W.P.(C)/7809/2024 of M/S GOEL EXIM INDIA PVT. LTD. & ORS. Vs BANK OF INDIA & ANR.

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* IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of Decision: 28[th] May, 2024

+ W.P.(C) 7809/2024 & CM APPL. 32373/2024, CM APPL. 32374/2024

M/S GOEL EXIM INDIA PVT. LTD. & ORS.

..... Petitioners

Through: Mr. Kirti Uppal, Sr. Adv. with Mr. Vipin Singh, Mr. Naveen Sharma, Advocates (M:[REDACTED])

versus

BANK OF INDIA & ANR.

..... Respondents

Through:

Mr. Sahil Ralli, Advocate for R-1

CORAM:HON'BLE MS. JUSTICE MINI PUSHKARNA

MINI PUSHKARNA, J (ORAL)

CM APPL. 32374/2024 (For Exemption)

1.Exemption allowed, subject to just exceptions.

2.Application is disposed of. W.P.(C) 7809/2024 & CM APPL. 32373/2024W.P.(C) 7809/2024 & CM APPL. 32373/2024

3.The present petition has been filed by the petitioner being aggrieved of the wrongful and arbitrary classification of account of petitioners as „Fraud‟ by the unilateral decision of respondent no.1, without providing requisite documents and any opportunity of hearing to the petitioners.

4.Learned Senior Counsel for petitioners submits that the Show Cause Notice (“SCN”) dated 23[rd] April, 2024 was issued by respondent no.1-bank

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to the petitioners, wherein, it has been stated as follows:

“xxx xxx xxx

3. Now in order to re-examine the matter, you are advised to provide your written submission, if any, on the above observations and show -cause within 15 days of receipt of this communication for reexamining the account which has been classified as “Fraud”. If your reply is not received by us within 15 days of receipt of this communication, it shall be presumed that you don’t have any say in the matter OR if your written submission is not satisfactory, Bank shall proceed ahead in the matter for classifying the account as “Fraud”.xxx xxx xxx”

(Emphasis Supplied)

5.Attention of this Court has been drawn to the letter dated 10[th] May, 2024, written by the petitioners to the respondent no.1-bank, wherein, there is prayer for providing copy of the Forensic Audit Report, in order to prepare proper and comprehensive reply to the SCN. Letter dated 10[th]May, 2024, reads as under:

“Without Prejudice”

To, Date: 10.05.2024 The Assistant General Manager, Bank of India, Asset Recovery Branch, H-2, Star House, 3[rd] Floor, Connaught Circus, New Delhi-110001

Re: To provide the copy of Forensic Audit Report dated 30.04.2016& 18.01.2022 for verifying the details of the show cause notice dated 23.04.2014 and preparing the reply.

Dear Sir,

Please refer to your Show Cause Notice under Ref. NDARB/NPA/2024-25/34 dated 23.04.2024 for seeking our submissions on the Re-examination of our account consequent to the classification of the account as “Fraud”.

I want to inform you that we have neither committed any fraud nor even intended to commit any fraud with the bank. The Bank has issued

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the said notice without proper due diligence.

The Bank has issued the above-mentioned show cause notice on 23.04.2024 based on “Forensic Audit Report dated 30.04.2016 & 18.01.2022”. Almost eight years have passed since the first report and the Bank has failed to point out any discrepancy in said report in the last eight years. Moreover, the Bank has not provided copy of the said Forensic Audit Reports to the undersigned along with the show Cause notice. Also, our previous attempts to obtain the forensic audit report were also met with denial from Bank’s Side.Without going through the Forensic Audit Report and verifying the details, the undersigned can't make any valid submission on your show cause notice.

The Bank has granted only 15 days to verify such old details and entries and file written submissions on the observation of the Bank which is not appreciable.

Therefore, you are requested to please provide us copy of the Forensic Audit Report dated 30.04.2016 & 18.01.2022 and allow reasonable window to verify the details and apprise you right facts by filing point wise detailed written submission on your show cause notice. You are also requested to extend the time limit for filing the reply to the said show cause notice further 30 days from the date of receiving the Audit report due to the reasons mentioned above.

You are also requested to give us personal appearance and hearing, so as to enable us to effective put forth bur explanation for just and fair adjudication.

Thanking You,

Yours Faithfully

For M/s Goel Exim India Pvt. Ltd.”

(Emphasis Supplied)

6.Attention of this Court has also been drawn to the reply dated 13[th]May, 2024, issued by the respondent no.1-bank, wherein, the bank gave reply, which reads as under:

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“Bank of India

New Delhi Asset Recovery Branch

Ref: NDARB/NPA/2024-25/56

Date: 13.05.2024

Goel Exim India Pvt Ltd. (Shri Ashok Goyal-Director)

Address At:

Shop No 403, 4[th] Floor, 2633-2634,

Bank Street, Karol Bagh,

New Delhi - 110005

2. N – 46, Second Floor, Block – N, Panchsheel Park, Malviya Nagar, New Delhi - 110017 Panchsheel Park, Malviya Nagar, New Delhi - 110017

Sir/Madam,

Account: GOEL EXIM INDIA Pvt. Ltd.

Ref: Our SCN dt. 23-04-2024 & your letter ref no. nil dt.10.05.2024

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We are in reference to our Show Cause Notice (SCN) dt. 23.04.2024 seeking your written submission on the observations specifically highlighted in our said SCN within 15 days of receipt. Now, we are in receipt of your letter dt.10.05.2024 (received on 13.05.2024) vide which you have sought additional data/ documents with additional time of 30 days for submitting your reply.

2. We hereby advise that as per our internal guidelines, show cause notice was issued on 23.04.2024 indicating the findings of forensic audit report and seeking your written reply within given timelines. We observe that instead of submitting the reply on the findings highlighted in our SCN, letter dt. 10.05.2024 is forwarded by you seeking additional documents. It is pertinent to mention here that documents sought by you is internal document of the bank and we are not obliged to share the same. Further, you have already been served show cause notice giving you an opportunity for making representation on findings of the forensic audit report which is in line with Hon’ble SC judgement (civil appeal 7300 of 20022) and our internal guidelines.

3. You are once again advised to provide your written submission, if any, on the findings shared with you vide our SCN dt. 23.04.2024 within 7 days of receipt of this communication. If no written submission is made by you within given timelines, it shall be presumed

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that you do not have any say in the matter. Upon expiry of the above period, Bank shall proceed ahead with examination of fraud angle in terms of RBI Master Circular/Bank’s guidelines on fraud classification and reporting.

For and behalf of Bank of India,

Manoj Kumar Gupta Assistant General Manager”

(Emphasis Supplied)

7.Thus, it is submitted that in the absence of requisite documents from the respondent no.1-bank, petitioners have been unable to give proper reply to the SCN. Further, it is submitted that without considering the request of the petitioners, the account of the petitioners have been declared as „Fraud‟.

8.Per contra, learned counsel appearing for respondent no.1-bank submits that the account of the petitioners has still not been declared as „Fraud‟ and that only SCN has been issued.

9.He further submits that the case is under re-consideration by the respondent no.1-bank, as the bank is reconsidering its earlier decision, by which the account of the petitioners, had been declared as „Fraud‟.

10.At this stage, learned Senior Counsel for petitioners submits that if that be the case, then requisite documents ought to be provided to the petitioners, including the Forensic Audit Report, so that proper reply is filed by the petitioners.

11.Having heard learned counsels for the parties, this Court notes the statement made by learned counsel for respondent no.1-bank, that the account of the petitioners, have still not been declared as „Fraud‟. The said statement is taken on record. The submission made by learned counsel for

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-respondent no.1-bank is noted, that earlier declaration of „Fraud‟ is under reconsideration and that the account of the petitioners, have still not been declared as „Fraud‟ in the light of the judgment passed in the case of State Bank of India and Others Versus Rajesh Agarwal & Others, 2023 SCC OnLine SC 342.

12.It is to be noted that in terms of the directions passed by the Supreme Court in the case of Rajesh Agarwal (Supra), all the relevant documents, on the basis of which SCN has been issued, ought to be provided to the noticee. The relevant paragraphs of the aforesaid judgment, read as under:

“79. In Swadeshi Cotton Mills [Swadeshi Cotton Mills v. Union of India, (1981) 1 SCC 664] , this Court held that company is entitled to an opportunity to explain the evidence collected against it and represent why the proposed action should not be taken :

(SCC p. 707, para 85)

“85. The contention does not appear to be well founded. Firstly, this documentary evidence, at best, shows that the Company was in debt and the assets of some of its “units” had been hypothecated or mortgaged as security for those debts. Given an opportunity the Company might have explained that as result of this indebtedness there was no likelihood of fall in production, which is one of the essential conditions in regard to which the Government must be satisfied before taking action under Section 18-AA(1)(a).Secondly, what the rule of natural justice required in the circumstances of this case, was not only that the Company should have been given an opportunity to explain the evidence against it, but also an opportunity to be informed of the proposed action of take over and to represent why it be not taken.”

(emphasis supplied)”

80. Audi alteram partem has several facets, including the service of notice to any person against whom prejudicial order may be passed and providing an opportunity to explain the evidence collected. In Tulsiram Patel [Union of India v. Tulsiram Patel, (1985) 3 SCC 398 : 1985 SCC (L&S) 672] , this Court explained the wide amplitude of audi alteram partem : (SCC p. 476, para 96)

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“96. The rule of natural justice with which we are concerned in these appeals and writ petitions, namely, the audi alteram partem rule, in its fullest amplitude means that person against whom an order to his prejudice may be passed should be informed of the allegations and charges against him, be given an opportunity of submitting his explanation thereto, have the right to know the evidence, both oral or documentary, by which the matter is proposed to be decided against him, and to inspect the documents which are relied upon for the purpose of being used against him, to have the witnesses who are to give evidence against him examined in his presence and have the right to cross-examine them, and to lead his own evidence, both oral and documentary, in his defence.The process of fair hearing need not, however, conform to the judicial process in court of law, because judicial adjudication of causes involves number of technical rules of procedure and evidence which are unnecessary and not required for the purpose of fair hearing within the meaning of audi alteram partem rule in quasi-judicial or administrative inquiry.”

(emphasis supplied)

81. Audi alteram partem, therefore, entails that an entity against whom evidence is collected must : (i) be provided an opportunity to explain the evidence against it; (ii) be informed of the proposed action, and (iii) be allowed to represent why the proposed action should not be taken. Hence, the mere participation of the borrower during the course of the preparation of forensic audit report would not fulfil the requirements of natural justice.The decision to classify an account as fraud involves due application of mind to the facts and law by the lender banks. The lender banks, either individually or through JLF, have to decide whether borrower has breached the terms and conditions of loan agreement, and based upon such determination the lender banks can seek appropriate remedies. Therefore, principles of natural justice demand that the borrowers must be served notice, given an opportunity to explain the findings in the forensic audit report, and to represent before the account is classified as fraud under the Master Directions on Frauds.

xxx xxx xxx”

(Emphasis Supplied)

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13.In view of the aforesaid, it is directed that respondent no.1-bank shall provide all the underlying documents on the basis of which SCN dated 23[rd]April, 2024 has been issued, including the Forensic Audit Reports conducted by M/s Satya Prakash Mangal & Co. and M/s Gupta Nanda & Co. The aforesaid documents shall be provided to the petitioners within period of four weeks.

14.After receipt of the documents, the petitioners shall file their reply within period of three weeks.

15.In case the aforesaid directions are not complied with by the respondent no.1-bank, the petitioners are at liberty to approach this Court. 16.With the aforesaid directions, the present petition is disposed of, along with pending application.

MINI PUSHKARNA, J

MAY 28, 2024/au

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