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2021 DIGILAW 841 (GUJ)

MONA JIGNESH ACHARYA v. BANK OF INDIA

2021-09-20

BHARGAV D.KARIA

body2021
ORDER : Heard learned Senior Advocate Mr.Prakash Jani assisted by learned advocate Mr.Shivang Jani for the petitioners. Learned Senior Advocate Mr.Prakash Jani has tendered a draft amendment. The same is allowed in terms of the draft. To be carried out forthwith. 1. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for following reliefs : “(a) YOUR LORDSHIPS may be pleased to call for the Forensic Audit Report dated 08.05.2017, Minutes of JLM meeting dated 21.01.2020 and other records and proceedings based on which account of M/s Vimal Oil and Foods Limited is declared as fraud and after going through the same, to quash and set aside the action of Respondent Bank of declaring the action of M/s Vimal Oil and Foods; (b) YOUR LORDSHIPS may be pleased quash and set aside all the consequential actions taken by Respondent Bank against the Petitioner pursuant to classification of account of M/s Vimal Oil and Foods Limited as Fraud; (c) Pending hearing and final disposal of the petition, YOUR LORDSHIPS may be pleased to stay implementation and operation of action of Respondent Bank of declaring account of M/s Vimal Oil and Foods Limited and all the consequential proceedings thereto; (d) any other and further relief deemed just and proper be granted in the interest of justice; (e) to provide for the cost of this petition.” 2.1. Brief facts of the case are that the petitioners are the Directors of one M/s. Vimal Oil and Food Limited (herein after referred to as “Company”), a company incorporated under the provisions of the Companies Act, 1956 in the year 1992. 2.2. It is the case of the petitioners that the company availed financial assistance from the consortium of Banks including the respondent-Bank of India which was a lead bank for the business of the Company. 2.3. It is the case of the petitioners that the statutory auditor of the respondent-Bank while conducting audit for the financial year 2014-15 submitted a report dated 18.06.2015 wherein certain irregularities were alleged in the accounts of the Company and it was pointed out that there were circuitous transactions in the bank accounts of the Company raising suspicion about its genuineness. It was also alleged that accommodative letter of credits were issued by the Company in the name of some parties which were discounted and returned to the Company. 2.4. It was also alleged that accommodative letter of credits were issued by the Company in the name of some parties which were discounted and returned to the Company. 2.4. It is the case of the petitioners that without affording any opportunity of hearing, respondent-Bank conducted special audit in the borrowing account of Comapany through M/s.R.R.Tiberwal & Company Chartered Accountants, Ahmedabad and the audit report was submitted on 10.08.2015. 2.5. It appears that on the basis of such special audit report the respondent-Bank of India declared accounts of the Company as Non-Performing Asset (for short ‘NPA’) on 30th September, 2015 and thereafter, several clarifications were sought from the Company by letter dated 19.10.2015. 2.6. It is the case of the petitioners that in the 5th Joint Lenders Meeting held on 13.01.2016, it was unanimously decided that operation of the Company cannot be classified fraud based on the observations made in Special Audit Report unless a forensic audit is conducted and accordingly, one M/s Satya Prakash Mangal & Co. Chartered Accountants, New Delhi was appointed as forensic auditor on 27.10.2016 to carry out the forensic audit of the Company between the period from 01.04.2015 to 31.03.2016. The said auditor submitted the report on 08.05.2017 making observation with regard to the Company for routing of huge transaction through other banks, high value credits and debits on the same day, major portion of purchases and sale through same parties/ sister concerns/ related parties. It was also pointed out that the Company maintained and operated around six bank accounts outside the consortium member banks and Company transacted sales with such parties which are not in activities of trading of edible oil and manufacturing. 2.7. It appears that during the 12th Joint Lenders Meeting, respondent-bank informed the Company about the appointment of forensic auditor. 2.8. It is the case of the petitioners that in the course of 16th Joint Lenders Meeting it was unanimously observed that forensic auditor has certified that there is no diversion of funds and hence, red flagging of the account of the Company was required to be lifted. 2.9. Thereafter in the 17th Joint Lenders Meeting held on 24th August, 2017, Forensic Audit Report was discussed by the lenders at length and it was unanimously adopted so far as the findings of the report with regard to the conclusion of the diversion of the funds. 2.9. Thereafter in the 17th Joint Lenders Meeting held on 24th August, 2017, Forensic Audit Report was discussed by the lenders at length and it was unanimously adopted so far as the findings of the report with regard to the conclusion of the diversion of the funds. The Deputy General Manager of the respondent-bank also informed lenders that they have already submitted the memorandum to the Head Office for closure of the report and red flagging in the account was to be lifted. 2.10. It appears that on 19.12.2017, Company Petition (I.B.) No.135 of 2017 was filed against the Company under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short ‘IBC’) by initiating corporate Insolvency Resolution Process against the Company in the National Company Law Tribunal (for short ‘NCLT’) at Ahmedabad. The said petition was admitted and resolution professional was appointed and management and control of the Comapany vested in the Insolvency Resolution Professional (for short ‘the IRP’). 2.11. Thereafter it appears that the Committee of Creditors (for short ‘the COC’) appointed M/s.R.S.Patel & Co. for forensic audit of the Company for a period from 01.04.2016 to 19.12.2017 and the said auditor submitted a report which was discussed in the 5th meeting of the COC held on 23rd August, 2018 and 6th COC meeting held on 29th August, 2018 and during the course of these meetings, it was concluded that no preferential, undervalued, fraudulent or extortionate transactions were traced as recorded in the minutes of the meeting of the COC which is produced at Annexure-J to the petition. 2.12. It appears that thereafter by order dated 19.12.2019 passed in M.A.No.17 of 2018 in Company Petition (I.B.) No.135 of 2017 NCLT ordered for liquidation of Company. 2.13. Thereafter, the respondent-bank by letter dated 21.05.2021 requested the Central Bureau of Investigation (for short ‘CBI’) for registration of FIR against the petitioner alleging fraud perpetrated by the Company and its Directors. 2.14. It appears that thereafter by order dated 19.12.2019 passed in M.A.No.17 of 2018 in Company Petition (I.B.) No.135 of 2017 NCLT ordered for liquidation of Company. 2.13. Thereafter, the respondent-bank by letter dated 21.05.2021 requested the Central Bureau of Investigation (for short ‘CBI’) for registration of FIR against the petitioner alleging fraud perpetrated by the Company and its Directors. 2.14. Thereafter the FIR is registered on 30th May, 2021 against the Company and its Directors including the petitioners who are arraigned as accused at Bhopal by the Superintended of Police [AC-IV (VYAPAM) Bhopal] being FIR No.RC2222021A0002 dated 30th May, 2021 on the basis of the aforesaid letter dated 21st May, 2021 for the offences punishable under Section 120B read with Section 420 of Indian Penal Code and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988. 2.15. In view of the aforesaid complaint filed against the petitioners it is the belief of the petitioners that respondent-Bank has classified the account of the Company in the fraud category on 21st February, 2018 and therefore has approached this Court with the aforesaid prayers. 3.1. Learned Senior Advocate Mr.Prakash Jani assisted by learned advocate Mr.Shivang P. Jani submitted that the petitioners who are the Directors of M/s.Vimal Oil and Food Limited (in liquidation) could not have been arraigned as accused on the basis of the letter of the respondent-bank declaring the account of M/s. Vimal Oil and Food Limited as fraud on the basis of an alleged forensic report prepared by M/s Satya Prakash Mangal & Company, New Delhi, Chartered Accountants. 3.2. Learned Senior Advocate Mr.Jani submitted that the action of the respondent-Bank to consider the account of the Company as a fraud is not tenable in law as no opportunity of hearing is provided to the petitioners before taking such action of filing complaint by the respondent-Bank on the basis of considering the account of the Company as a fraud which amounts to the declaration of the account of the Company as fraud under the RBI circular (fraud classification and commercial banks and select FIS) of 2016 which provides that based on findings in the forensic audit report, lenders are required to classify the accounts as fraud within 15 days and within 30 days of reporting the account as fraud the respondent-bank was under obligation to lodge a complaint with the CBI on behalf of the bank. Reliance was placed on direction in the paragraph No.8.9.5 of the said circular in support of the above submission. It was therefore submitted that the account of the Company was never declared as fraud and hence, respondent-Bank could not have filed any complaint before the CBI and the complaint which is filed by the respondent-bank is therefore contrary to the directions issued by the RBI in the aforesaid circular. 3.3. Learned Senior Advocate Mr.Jani relied upon the following decisions in support of his submissions: 1. Rajesh Agarwal vs. Reserve Bank of India [2021] 165 SC L313. 2. Surana Developers (Wadala) LLP vs. Reserve Bank of India (Writ Petition No.826 of 2021). 3. Hem Singh Bharana vs. Reserve Bank of India W.P. (C) 7454 of 2020. 3.4. Learned Senior Advocate Mr.Jani submitted that the Apex Court has also passed the following order on 15.04.2021 in the case of Rajesh Agarwal vs. Reserve Bank of India which reads as under : “Applications seeking exemption from filing certified copy of the impugned order are allowed. Issue notice. Dasti service, in addition, is permitted. Learned counsel is permitted to file counter affidavit within a period of four weeks from today. Rejoinder affidavit within two weeks thereafter. Set down for hearing on Tuesday, the 13 July, 2021 on top of the Board. Meanwhile, the Minutes/Order dated 15.02.2019 passed by the Joint Lenders Meeting is not to be acted upon. The High Court insofar as it observed that a personal hearing be given is stayed.” 3.5. It was submitted that though the effect of the order passed in case of Rajesh Agarwal (Supra) is suspended, the Bombay High Court in case of Surana Developers (Supra) has observed that the principles of natural justice and opportunity to show cause, in particular, for the alleged fraud is required to be read into the relevant provisions of the RBI circular which calls for detection and declaration of fraud accounts and their reporting to RBI as well as CBI / Police. 3.6. It was therefore submitted that when the respondent-Bank has not declared the account of the petitioners as a fraud, the same is contrary to the RBI circular of 2016. 4. 3.6. It was therefore submitted that when the respondent-Bank has not declared the account of the petitioners as a fraud, the same is contrary to the RBI circular of 2016. 4. Having considered the submissions made on behalf of the petitioners, it appears that the petitioners have sought the relief for quashing and setting aside the action of the respondent-bank for filing the complaint before the CBI but the respondent-bank in the complaint made on 21st May, 2021 filed before the CBI has narrated in detail as to how the Company and its Directors have committed offences punishable under Section 420 of the Indian Penal Code to the tune of Rs.678.93 Crores as under: “12. After the account turned NPA, in line with RBI guidelines, Staff accountability aspect was examined by competent authority and was closed on 13.05.2016. Subsequent to declaration of fraud, fresh vigilance investigation is being carried out, in case investigation reveals accountability of any staff, action will be initiated as per rules, However, the involvement of unknown public servant in the fraud committed by the said company may be investigated by CBI. 13. ‘Mandate for filing FIR from consortium member Banks: Subsequent to classification of account under FRAUD category by Fraud ‘Monitoring Group on 21.02.2018, Joint Lenders Meeting (JLM) was called on 21.01.2020. The meeting was attended by nine member Banks/ARCs which was held for seeking mandates from member banks to enable Bank of India to file joint FIR with CBI in terms of OM no 25016/10/2017 dated 12.10.2018 issued by Ministry of Home Affairs, (Foreigner’s Division), Govt. of India. In the meeting, all member Banks present have confirmed that they are having original sanctioned proposals and Lead bank is having security documents of consortium arrangement and the said proposals and documents are in safe custody of PNB investment services Ltd., 8th Floor, Gujarat Bhavan, Opp. MJ., Library, Ellisbridge, Anmedabad 380006. 14. As detailed in paras 7 to10 above, the said borrower company, its directors, unknown public servants and others, with dishonest intention of causing wrongful loss of lending Banks for wrongful gain to themselves, ‘have fraudulently committed the act of cheating (Section 420 of IPC) with consortium if banks during the period 2014 to 2017 and thereby causing loss of Rs. 678.93 crores to the consortium banks. 678.93 crores to the consortium banks. A thorough investigation by your office would ‘detect the complete details about the aforesaid circuitous transactions and the criminal conspiracy therein. The roles of Chartered Accountants, Statutory Auditors, Stock Auditors, and Empanelled Valuers etc. may also be looked into. 15. In view of the above facts, we request you to register Bank’s complaint as a regular case, and investigate into the matter to book the aforementioned M/s VOFL, its said directors, unknown public servants and others for the offence committed by them, by initiating appropriate criminal proceedings against them in accordance with law. A copy of the FIR may please be furnished to us.” 5. In view of the facts which are not in dispute, that after classification of the account of fraud category by fraud monitoring group of the Bank on 21.02.2018, Joint Lenders Meeting was called on 21.01.2020. The meeting was attended by nine members of Bank/ARCs which was held seeking mandates from member banks to enable Bank of India to file joint FIR with CBI in terms of OM dated 12.10.2018 issued by Ministry of Home Affairs (Foreigner’s Division), Government of India and accordingly, the complaint was filed for cheating the consortium banks during the period from 2014 to 2017 against the Company and its Directors. 6. In view of the above facts, it appears that the petitioners by filing this petition have tried to intervene in the investigation which is to be carried out by the CBI pursuant to the FIR filed on 30th May, 2021. 7. The respondent-Bank of India who is a lead bank has narrated the fraudulent action of the Company in paragraph No.7 to 10 of the letter dated 21.05.2021. The endeavor on part of the learned Senior Advocate for the petitioners to submit that the respondent- Bank has not complied with the principles of natural justice cannot be looked into at this stage more particularly, when the respondent-bank after considering the three audit reports have filed the complaint and therefore it is for the investigating agency to come to the conclusion that whether further action is required to be taken in the matter or not. 8. 8. Reliance placed by the learned Senior Advocate on the decisions rendered by the High Court of Telangana in case of Rajesh Agarwal (Supra) which is already stayed by the Supreme Court as well as the decision of the Bombay High Court in case of Surana Developers (Supra) and the decision of Delhi High Court in case of Hem Singh Bharana (Supra) are not applicable in the facts of the case when the complaint is already lodged and investigation is being continued by the CBI. The alleged noncompliance of principle of natural justice cannot be invoked at this stage as the action is already culminated in the FIR on the basis of the complaint made by the respondent-Bank. It is also not in dispute that the petitioners were aware about the declaration of the account as fraud in year 2018 when the forensic auditor was appointed by the respondent-bank and pursuant to the report of the forensic audit, the Joint Lender’s Meetings were convened and therefore, the petitioners cannot say that there is violation of principles of natural justice. 9. In view of above facts, petitioners are not entitled to the relief as prayed for in this petition. The petition therefore fails being devoid of any merit and is accordingly dismissed. No order as to costs.