Telangana High Court
Mr. Ritesh Kumar Agarwal And 2 Others vs State Bank Of India on 15 April, 2024
Author: Surepalli Nanda
Bench: Surepalli Nanda
IN THE HIGH COURT OF TELANGANA AT HYDERABAD
W.P. No. 36737 of 2022
Between:
Mr Ritesh Kumar Agarwal and others
... Petitioners
And
State Bank of India and others
... Respondents
JUDGMENT PRONOUNCED ON: 15.04.2024
THE HON'BLE MRS JUSTICE SUREPALLI NANDA
1. Whether Reporters of Local newspapers : Yes
may be allowed to see the Judgment?
2. Whether the copies of judgment may be
marked to Law Reporters/Journals? : Yes
3. Whether Their Lordships wish to
see the fair copy of the Judgment? : Yes
_________________
SUREPALLI NANDA, J
2
THE HON'BLE MRS JUSTICE SUREPALLI NANDA
W.P. No. 36737 of 2022
% 15.04.2024
Between:
Mr Ritesh Kumar Agarwal and others
... Petitioners
And
State Bank of India and others
... Respondents
< Gist:
Head Note:
!Counsel for the Petitioners: Mr S.Raja Gopalan
^counsel for Respondents: Mr Srinivas Chitturu
? Cases Referred:
1. 2023 (6) SCC 1
3
HON'BLE MRS JUSTICE SUREPALLI NANDA
W.P. No. 36737 of 2022
ORDER:
Heard Mr S.Rajagopalan, learned counsel
appearing on behalf of the petitioners and Mr Srinivas
Chitturu, learned standing counsel appearing on behalf
of the respondents.
2. The petitioners approached the Court seeking
payer as under:
"to issue any writ or order or direction more particularly
one in the nature of writ of Certiorari and call for the
Records pertaining to Declaration of petitioners vide
orders No.SBI/SAMB/SEC/JVK/LRS/2020-2021/287,
dated 28th July 2021 passed by Wilful Defaulter
Identification Committee (Second Respondent herein)
and consequential orders passed vide order dated
23.02.2022 by Wilful Defaulter Review Committee (3rd
respondent herein) and quash the aforementioned
orders declaring the petitioners as Wilful Defaulters."
3. The case of the petitioners as per the averments
made by the petitioners in the affidavit filed by the
petitioners in support of the present writ petition is as
under:
a) The 1st and 2nd Petitioner herein are suspended
promoters of Rajvir Industries Limited, a company
incorporated under companies act and having Corporate
Identification Number L17116TG2004PLC044053 and the
Respondent No.1had classified the account of Rajvir
Industries Limited as a Non-Performing Account on
29.06.2014.
b) Thereafter, the 1st Respondent in the month of
September 2019, had filed an application for initiation of
Corporate Insolvency Resolution Process (CIRP) of Rajvir
Industries Limited with C.P. (IB) No 747/7/HDB/2019.
Aggrieved by the same, the Petitioners had challenged the
said application on the grounds that the Default date i.e.
29.06.2014 is more than 3 years prior to filing of CIRP
application and further by virtue of Section 18 of limitation act
the said application for initiation of CIRP is liable to be
dismissed.
c) The Respondent had issued a Show Cause notice dated
14.11.2019 wherein it was cited that the Wilful Defaulter
Identification Committee had examined the conduct of the
account and utilization of credit facilities.
d) The 1st petitioner through vide letter dated 27.11.2019,
requested the Respondent herein to share the copy of
Forensic Audit Report of Chaturvedi & Co, so as to enable the
promoters to provide the necessary clarifications and reply.
However, the respondent through letter dated 29.11.2019,
refused to share the copy of the report stating that the said
report is confidential and meant for internal purposes only.
Thereafter, the 1st petitioner had sent a reply letter to the
same vide reply letter dated 13.12.2019.
e) The respondent bank had on 10.08.2020 issued a notice
for personal hearing by Wilful Defaulter Identification
Committee and the said meeting was scheduled for virtual
hearing on 28.08.2020. Thereafter, the 1st petitioner through
letter dated 14.08.2020 and in the first hearing on
28.08.2020 has reiterated his request for forensic audit report
of Chaturvedi & Co to the 1st respondent.
f) Petitioner Nos. 1 & 2, vide their letter dated 08.12.2020
requested the respondent bank to grant exemption to the
guarantors to loan availed by M/s Rajvir Industries Limited on
the ground that they are not involved in the day to day
operations of the M/s Rajvir Industries Limited.
g) Thereafter, the petitioner has attended the hearing
scheduled on 22.12.2020 and same request was made by the
petitioner to the Wilful Defaulter Committee i.e., to provide
the petitioner with the Forensic Audit Report.
h) Subsequently, the Petitioner vide his letter 01.03.2021
addressed to Respondent, reiterated the contents of their
letters dated 13.12.2019, 12.02.2020 and 28.08.2020 and
once again requested the Respondent to provide the
petitioners with the copy of Forensic Audit Report relied upon
by Wilful Defaulter Identification Committee. Along with the
said letter, the Petitioner had annexed the ledger account
statement pertaining to Standard Chartered Bank Payment
and receipts for the financial year 2017-2018 and 2018-2019.
i) More so, as per the said ledger account pertaining to
Standard Chartered Bank for the financial year 2017-2018
and 2018-2019, it is apparent from the face of record that the
monies so received by way of discounting of Export bills, were
used for repayment of interest and principal of monies due
and payable by Rajvir Industries Limited to Consortium of
bankers, for purchase of raw materials, salaries, etc. and the
said expenses were solely incurred for maintaining the
business affairs of Rajvir Industries Limited as Going Concern.
j) In the meantime, on 26.04.2021, the NCLT had
admitted the CIRP application filed by the respondent bank
and appointed Shri. T.S.N.Raja as Resolution Professional for
administering the Corporate Insolvency Resolution Process.
On 01.06.2021, the Resolution Professional issued letters
addressing the Petitioner Nos. 1 & 2 herein restraining them
from attending the office and/or factory of Rajvir Industries
Limited.
k) Aggrieved by the same, the 1st and 2nd Petitioner had
challenged the impugned order dated 01.06.2021, vide I.A.
No 277 of 2021 in C.P(IB) No 747/7/HDB/2019 and in the
said Interlocutory application, the Resolution Professional was
arrayed as 1st Respondent and State Bank of India
representing the consortium of creditors was arrayed as the
2nd Respondent.
l) Thereafter, the Respondent vide notice dated
16.06.2021, scheduled the appearance of Petitioners before
the Wilful Defaulter Identification Committee on 02.07.2021.
m) The Rajvir Industries Limited, being a Medium, Small
and Micro Enterprise, had submitted their Expression of
Interest to the Resolution Professional in the month of July,
2021 and the same was rejected by the Resolution
Professional on the grounds that Rajvir Industries Limited was
not a Medium, Small and Micro Enterprise. Aggrieved by the
same, the petitioners filed an I.A No. 370 of 2021 in C.P.(IB)
No 747/7/HDB/2019.
n) The petitioners herein had appeared before the willful
defaulter committee and requested them to provide them
with forensic audit report and also highlighted the fact that
since the Resolution Professional had restrained the 1st and
2nd Petitioner from attending the office of Rajvir Industries
Limited from 01.06.2021 to 03.09.2021 the petitioners were
handicapped from providing relevant details to support their
case.
o) Furthermore, the committee has identified the
petitioners as Wilful Defaulters vide Proceedings dated
28.07.2021. The Petitioner Nos. 1 & 2 were informed of the
said identification of promoters as Wilful Defaulters on
10.08.2021, for which email reply dated 11.08.2021 was
issued highlighting the fact that the Resolution Professional
has restrained the Petitioners from entering in to office
premises for procuring the vital piece of evidence and
requested the Wilful Defaulter Identification Committee to
rescind the identification of promoters as Wilful Defaulter
Identification Committee.
p) On 19.08.2021, the petitioners/promoters had issued
another letter addressed to Respondent, highlighting the fact
that IDBI Bank, another member of Consortium of Creditors
who has also initiated wilful defaulter proceedings on or about
the same time, had found that the reply submitted by 1st and
2nd Petitioners, regarding routing of funds are found to be
satisfactory and hence the dealing group at IDBI Bank has
decided to drop Wilful Default charge "Routing of funds
through non-lending banks" against the petitioners
(promoter/Director/Guarantors) of Rajvir Industries Limited.
q) The NCLT, through its orders dated 03.09.2021 in I.A No
277 of 2021 in C.P(IB) No 747/7/HDB/2019, permitted the
promoters (Petitioner Nos. 1 & 2) to attend office and/or
factory and declared the impugned order dated 01.06.2021 of
Resolution Professional as being contrary to laws.
r) The Resolution Professional through memo dated
20.06.2022, filed in I.A. No. 370 of 2021 in C.P. (IB) No
747/7/HDB/2021 submitted that, the Respondent bank herein
had declared the Promoters/petitioners as Wilful Defaulter on
23.02.2022 and neither the same was informed nor the
copies of the Order dated 23.02.2022 were supplied and it
was only upon several requests made by the petitioner, the
said declaration by the respondent bank was supplied to the
petitioners.
s) That the Resolution Professional vide his memo dated
20-06-2022, filed in I.A No 370 of 2021 in C.P.(IB) No
747/7/HDB/2021 submitted that the Respondent bank herein
had declared the Promoters as Wilful Defaulter on
23.02.2022.
t) The petitioners had submitted a resolution plan for
Rajvir Industries Limited on 03.08.2022 and a revised
resolution plan dated 13.08.2022 as per instructions of
Consortium of Bankers and the Respondent is now taking
umbrage under the declaration of Petitioners as Wilful
Defaulter and is refusing to consider the resolution plan
submitted by the Petitioners despite the Order of NCLT in I.A
No 370 of 2021 in C.P. (IB) No.747/7/HDB/2019 and thereby
causing irreparable losses and mental stress to the petitioners.
Hence, this Writ Petition.
PERUSED THE RECORD
4. Order dated 28.09.2022 passed in W.P.No.3655 of,
36737 and 36751 of 2022, reads as under:
"At request of Sri Srinivas Chitturu and Sri
V.S.N.Raju, learned counsel appearing for respondents
to file counter, list on '12.10.2022.
According to the petitioner, despite specific
request being made, Respondent bank did not furnish
forensic audit and RP has restrained the petitioner from
discharging his duties from 01.06.2021 to 03.09.2021.
He had submitted resolution plan on 29.06.2022
pursuant to NCLT order. COC meeting was on
09.08.2022. Even then, respondents-banks have
declared the petitioners as willful defaulters.
Whereas, Sri Srinivas Chitturu, learned counsel
appearing for lDBl would submit that lDBl bank has
already furnished the names of the petitioners as willful
defaulters to the credit information companies.
Therefore, the petitioners herein have to implead
Reserve Bank of lndia.
ln view of the same, the matter requires
examination.
Till 12.10.2022, the respondents-Banks are directed not
to take further steps pursuant to the order dated
08.11.2021 passed by Willful Defaulter Review
Commitee of lDBl Bank. Liberty is granted to the
petitioners to take steps to implead Willful Defaulter
Review Committee of lndustry Development Bank of
lndia (lDBl) also Reserve Bank of lndia (RBl)
5. Counter filed on behalf of the respondent and in
particular paras 9, 11, 17 and 22, read as under:
"9. It is submitted that the Forensic Audit Report is a
confidential document of the Answering Respondent and
it contains various issues including lapses on the part of
the Answering Respondent's personnel, if any;
deficiencies in the system, if any and other material, the
disclosure of which would jeopardize the interests of the
Bank. Therefore, such documents cannot be parted with
by the banks. Moreover, the Forensic Audit Report was
obtained at the cost of the Answering Respondent and
based on the records of the borrower company, bank
statements, etc. Hence, the Petitioners have no
right to get a copy of it. In spite of this the Bank
provided to the Petitioners the relevant extracts from
the said Report and such supply was acknowledged by
one of the Petitioners. This material fact was deliberately
concealed by the Petitioners. Hence the writ petition is
devoid of merits and liable to be dismissed.
11. ......They do not even require any report much less
the Forensic Audit Report, to submit their defense in
respect of the observations. Despite this the Answering
Respondent supplied the relevant extracts from the
Report. It is submitted that it is obvious that the Writ
Petition has been filed with a clear motive of stalling the
recovery process of public money, by resorting to these
frivolous petitions which are devoid of any merit and
liable to be dismissed with exemplary costs.
17. It is submitted that the Petitioners, by showing the
interim stay granted by this Hon'ble court on 28.09.2022
is trying to push their resolution plan, in-spite of their
ineligibility. Without admitting the contentions of
the Petitioners, even if the Hon'ble Court sets
aside the declaration, the Answering Respondent
would be at liberty to initiate fresh proceedings for
declaration of Petitioners as willful defaulters,
after rectifying the mistakes if any, pointed out by
the Hon'ble Court while disposing of the Writ
Petition. In such a case, it would amount that the
provisions of Section 29A would get violated if the
Petitioners are allowed to push their resolution plan
under the guise of orders of this Hon'ble High Court.
Therefore, the Answering Respondent humbly prays the
Hon'ble Court not to allow the Petitioners to stall the
recovery process by taking advantage of the
proceedings and the orders in the interest of public
policy, economy, etc.
22. In reply to para 11-15, it is submitted that the bank
at every stage of proceedings provided sufficient
opportunity to the petitioner to substantiate their stand
against the proposal of declaration of willful defaulters.
The Answering Respondent Bank has meticulously
complied with the procedure and acted in a fair manner.
In fact, the admissions of the Petitioner in operating with
other banks and using the funds for expenditure is
contrary to the sanction terms, themselves prove the
misconduct on the part of Petitioners and nothing else is
required to prove them as defaulters.
6. The learned counsel appearing on behalf of the
petitioners mainly puts forth the following submissions:
i) The declaration of the petitioners vide order No.SBI
/SAMB/SEC/JVK/LRS/2020-2021/287, DATED 28.07.2021
passed by Wilful Defaulter Identification Committee (2nd
respondent herein) and consequential orders passed vide
order dated 23.02.2022 by Wilful Defaulter Review Committee
(3rd respondent herein) declaring the petitioners as wilful
defaulters needs to be quashed since the Fundamental Rights
of the petitioners mandated in Article 19(1)(g) of Constitution
of India had been grossly violated by State Bank of India.
ii) The respondent had steadfastly refused to provide the
forensic Audit Report relied by them for the purpose of
identification and Classification of petitioners herein as wilful
defaulters despite repeated requests by the petitioners herein
and hence, the declaration of petitioners herein as wilful
defaulters is liable to be set aside.
iii) The resolution professional had restrained the petitioner
herein from attending office and/or factory from 01.06.2021
to 03.09.2021 and thereby the petitioners were restrained
from producing crucial documents pertaining to their
submissions and claims before the wilful defaulter
Identification Committee.
iv) The wilful Defaulter Identification Committee despite
being aware that the petitioners were restrained by resolution
professional proceeded to identify the petitioners as wilful
defaulter's, hence, the declaration of the petitioners herein as
wilful defaulters is liable to be set aside.
v) The petitioners did not receive any order issued by the
wilful defaulter Review Committee and hence, the wilful
Defaulter Review Committee admittedly did not apply its mind
independently prior to declaring the petitioners as wilful
defaulters and hence the declaration of petitioners as wilful
defaulter is liable to be set aside.
vi) Reliance was placed on Forensic Report to declare the
petitioners as wilful defaulters which was however, never
shared with the petitioners.
vii) Respondent bank with a malafide intention to prevent
the petitioners from filing a resolution plan as mandated under
Section 240A of Insolvency and Bankruptcy Code has
classified the petitioners as wilful defaulters and that too
without following the principles of natural justice and hence,
the declaration of the petitioners as wilful defaulter is liable to
be set aside.
Based on the aforesaid submissions, learned
counsel for the petitioners contends that the writ
petition needs to be allowed.
7. Learned standing counsel appearing on behalf of
the respondent bank mainly putsforth the following
contentions:
i) Writ petition is not maintainable against the respondent
bank since the relationship between the petitioners and the
Answering respondent is that of a Borrower and Creditor and
based on commercial contracts.
ii) The respondent bank had not been discharging any
statutory duty or public duty while dealing with recovery of its
dues, hence, on this count also writ petition is not
maintainable.
iii) The respondent bank at every stage of proceedings
provided sufficient opportunity to the petitioners to
substantiate their stand against the proposal of declaration of
wilful defaulters.
iv) The Answering respondent bank has meticulously
complied with the procedure and acted in a fair manner.
v) Since the petitioners had failed to give proper
response/reply in respect of the payments made from saving
bank account which is not satisfactory and unacceptable, the
recommendation to include the petitioners names as wilful
defaulters was made since petitioners are liable to pay
substantial amount to the respondent bank and are trying to
evade payment and are resorting to litigation.
Based on the aforesaid submissions and placing reliance
on the averments made in the counter affidavit filed by the
respondents the learned counsel appearing on behalf of
respondent Nos. 1, 2 and 3 contended that the writ petition
has to be dismissed in limini.
DISCUSSION AND CONCLUSION
8. The Apex Court in the judgment in State Bank of
India and Others Vs. Rajesh Agarwal & Others at para
81 reported in 2023 (6) SCC 1, dealing with a case of
declaration of account as fraud observed that principles
of natural justice demand that the borrowers must be
served a notice given an opportunity to explain the
findings in the forensic audit report before the account
is declared as fraud. This itself indicates that Forensic
Audit Report must be necessarily supplied to the
borrower prior to declaring an account as fraud. This
Court in principle opines that the same principles of
natural justice need to be necessarily followed prior to
declaring the petitioners as defaulters or willful
defaulters and the petitioners should be furnished with
the copy of the Forensic Audit Report prior to such
declaration by the Respondent Bank and consistent with
the principles of natural justice, the respondent bank
should provide an opportunity to petitioners by
furnishing a copy of the Forensic Audit Report and allow
the petitioners a reasonable opportunity to submit a
representation before declaring the petitioners as
willful defaulters which admittedly as borne on record
had not been followed in the present case even as per
the averments made by the respondent in the counter
affidavit filed at paras 9, 11, 17 (referred to and
extracted above).
9. A bare perusal of the averments made by the
petitioners in the affidavit filed in support of the
present writ petition at para 12 clearly indicates that
the 1st petitioner had requested State Bank of India vide
his letter dated 27.11.2019 to provide them the copy of
the forensic audit report, but State Bank of India vide
their letter dated 29.11.2019, had declined to provide
the Forensic Audit Report to the petitioners herein.
The said letter dated 29.11.2019 of the Deputy
General Manager, State Bank of India, reads as under:
"With reference to your letter dated 27.11.2019, in
reply to our letter No.SAM/SEC/ESN/919 dated
14.11.2019, we have to advise that as per the
Bank's extent instructions, forensic audit report is
private and confidential and meant for our internal
purposes. It is, therefore, not possible to share
the report with you.
02. As regards clarifications sought by us, please
state/advise your version/clarifications on the issues
mentioned in our notice.
03. In case we do not receive your clarifications as per
the timeline mentioned in our notice, it shall be deemed
that you do not intend to clarify or do not have anything
to clarify. The bank would proceed accordingly for
further action as per the notice."
10. A bare perusal of the averments made in the
counter affidavit filed on behalf of the respondent bank
in particular, paras 9, 11, 17 (referred to and extracted
above) and the contents of the letter dated 29.11.2019
of the Deputy General Manager, SBI, clearly indicates
that Forensic Audit Report had not been furnished to
the petitioners prior to passing of the impugned oders
dated 28.07.2021 and 23.02.2022 declaring the
petitioners as willful defaulters and the same is
contrary to the relevant procedure to be followed by the
respondent bank for conducting the proceedings for
willful defaulters declaration and the same clearly
indicates that the respondent bank admittedly
committed a mistake.
11. Taking into consideration:
(a) the law and the view laid down by the Apex
Court in the judgment reported in 2023 (6) Supreme
Court Cases page 1 at paras 81 and 95 in State Bank of
India v Rajesh Agarwal and applying the said principles
to be followed before classifying borrowers account as
fraud in principle to the facts of the present case as
necessary principles to be followed by the respondent
bank prior to declaring the petitioners herein as willful
defaulter's,
(b) duly taking into consideration the aforesaid
facts and circumstances of the case,
(c) duly considering the interim orders granted in
favour of the Petitioners dated 28.09.2022 which are in
force as on date,
(d) duly considering the averments made in the
counter affidavit filed on behalf of the respondent bank,
in particular, paras 9, 11, 17 (referred to and extracted
above),
(e) duly considering the contents of the letter
dated 29.11.2019 of the Deputy General Manager, SBI,
which clearly indicate that the Forensic Audit report had
not been furnished to the petitioners' prior to passing of
the impugned orders dated 28.07.2021 passed by the
2nd respondent and 23.02.2022 passed by the 3rd
respondent.
The Writ Petition is allowed as prayed for.
12. It is however, observed that the Respondent Bank
would be at liberty to reinitiate the proceedings afresh
for declaration of the petitioners as willful defaulters,
if so advised, in accordance to law in conformity with
principles of natural justice. However, there shall be no
order as to costs.
Miscellaneous petitions, if any, pending shall stand
closed.
___________________
SUREPALLI NANDA, J
Dated: 15.04.2024
Note: L.R. copy to be marked
b/o
kvrm
