2024 (7) TMI 1165 - HC - Indian Laws

Bank must provide complete fraud investigation documents to enable effective defense against Show Cause Notice

ASCON DAIRY PVT LTD THROUGH DIRECTOR MR. DINESH TIWARI Versus STATE BANK OF INDIA AND ORS.

The Delhi HC ruled that a bank's failure to supply relevant documents relied upon in a Show Cause Notice (SCN) for fraud categorization violated ... Non-supply of relevant documents that have been relied by the respondent no. 1-bank, at the time of issuance of the impugned SCN - Categorization of account/name as “Fraud”, as per Reserve Bank of India (RBI) Guidelines - seeking permission to allow inspection, and furnish all supporting/relied upon documents - HELD THAT:- Failure to supply relevant documents, is a serious one, as without supplying the documents that have been relied upon in the said SCN, it would not be possible to give an effective and proper reply to the said SCN by the petitioner. Non-supply of the underlying documents, at the time of issuance of a SCN, would have the effect of directly impinging upon the right of representation of a party in terms of Principles of Natural Justice. The Principles of Natural Justice have to be strictly followed, in order to give a party an efficacious opportunity to represent its case suitably and adequately. The same cannot be reduced to an empty formality by not affording an appropriate opportunity to a party, by not giving access to the relevant documents, that form the basis of issuance of a SCN. This Court in the case of Shantanu Prakash v. State Bank of India and Others, [2024 (5) TMI 1323 - DELHI HIGH COURT], has held that 'it is imperative that the relevant documents that form the basis of issuance of a SCN, ought to be provided to the concerned party in order to enable such a party to raise its defense effectively. Such fundamental right of a party cannot be taken away by denying a proper opportunity to submit an efficacious reply, which would not be feasible in the absence of requisite documents that form the core foundation of a SCN.' Thus, it is imperative that the petitioner is supplied the complete underlying documents, as relied upon in the SCN dated 20th February, 2024, to allow the petitioner to make an effective reply. The respondent-bank shall provide the Investigation Report dated 18th January, 2024, along with full Annexures, to the petitioner - respondent-bank shall also provide the Stock and Receivables Audit Report, along with full Annexures, to the petitioner - petition disposed off. Issues:Petition seeking directions to set aside Show Cause Notice (SCN) issued by State Bank of India (SBI) and to provide all supporting documents.Analysis:The petitioner filed a petition seeking directions to set aside an SCN issued by SBI categorizing the petitioner's account as 'Fraud' as per RBI Guidelines. The petitioner requested all supporting documents from SBI to prepare an effective reply. Despite multiple requests, SBI failed to provide all relied upon documents, leading to the petitioner's inability to respond adequately. The petitioner relied on the judgment emphasizing the necessity of providing underlying documents for a fair procedure. The respondent argued that all documents were provided, but the petitioner needed more time to respond effectively. The respondent contended that the petition was premature, citing a Supreme Court judgment. The petitioner highlighted missing documents from the Stock and Receivable Report and Internal Investigation Report, crucial for a proper response.The court acknowledged the petitioner's grievance regarding non-supply of relevant documents relied upon by SBI in the SCN. It emphasized the importance of providing such documents to enable a proper reply and uphold Principles of Natural Justice. Referring to previous judgments, the court reiterated the necessity of disclosing all relevant materials to ensure fairness, transparency, and accountability in adjudicatory proceedings. The court directed SBI to provide the complete Investigation Report and Stock and Receivables Audit Report, along with annexures, to the petitioner within a week. The petitioner was granted four weeks to file a reply after receiving the documents and was also given the option to request a personal hearing. The petition was disposed of in the mentioned terms, including pending applications.