Telangana High Court
Mr. Ritesh Kumar Agarwal And 2 Others vs Idbi Bank Limited on 15 April, 2024
Author: Surepalli Nanda
Bench: Surepalli Nanda
IN THE HIGH COURT OF TELANGANA AT HYDERABAD
W.P. No. 36551 of 2022
Between:
Mr Ritesh Kumar Agarwal and others
... Petitioners
And
IDBI Bank 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
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THE HON'BLE MRS JUSTICE SUREPALLI NANDA
W.P. No. 36551 of 2022
% 15.04.2024
Between:
Mr Ritesh Kumar Agarwal and others
... Petitioners
And
IDBI Bank and others
... Respondents
< Gist:
Head Note:
!Counsel for the Petitioners: Mr S.Raja Gopalan
^counsel for Respondents: Mr V.V.S.N.Raju
? Cases Referred:
1. 2023 (6) SCC 1
3
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HON'BLE MRS JUSTICE SUREPALLI NANDA
W.P. No. 36551 of 2022
ORDER:
Heard Mr S.Rajagopalan, learned counsel
appearing on behalf of the petitioners and Mr
V.V.S.N.Raju, 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 herein as
wilful defaultee by Wilful Defaulter Identification
Committee vide order No.WDC/25/(FR22)/RIL, dated
12.08.2021 and consequential order of the Wilful
Defaulter Review Committee vide order
No.WDRC/19/(FY2021-2022)/RIL, dated 08.11.2021."
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
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incorporated under companies act and having Corporate
Identification No. L17116TG2004PLC044053 and the
Respondent No.1 had classified the account of Rajvir
Industries Limited as a Non-Performing Account on
29.06.2014.
b) Thereafter, the State Bank of India 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 Petitioner 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
18.05.2020 wherein it was cited that the Wilful Defaulter
Identification Committee had examined the conduct of the
account and utilization of credit facilities and had concluded
that the acts/events of willful default are as follows:
(i) The unit has defaulted in meeting its payment
obligations to the lender and has not utilized the finance
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from the lender for the specific purposes for which
finance was availed of but has diverted the funds for
other purposes.
(ii) Routing of Funds through any bank other than the
lender bank or members of the consortium without the
permission of the lender.
As per the Forensic Audit report of Chaturvedi & Co, the
company was maintaining current accounts with
Standard chartered bank(SCB) and Corporation Bank
respectively during the Financial Year 2017-2018 and
2018-2019 without the permission of the lender banks.
Hence it is evident that the company did not route the
entire sale proceeds with the lender banks, instead, the
funds were routed through banks other than the lender
banks without prior permission of the lenders."
d) Thereafter, the 1st Petitioner herein had replied to the
said notice vide his reply dated 02.06.2020 on behalf of Rajvir
Industries Limited as well as the promoter/ guarantors who
are the petitioners herein denying the allegations made by
Respondent Bank and in the said letter the Petitioners also
highlighted the fact that they are not in possession of Forensic
Audit report relied upon by the Respondent bank and
requested the Forensic Audit report to be shared with
petitioners. The 1st Petitioner has also requested State Bank
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of India vide letter dated 27.11.2019 to provide petitioners
the copy of the forensic audit report, but State Bank of India
through vide their letter dated 29.11.2019 had declined the
same.
e) The Respondent through vide their letter dated
04.02.2021, informed the petitioners that they have been
declared as wilful defaulters by the Willful Defaulter
Identification committee and vide the said letter the
Petitioners came to be aware that there was a paper
publication dated 04.04.2020 issuing show cause notice to the
Petitioners. Hence, petitioners submits that the Willful
Defaulter Identification Committee of State Bank of India had
unilaterally and arbitrarily and without granting personal
hearing to the Petitioners had Identified/declared the
petitioners as willful defaulters.
f) Thereafter, the petitioner has submitted a
representation dated 15.02.2021 to the Deputy General
Manager of Respondent bank reiterating the contents of
petitioners' letter dated 02.06.2020 and also annexed the
ledger copy pertaining to transactions undertaken at Standard
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Chartered Bank for the financial years 2017-2018 and 2018-
2019.
g) On 26.04.2021, the NCLT had admitted the CIRP
application filed by State Bank of India and appointed Shri.
T.S.N. Raja as Resolution Professional for administering the
CIRP. On 01.06.2021, the Resolution Professional, had issued
letters addressed to 1st and 2nd Petitioner herein restraining
them from attending the office and/or factory of Rajvir
Industries Limited.
h) 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.
i) The Rajvir Industries Limited, being a Medium, Small
and Micro Enterprise, had submitted Expression of Interest to
the Resolution Professional on 08.07.2021 and the same was
rejected by the Resolution Professional on the grounds that
Rajvir Industries Limited was not a Medium, Small and Micro
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Enterprise. Aggrieved by the same, the petitioners filed an
I.ANo. 370 of 2021 in C.P.(IB) No 747/7/HDB/2019.
j) Thereafter, the Respondent vide notice dated
17.07.2021 had scheduled the personal hearing of Petitioners
herein before the Willful Defaulter Identification Committee on
29.07.2021.The petitioner Nos.1 and 2 herein has appeared
before the committee and requested to provide 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 and they were handicapped from
providing relevant details to support petitioners' case.
k) Furthermore, the committee has identified the
promoters as Willful Defaulters vide Proceedings dated
12.08.2021 and referred the case of the petitioners to Wilful
Defaulter Review Committee. The petitioners then issued a
representation to the Wilful Defaulter Review committee vide
email dated 26.08.2021 stating that the petitioners had
highlighted the fact that the Resolution Professional has
restrained the Petitioner Nos. 1 & 2 from entering in to office
premises for procuring the vital piece of evidence and
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requested the Willful Defaulter Identification Committee to
rescind the identification of promoters as willful defaulters.
l) 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.
m) 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 and submitted that, the Respondent bank
herein had declared the Promoters/petitioners as Willful
Defaulter on 08.11.2021 and neither the same was informed
nor the copies of the Order dated 08.11.2021 were supplied
to the petitioners and upon several requests made by the
petitioner, the said declaration by the respondent bank was
supplied to the petitioners.
n) 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 WilfulDefaulter
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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,
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
Committee 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)"
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The said order dated 28.09.2022, passed in the present
writ petition is in force, as on date.
5. Vacate Stay Petition has been filed by the
Respondent Nos. 1 to 3 to vacate the interim orders
dated 28.09.2022 in I.A No. 2 of 2022 in W.P. No.
36551 of 2022.
6. Counter Affidavit filed by the Respondent No. 1 to
3 and in particular, para 5 read as under:
"5. With reference to the contention of the petitioners at
paras 34 & 37 that they were not provided with the
Forensic Audit Report has no relevance as the
petitioners are confronted with specific allegations that
they have committed certain acts which constitute
Willful Default as defined under the RBI Master Circular
dt.01.07.2015 which acts are not being rebutted by the
petitioners.
It is submitted that the letters dt.02.06.2020 &
15.02.2021 of the borrower company categorically
articulates that the auditors have done forensic audit
taking into consideration the details submitted by the
borrower company and the submissions made by them
to the forensic auditors and as such the allegation of
the borrower company that they are not provided with
forensic audit report when it was conducted in their
presence and to their knowledge clearly shows the
allegation if malafide intention and baseless. It is
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submitted that the only charge expected to be
answered by the petitioners with regard to utilization of
the short term working capital loans to repay the long
term loans without utilizing the funds for the purpose
for which the loans were sanctioned, which is not in
conformity of the sanction for which the Forensic Audit
Report is not required. The petitioners having failed
to provide an acceptable explanation to the act of
mis-utilization of loan amount are trying to harp
on the non providing of Forensic Audit Report."
7. The learned counsel appearing on behalf of the
petitioners mainly puts forth the following
submissions:
i) The declaration of the petitioners vide
WDC/25/(FR22)/RIR, dated 12.08.2021 passed by Wilful
Defaulter Identification Committee (2nd respondent
herein) and consequential orders passed vide order
dated 08.11.2021 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.
ii) The respondent has steadfastly refused to provide
the forensic Audit Report relied by respondents for the
purpose of identification and Classification of petitioners
herein as wilful defaulters despite repeated requests by
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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) Respondent bank with a malafide intention to
present the petitioners from filing a resolution plan as
mandated under Section 240A of Insolvency and
Bankruptcy Code and has classified the petitioners as
wilful defaulters and that too without following the
principles of natural justice and hence, the declaration of
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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 is to be allowed.
8. 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 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 petitioner to substantiate
petitioners 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.
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v) Since the petitioners had failed to give proper
response/reply in respect of the payments made from savings
bank account which is not satisfactory and acceptable, the
recommendation to include the petitioners name 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
respondents 1, 2 and 3 contended that the writ petition has to
be dismissed in limini.
DISCUSSION AND CONCLUSION
9. 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
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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 para 5 (referred to and extracted
above).
10. A bare perusal of the averments made in the
counter affidavit filed on behalf of the respondent bank
in particular, paras 5 (referred to and extracted above)
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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. A bare perusal of the record also indicates that
without providing an opportunity of personal hearing to
the petitioners, the petitioners had been declared as
willful defaulters and the same is evident on perusal of
the letter dated 04.02.2021 issued by the respondent
bank and the action of the respondent bank is in clear
violation of the principles of natural justice and the rule
of audi alteram partem which clearly entails that an
entity against whom evidence is collected must be
provided an opportunity to explain the evidence against
it and be informed of the proposed action and be
allowed to represent why the proposed action should
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not be taken which however, did not take place in the
present case since petitioners had not been provided an
opportunity of personal hearing.
12. 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, para 5 (referred to and extracted above),
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(e) duly considering the contents of the letter
dated 04.02.2021 issued by the respondent bank 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.
13. 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
