was registered by the CBI-Police Station, Bhopal on 10/4/2022, on the basis of complaint dated 17/2/2022 by the IDBI Bank.

Aggrieved by the above, the petitioners have challenged the vires of the RBI Master Directions, 2016 (to the extent of absence of principles of natural justice therein) as well as the orders by which the aforesaid Banks have invoked such Master Directions to declare the loan account of M/s SKNL (Respondent no. 5) as being fraud. The mechanism of such fraud- declaration is such that it equally and adversely affects its Directors/management as well, due to which the petitioners are before this Court to challenge the same, along with all consequent proceedings.

It is submitted by learned Senior Counsel for the petitioners that perusal of the pleadings of the CBI in these matters, brings forth that it has expressly admitted that its proceedings against the petitioners owe their very existence to the complaints filed by the aforesaid Banks, without any other independent material or any other independent investigation by such agency. Specifically, the CBI in its pleadings in the petitions (I.A. No. 8142/2023 in W.P. No. 14287/2023 and I.A. No. 8152/2023 in W.P. No. 14535/2023) has expressly admitted that "the investigation being conducted by the CBI is a consequent proceeding owing its existence to the declaration vide which the loan account of M/s SKNL has been declared as fraud." This admission by the CBI is seen to be in confirmation with the contentions of the petitioners that the entire gamut of "consequent proceedings" at the hands of the CBI, is

not based upon any other/extra independent incriminating material, other

4 WP-14287-2023 than the impugned declaration of fraud of Respondent no. 5 Company loan account, by the lender-Banks.

The principal issue before us is not in respect of whether any opportunity of hearing was given to the petitioners before filing of the FIRs

- but on the actual issue of whether the petitioners were put to notice before being declared as "fraud" as per the RBI Master Directions?

Before adverting to the merits of the controversy, the maintainability of the petitions vis-à-vis challenge to criminal proceedings/FIRs by way of filing of writ petitions under Article 226 of the Constitution requires to be tested. Such issue of challenge to criminal proceedings under Article 226 has been settled in favour by the Supreme Court in a catena of rulings, including in State of Haryana and Ors. v. Bhajan Lal and Ors AIR 1992 SC 604; 1990 INSC 363, Pepsi Foods Ltd. and Another Vs. Special Judicial Magistrate and Others (1998) 5 SCC 749, Kapil Agrawal and Others Vs. Sanjay Sharma and Others (2021) 5 SCC 524, Govind Vs. State (Government of NCT, Delhi) and Others 2003 (68) DRJ 446 (DB), Asmathunnisa Vs. State of A.P. (2011) 11 SCC 259, Nirbhay Singh Rajput Vs. State of M.P. (2010) 1 MPLJ 207, Ramkishan Dhakad and Others Vs. State of M.P. and Others, M.Cr.C. No.2300/2021 decided on 25.02.2021, Khuman Singh Vs. State of M.P., AIR 2019 SC 4030, Hitesh Verma Vs. State of Uttarakhand and Another (2020) 10 SCC 710 and Ajay Pattanaik @ Ajaya Kumar Pattanayak and Another Vs. State of Odisha and Another, CRLMC No.2636/2021 decided on 01.03.2023 wherein it has been held that challenge to FIRs/criminal proceedings is not barred and is sustainable under Article 226 of the Constitution to prevent

5 WP-14287-2023 miscarriage of justice.

Thus, this Court can certainly entertain challenges to FIRs in writ petitions under Article 226 of the Constitution. In the instant writ-petitions, perusal of the pleadings show that the FIRs are a mere reiteration of the Banks' complaints, without any other material available with the CBI, a factum which such investigating agency has admitted. Hence, the petitioners' plea that in case the petitioners' challenge to the declaration of fraud succeeds, the aforesaid FIRs which are admittedly "consequential" to it, shall also deserve to be quashed - is found tenable.

The Hon'ble Supreme Court's landmark in the case of SBI v. Rajesh Aggarwal decided on 27/3/2023 in Civil Appeal No. 7300/2020, has held that principles of natural justice will necessarily have to be read into the impugned RBI-Master Directions, 2016 by inter alia holding that any declaration of a borrower as fraud is akin to their blacklisting for being untrustworthy and unworthy of credit by Banks and hence, an opportunity of hearing ought to be provided before a person is black-listed. The aforesaid law deserves complete application in the present case, wherein admittedly, no opportunity of hearing through any show-cause notice was ever issued to the petitioners before being declared as 'fraud' as per the RBI Master Directions.

On the issue of whether the effect of the judgment passed in the case o f Rajesh Aggarwal (supra) would apply retrospectively or only prospectively, learned Senior Counsel for the petitioners submits that the Delhi High Court in the case of Religare Finvest Limited v. State Bank of

6 WP-14287-2023 India in W.P.(C) 15835/2023 and in the case of M/s TV Vision Limited v. Punjab National Bank in W.P. No. 9302/2022 has held that the effect of the judgment in the case of Rajesh Aggarwal (supra) in Civil Appeal No. 7300/2020 shall be retrospective, thus being in line with petitioners' contentions. It is only fair to be in agreement with the above line of reasoning given by the Delhi High Court to hold that the impact of the Hon'ble Apex Court judgment in the case of Rajesh Aggarwal (supra) would apply retrospectively.

The petitioners also submit that in compliance of the judgment passed by the Hon'ble Supreme Court in the case of Rajesh Agarwal (supra) , it is seen that the RBI has revised its earlier Master Directions/Circular on Frauds, 2016 and replaced the same with the new "Reserve Bank of India (Fraud Risk Management in Commercial Banks (including Regional Rural Banks) and All India Financial Institutions) Directions, 2024" issued on 15/7/2024, which now expressly incorporates the principles of natural justice in its Clause 2.1 [under Chapter II] of such new Directions/Circular, which were absent in the original Master Circular, 2016, but were nevertheless required to be read into even in the earlier Circular/Directions given by the Supreme Court in the case of Rajesh Aggarwal (supra).

However, since these petitions also assail the consequential proceedings pending against them, the learned Senior counsel for the

petitioners fairly submits that in matters involving identical controversy including in W.P. No.23800/2021 and other matters, this Court had quashed the fraud-declaration as well as the consequential FIRs, but the Hon'ble

7 WP-14287-2023 Supreme Court in the pending SLP (Criminal) - Diary No. 15952/2024, has stayed this Court's order for quashment of the FIRs without any interference against the quashment of the fraud-declaration.

Hence, in such circumstances, we deem it appropriate to take cognizance of the above and henceforth, direct as under:

i) The WPs are admitted for final hearing and to be called for final hearing in usual course;

ii) Rule nisi be issued and the interim protection to the petitioners be made absolute until further orders, while granting liberty to the parties to mention the matter after the Supreme Court adjudicates the larger issue involved.

                           (SUSHRUT ARVIND DHARMADHIKARI)                           (ASHISH SHROTI)
                                     JUDGE                                              JUDGE
                           Shanu