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2023 DIGILAW 922 (GUJ)

Suresh Chhajuram Singal v. Bank of Maharastra

2023-08-03

NIKHIL S.KARIEL

body2023
JUDGMENT : NIKHIL S. KARIEL, J. 1. Heard learned Advocate Mr. Bhadresh S. Raju for and on behalf of Mr. Dhanesh R. Patel, learned Advocate for the petitioners; Mr. Bhargav Hasurkar, learned Advocate for and on behalf of the respondent No. 1 and Mr. Amar N.Bhatt, Learned Advocate for and on behalf of the respondent No. 2. 2. By way of this petition, the petitioners have sought for the following prayers: (A) Your Lordships be pleased to issue a writ of mandamus, or any other appropriate writ, order or direction, quashing and setting aside the impugned action of respondent No. 1-Bank in declaring the petitioners accounts as fraud and reporting it to respondent No. 2 as fraud account as being illegal, arbitrary, suffering from vices of mala-fides, in breach of principles of natural justice and also violative of Art.14 and 19(1)(g) of the Constitution of India. (B) Your Lordships be pleased to issue a writ of mandamus, or any other appropriate writ, order or direction, quashing and setting aside the impugned circular dated 1.7.2016 issued by the respondent No. 2 as being unconstitutional, violative of Art.14 and 19(1)(g) of the Constitution of India, in breach of principles of natural justice and bad in law. (C) Yours Lordships be pleased to stay the implementation, operation and execution of impugned action of respondent No. 1-bank in declaring the petitioners as fraud, pending the admission, hearing and final disposal of this petition. (D) Your Lordships be pleased to further direct the respondents to delete/remove the name of the petitioners from CFR (Central Fraud Registry) constituted by respondent No. 2 through Master Circular dated 1.7.2016. (E) Your Lordship be pleased to grant such other and further reliefs as may be deemed fit in the interest of justice. 3. It would appear that the petitioners were Directors in three companies namely (1) M/s. Micro Polyester Pvt. Ltd. (2) M/s. Prime Polyweave Ltd. and (3) M/s. Good Luck Synthetics Pvt. Ltd. and whereas, the said companies had availed financial facility from the respondent No. 1-Bank in the early 2000 and whereas, it would also appear that the respondent-bank had also later on increased the sanctioned limit to the companies. It appears that somewhere in the financial year 2004-05, the companies according to the petitioners had suffered huge financial loss and resultantly, all the accounts of the Companies were declared Non Performing Assets (NPA) on 30th September, 2005. It also appears that the companies had also disputes with other banks from whom, they had obtained the financial facilities. It appears that as far as the present respondent no. 1 bank is concerned, the petitioners, had submitted a proposal for OTS for all the three companies and whereas, vide a communication dated 17.12.2008 issued by the Managing Committee of Board of Directors, the same was accepted and whereas, the full and final settlement had been arrived at somewhere in the year 2008-2010. It would also appears that in the interregnum, the respondent Bank has also initiated the proceedings before the Debt Recovery Tribunal, Ahmedabad by filing Original Application Nos. 3 of 2007; 4 of 2007 and 104 of 2008 against the companies respectively. It would appear that while the petitioners had settled with the respondent No. 1-Bank and the matter had stood as such in the interregnum, the Central Bureau of Investigation (referred to hereinafter “the CBI”) had registered a suo moto FIR against the petitioners as well as some of the officers of the respondent No. 1-Bank and whereas, it would appear that as of now, vide an order dated 25.8.2017, the Hon’ble Apex Court had stayed all the proceedings pending before the learned Additional Chief Judicial Magistrate, Ahmedabad in CBI Special Case No. 2 of 2010 arising from the FIR registered by the CBI referred to hereinabove. 3.1. It would appear that when the things stood as such, another company namely M/s. Akshat Paper Ltd. in which the petitioner no. 1 was a Director had approached the Bank of India for grant of financial facilities and whereas, the petitioner no. 2 had stood as guarantor for the financial facilities and whereas, the said application had been rejected by intimating the petitioners that the name of the petitioners are reflected in the Central Fraud Registry implemented through Master Circular dated 1.7.2016 issued by the respondent No. 2-Reserve Bank of India. 2 had stood as guarantor for the financial facilities and whereas, the said application had been rejected by intimating the petitioners that the name of the petitioners are reflected in the Central Fraud Registry implemented through Master Circular dated 1.7.2016 issued by the respondent No. 2-Reserve Bank of India. It appears that upon the petitioners coming to know about their names being reflected in the Central Fraud Registry, they had resigned from the directorship of the said company i.e. Akshat Paper Ltd. It also appears that the petitioners had sought for information from the Bank of India as regards the rejection of their application and as regards the name of the applicants being reflected in the CFR and whereas, it would appear that vide an email dated 20.01.2022 the Bank of India had intimated to the petitioners that the names of the petitioners exists in the CFR due to the incident reported by the Bank of Maharashtra in connection with the above referred three companies. 3.2. It is upon coming to know about the name of the petitioners being reflected in the CFR that the petitioners have approached this Court by way of this petition. 3.3. While it would appear that initially vide an order dated 4.5.2022, a learned Coordinate Bench of this Court had issued notice to the respondents and whereas, vide order dated 15.6.2022 another learned Coordinate Bench of this Court after hearing the parties, had issued interim directions against the names of the applicants being reflected in the CFR. 4. It would further appear more particularly, as informed by learned advocate Mr.Amar Bhatt for and on behalf of the respondent No. 2 that having due regard to the interim order passed on 15.6.2022, the names of the three companies referred to hereinabove and the petitioners are no more appearing in the Central Fraud Registry. 5. It is the case of the petitioners relying upon the decision of the Hon’ble Apex Court in case of State Bank of India vs. Rajesh Agarwal and Others, (2023) 6 SCC 1 that the bank could not have directed the names of the petitioners to appear in the Central Fraud Registry, without giving appropriate opportunities to the petitioners more particularly the application of audi alteram partem rule was stated to be mandatory. Considering such a submission, it would appear that the learned advocate for the respondent No. 1 -Bank was directed to produce such documents on the basis of which the petitioners as well as the companies in question had been classified as fraud account and were required to be reflected in the CFR. 6. In pursuance to such directions being issued by this Court vide order dated 20th June, 2023, learned advocate Mr. Bhargav Hasurkar for the respondent No. 1, under instructions would submit that as such, the bank does not have any documents on the basis of which the name of the petitioners were directed to be reflected in the CFR more particularly according to the learned advocate since the documents were of the 2008 the bank could not trace the documents having regard to the long delay in the interregnum. 7. In view of this matter, learned advocate Mr. Bhadresh Raju would submit that since while it is true that a long time had elapsed between the name of the petitioners being entered into the Central Fraud Registry but, at the same time, it would also appear that there is nothing on record as such to show that at the relevant point of time the bank had given adequate opportunity to the petitioners or not. Learned advocate would rely upon the conclusion by the Hon’ble Apex Court in the case of State Bank of India Vs. Rajesh Agarwal and others (Supra) whereby, the Hon’ble Apex Court had clearly stated that the application of audi alteram partem cannot be implidely excluded under the Master Directions on Frauds. Learned advocate would further submits that as per the decision of the Hon’ble Apex Court, the Bank, before classifying an account as fraud; under the Master Directions on frauds is required to adhere to the principles of natural justice inasmuch as the borrower is required to be issued a notice, and given an opportunity to explain the conclusions of the forensic audit report, and be allowed an appropriate chance of representation. It also appears that the bank is also under obligation to pass a reasoned order whereby, the borrowers account is classified as a fradulent account. It also appears that the bank is also under obligation to pass a reasoned order whereby, the borrowers account is classified as a fradulent account. Learned advocate would submits that considering the lack of any documents with the respondent No. 1-Bank and also having regard to the fact that even after the accounts had been classified as fraud and the names of the petitioners as well as the companies were directed to be reflected in the CFR, the bank had entered into one time settlement with the petitioners and all the dues with regard to the account in question had been paid up as far as between the year 2008 to 2010. Learned advocate would further submit that even at the relevant point of time, the petitioners were not intimated about the accounts being classified as fraud and the names of the petitioners as well as companies in question being reflected in the CFR. 8. Having regard to the same, learned advocate would submit that the position has intimated by the RBI more particularly, as per the interim direction of this Court vide order dated 15.6.2022 may be confirmed. 9. As against the same, Mr. Hasurkar would submit that while it is true that the bank does not have any documents to content at the relevant point of time either the petitioner had given the adequate opportunities or the reason had been passed to classify the accounts as fraudulent accounts, more particularly in view of the long time gap in the interregnum and whereas, though learned advocate would submit that as far as the respondent No. 1-Bank is concerned since the accounts have been closed, they may not have anything further to add but in any case, learned advocate would submit that the liberty reserved by the Hon’ble Apex Court at Para No. 95 of the judgment in favour of the bank, i.e. in case the proceedings are quashed on account of the borrower not getting an adequate opportunity the banks were granted liberty to take fresh steps in accordance with law, may be reserved in favour of respondent No. 1- Bank 10. Considering the submissions made by learned advocates for the respective parties, while it appears that the names of the petitioners and of the companies were reflected in the CFR, as recommended by the respondent No. 1-Bank, yet, as of now, there is no material, which could be produced by the respondent No. 1 - Bank to show that at the relevant point of time either adequate opportunity had been provided to the petitioners or that a reasoned order had been passed by the bank. Undoubtedly, the fact of almost a decade and half, intervening in between also could not be brushed aside more particularly, the bank could be reasonably be heard to state that after 15 years, there were not required to keep these documents in question. At the same time, it would also appear that there is nothing on record to show that from the time the name of the petitioners and the companies in question were entered in the CFR, after classifying them as fraudulent accounts the petitioners at any point of time were intimated about the same. It also appears that even when the bank had decided to enter into one time settlement with the petitioners as regards the accounts of three companies referred to hereinafter at that time also, the bank had not intimated to the petitioners above the aspect of the petitioner’s name being reflected in the CFR. Under such circumstances, since there is no material, which could be provided by either side and it appears that the outstanding had been settled with the bank as for as back in the year 2010, in the considered opinion of this Court, an order which would balance the equities is required to be passed, inasmuch as the name of the petitioners ought to be directed to be removed from the Central Fraud Registry and whereas the respondent-bank should also be granted liberty to take fresh steps in accordance with law, if they so deem it appropriate. 11. In view of the aforesaid discussion, the considered opinion of this Court, the following directions are required to be passed: 1. 11. In view of the aforesaid discussion, the considered opinion of this Court, the following directions are required to be passed: 1. The action of the respondent No. 1-bank of classifying the accounts of the petitioners as regards the three companies namely (1) M/s. Micro Polyester Pvt. Ltd. (2) M/s. Prime Polyweave Ltd. and (3) M/s. Good Luck Synthetics Pvt. Ltd as fraudulent accounts and further directing the names of the petitioners to appear in the Central Fraud Registry are hereby quashed and set aside. 2. Appropriate action for removal of the names of the petitioners from CFR to be carried out by the RBI. 3. Liberty is reserved in favour of respondent No. 1-Bank to take appropriate action under the Master Directions on frauds against the petitioners as well as Companies hereinabove in case, it is deemed appropriate. The prayer with regard to challenge to Master Circular of RBI date 1.7.2016 not being contested is not entertained. 12. With these observations and directions, present petition stands disposed of.