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2024 (1) TMI 77
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....es). 2. This is a shocking case of clear connivance of unscrupulous businessman and banks, wherein the bank officials have knowingly allowed the petitioner to syphon away almost Rs.1300/- crores of the public money. Here the banks had advanced hundreds crores of rupees to the petitioner company knowing the fact that they have already defaulted with the loans taken by other banks previously and been declared N.P.A., still the banks went ahead and approved loans running into several hundred crores and the entire loan was disbursed without following the mandatory steps/procedures, which banks are supposed to take before disbursing the loan. 3. After the default of the petitioner in paying back the loan of the first bank, the bank instead of proceeding to recover this amount, gave a long rope to the petitioner to take loan from the second bank. This second bank also very easily without following the mandatory steps grants a loan without any adequate security, which was never paid back by the petitioner. Thereafter, the petitioner moves on to the third bank for another loan and this bank also grants a loan without any due diligence, and without following the norms and guidelines of Re....
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....CLT, Allahabad. 8. Before this Court, the instant petition has been filed by the petitioner-Company seeking quashing of communication dated 26.07.2023 issued by the State Bank of India, wherein, the settlement offer of the petitioner was rejected and the bank had communicated that they will proceed to take legal action against the company. 9. The reliefs sought in the instant writ petition is extracted below:- "(a) Issue an appropriate writ, order or direction in the nature of certiorari quashing the impugned communication dated 26.07.2023 sent by the respondent no.1, State Bank of India. (b) Issue an appropriate writ, order or direction in the nature of mandamus directing the respondent no.1, State Bank of India to convene a meeting of the Joint Lenders' Forum forthwith, in order to finalize the Settlement Proceedings, in accordance with the provisions of the RBI Circular dated 07.06.2019. (c) Issue a writ, order or direction in the nature of certiorari quashing the impugned proceedings registered as CP (IB) No.66/ALD/2022, State Bank of India v. M/S Simbhaoli Sugars Ltd., under Section 7 of the Insolvency and Bankruptcy Code, 2016, pending before the National Company Law ....
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.... of Joint Lender's Forum would be convened immediately. 8. Learned counsel for the State Bank of India, however, apprised the Court that the matter listed before NCLT, Allahabad has been adjourned to 4th September, 2023. 9. On this counsel for the petitioner requested that this matter may be listed before the next date fixed in the NCLT, Allahabad. 10. Accordingly, on the request of counsel for the parties the matter is directed to be listed on 29.08.2023 as fresh." 11. Thereafter, the matter was again taken up on 19.09.2023 where this Court has passed the following order:- "1. The instant writ petition has been filed by the petitioner-Company seeking quashing of the communication dated 26.07.2003 sent by the State Bank of India, wherein, the State Bank of India had rejected the offers of the settlement of the petitioner-Company and communicated that they will proceed to take legal action against the Company. 2. Following the communication, the State Bank of India had filed for Insolvency under Section 7 of the Insolvency and Banking Code before the National Company Law Tribunal, Allahabad (hereinafter referred to as 'NCLT'). It was at that point of time the petition....
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....CLT, Allahabad." 4. On the basis of the order dated 10.08.2023 proceedings before the NCLT, Allahabad were adjourned. The Bank had objected saying that the petitioner is not serious and had not given a concrete offer, they were only trying to buy time to avoid Insolvency Proceedings. On this Senior Advocate, Mr. Goyal appearing for the petitioner agreed to pay Rs.20 crores (Rs.10 crores by 17.08.2023 and another 10 crores by 24.08.2023). 5. Mr. Khanna has very fairly stated that if the petitioner-Company pays the money and given the concrete proposal better then the earlier propsal, they will call for the Joint Lender's Forum and convene a meeting. He also apprised that the matter pending before the NCLT, Allahabad had been adjourned. 6. On the next date of hearing, the matter stood adjourned but the petitioner chose not to honour the commitment given in the Court. 7. The matter is taken up today and the counsel for the respondent-Bank, Mr. Anurag Khanna, Senior Advocate pointed out that the petitioner has flouted the terms of the order dated 10.08.2023 and chose not to deposit second tranche of Rs.10 crores, which was to be deposited by 24.08.2023. If the petitioner ha....
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....xcept to issue notice to the Chairman, Managing Director, Director, Director (Chief Operating Officer), who are incharge of the affairs of the company and on whose behalf an undertaking was given in the Court. Before formally impleading the Chairman, Managing Director, Director & Director (Chief Operating Officer) of the company as necessary parties in the present proceeding and before referring the matter to the competent contempt court for initiation of the contempt proceeding against them, the response is necessary from the aforesaid Directors of the company. 14. We direct the Director Nos.1 to 4, who are Chairman, Managing Director, Chief Operating Officer to file the response as to why the contempt proceedings may not be initiated against them. 15. Respondent Nos.1 to 7 are represented by their Counsel so no formal notice is necessary. However, issue notice to respondent no.8 returnable at an early date for which steps may be taken within three days. 16. The respondent-Banks are also directed to file detailed affidavits. 17. List the matter on 27.09.2023 as fresh." 12. Mr. Anurag Khanna, learned Senior Advocate, appearing on behalf of the State Bank, of India submitte....
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....tioner in connivance with the banks, which is writ large and contrary to the interest of general public and also the gullible farmers, in case, we just dismiss the petition as infructuous then we will be failing in our duty by letting the petitioners (in connivance of the respondents) palm off 1300 crores of the public money. There is a larger public interest involved, and apparently an unfair advantage was given to the petitioner. 17. The Hon'ble Supreme Court in the matter of Shangrila Food Products Limited and another Vs. Life Insurance Corporation of India and another (1996) 5 SCC 54 has held that the High Court in exercise of its jurisdiction under Article 226 of the Constitution can take cognizance of the entire facts and circumstances of the case and pass appropriate orders to give the parties complete and substantial justice. This jurisdiction of the High Court, being extraordinary, is normally exercisable keeping in mind the principles of equity. One of the ends of the equity is to promote honesty and fair play. If there be any unfair advantage gained by a party priorily, before invoking the jurisdiction of the High Court, the court can take into account the unfair advant....
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....ctured the loan in the year 2003. (ii) After the restructuring, the petitioner-company once again defaulted in servicing the loan. The bank for the second time had to again restructure the loan in the year 2007. After 2007, when the credit account of the petitioner had again become irregular and the interest as required was not being serviced, the account was referred to "Corporate Debt Restructuring Forum" a non-statutory voluntary mechanism set up by the Reserve Bank of India (in short "RBI") for efficient restructuring of debt. (iii) A meeting of the CDR group was held on 26.02.2012 and again the debt was restructured for the third time in 2012. (iv) This restructuring was not followed, so the fourth restructuring was carried out in the month of July, 2015. As per the State Bank of India the valuation of the company in 2016 was Rs.930.83 crores (fixed asset 901.63 plus current asset 29.20). As per the State Bank of India the debt service coverage ratio of the company in the year 2011-12 was 1.26 and the collateral given by the company was only Rs.7.44 crores, against the total outstanding dues (as on 16.05.2016) of Rs.150 crores. The bank further states that they had pers....
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....were issued on 27.08.2015, on his non-appearance bailable warrants were issued. Against the issuance of bailable warrants, the petitioner had preferred Criminal Revision No.03 of 2015, which was dismissed on 21.10.2022. Thereafter, since the petitioner chose not to appear, non-bailable warrants were issued. This order of issuance of non-bailable warrants was again challenged by the petitioner in Criminal Revision No.164 & 165 of 2022 before the District & Sessions Judge, Hapur, which is still pending there. 29. The UCO bank states that they are not the members of the consortium. Apart from the proceeding taken under Section 138 of N.I. Act, the bank has not taken any steps to recover the said amount neither had taken adequate securities while granting the loan. One wonders, how could a bank grant and disburse such a huge amount without any proper security and without knowing the facts that the petitioners have been defaulting to pay the other banks since 2003. How was the loan given without any adequate securities. In the affidavit, the bank is silent as to who were the officers, who authorized for the disbursal of the loan. The company had defaulted in payment from March, 2013 bu....
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.... Why would State Bank of India give away its own security to the other banks to get a loan. The Oriental Bank of Commerce had granted this loan on the personal guarantee of Mr. Gurmit Singh Mann & Ms. Gursimrat Kaur Mann. Not to the surprise of this Court, the Bank had concealed the names of the members of the credit committee/management committee, who had sanctioned the loan. Within ten months of sanctioning of loan the loan of the petitioner became NPA on 29.11.2016. However, the loans were recalled even after one year of the loans being NPA. The bank claims to have filed an Original Application before Debt Recovery Tribunal-II, Delhi on 23.11.2017, they also claim that they moved before National Company Law Tribunal, Allahabad in the year 2017 but surprisingly both the matters in DRT, Delhi and NCLT, Allahabad are pending for last six years. It seems that the bank is not interested in recovering the money and they have not been following the cases diligently. There is nothing brought on record by the Oriental Bank of Commerce to show as to whether they have done a background check/due diligence before sanctioning such a huge amount. Obviously, they were aware that there were oth....
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....Recovery Tribunal, Delhi in November, 2019 that is almost two and half years after the account was declared NPA. There is nothing on record to show why the bank was sitting quite for two and a half years and took no action to recover the money. 35. The bank has also approached the National Company Law Tribunal, Allahabad in 2019 and filed a case but for last four years nothing has proceeded. It is apparent that no substantial steps were taken by the bank to recover the amount. 36. The Punjab National Bank, very well knowing the fact that the petitioner was a habitual defaulter and had been defaulting in paying money of the banks still went ahead and sanctioned the loan and took no serious steps to recover the same. Sixth Bank - Bank of India 37. After the default from State Bank of India, UCO Bank, ICICI Bank, Oriental Bank of Commerce and Punjab National Bank the petitioner proceeds to Bank of India and the credit/management committee of the Bank of India went ahead and sanctioned a loan on 28.09.2017 for an amount of Rs.366.90 crores. Against this loan, the security was the fixed asset of borrowing company on the written down value and the company was given first sub-servient....
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....loan is given, on the security of sugar stocks how come the amount was not recovered by the banks and how the stocks were allowed to be sold without the bank getting its dues 42. The banks while disbursing the loans have miserably failed or purposely did not carry out proper due diligence, credit appraisal, following the prudential norms, consider the risk report, did not take appropriate collateral security, failed to carry out regulatory compliances. Few of the banks even did not ask for personal guarantees of the promoters and the others got a personal guarantees of the promoters, who had given personal guarantees to various other banks. There was no post disbursement supervision by the banks, which is mandatory. The banks chose not to ask for additional security, no proper steps to recover the amount was taken by the banks even after the account were declared NPA. There is RBI guideline to advance the loans to the companies, which is an essential condition and surprisingly the same has not been followed by the banks. 43. The petitioner while applying for the loan must have given some documents showing the capacity to pay back. Obviously, the said documents were either fabrica....
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.... funds outside the borrowing units, lack of interest or criminal neglect on the part of borrowers, their partners, etc. and also due to managerial failure leading to the unit becoming sick and due to laxity in effective supervision over the operations in borrowal accounts on the part of the bank functionaries rendering the advance difficult to recover. 3.2.2 In respect of frauds in borrowal accounts, additional information as prescribed under Part B of FMR -1 should also be furnished. 3.2.3. Banks should exercise due diligence while appraising the credit needs of unscrupulous borrowers, borrower companies, partnership/proprietorship concerns and their directors, partners and proprietors, etc. as also their associates who have defrauded the banks. In addition to above borrower- fraudsters, third parties such as builders, warehouse/cold storage owners, motor vehicle/tractor dealers, travel agnts, etc. and professionals such as architects, valures, chartered accountants, advocates, etc. are also to be held accountable if they have played a vital role in credit sanction/disbursement or facilitated the perpetration frauds. Banks are advised report to Indian Banks Association (IBA)....
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....by bank employees, when it involves bank funds exceeding Rs.10,000/-. (C) Fraud cases involving amounts of Rs.1.00 crore and above should also be reported to the Director, Serious Fraud Investigation Office (SFIO), Ministry of Company Affairs, Government of India, Second Floor, Paryavaran Bhavan, CGO Complex, Lodhi Road, New Delhi 110003. Details of the fraud are to be reported to SFIO in FMR-1 Format. 6.2 Public sector banks should report fraud cases involving amount of Rs.1 crore and above to CBI and those below Rs.1 crore to local police, as detailed below: Case to be referred to CBI (a) Cases of Rs.1.00 crore and above upto Rs.5.00 crore * Where staff involvement is prima facie evident - CBI (Anti Corruption Branch) * Where staff involvement is prima facie not evident - CBI (Economic Offences Wing) (b) All cases involving more than Rs.5.00 crore - Banking Security and Fraud Cell of the respective centres, which is specialised cell of the Economic Offences Wing of the CBI for major bank fraud cases. Cases to be referred to Local Police Cases below Rs.1 crore - Local Police. i) Cases of financial frauds of the value of Rs.1.00 lakh and above, which involve out....
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....ores to the banking security and fraud cell of the CBI. 50. As per the RBI Guidelines it is mandatory for the banks before approval of the loan to carry out a proper due diligence, credit appraisal, to consider the risk report and follow all the norms laid down. It is clearly apparent from the way the loans were sanctioned and disbursed that the banks have failed to carry out regulatory compliances. Even adequate security was not taken before disbursing the loans. A number of loans were given on the personal guarantee of two promoters, whose net-worth was far less than the loans taken by them from the banks. 51. There is a guideline as to how the banks will supervise and monitor the loaned amount post disbursement. Clearly in most of the cases there was no supervision on the disbursed amount. Further, all the loans have been sanctioned and disbursed without taking proper security. Even after the loans sanctioned and disbursed, the banks have not taken any serious steps to recover the said amount even after the accounts were declared NPA. 52. It is surprising that none of the banks while sanctioning or disbursing the funds have ever checked the background of the petitioner-compan....
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....and Chemicals vs. State of U.P. & Others4 and Rashtriya Kisan Mazdoor Sangathan vs. State of U.P.5 wherein the Hon'ble Supreme Court has once again held that outstanding cane price of the farmers shall have priority over the assets mortgaged by the bank. 57. It is just not the petitioner and the bank officers, who are responsible for allowing the petitioner to syphon away the fund but also the Cane Commissioner, who had not taken any action against the promoters and identically situated people and had failed to carry out his duties and the obligation, which was towards the farmers but had allowed the petitioner to sell the Sugar without paying the farmers. 58. The petitioner has filed the instant petition with the sole intention of holding back the NCLT proceedings. On the first date of hearing, the counsel for the petitioner gave an undertaking that they are ready to deposit Rs.20 crores in the "No Lien Account". They only deposited Rs.10 crores and the balance was not paid, it was nothing but a ploy to buy time and take the Court for a ride. 59. This Court following the judgement of Hon'ble Supreme Court in Balwantbhai Somabhai Bhandari vs Hiralal Somabhai Contractor6 had incl....