TaxTMI 
TaxTMI 
2024 (5) TMI 1323
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[email protected] Ms. Chetna Bhalla for R-4 M: 9818280772 Email id: [email protected] JUDGMENT MINI PUSHKARNA, J: 1. The present petition has been filed, inter alia, seeking quashing and setting aside of the Show Cause Notices ("SCNs") issued by the respondents for declaring account of M/s Educomp Solution Limited ("The Company") as 'Fraud'. By way of the present petition, initially SCN dated 13th November, 2023 issued by respondent no. 1-State Bank of India ("SBI"); SCN dated 13th October, 2023 issued by respondent no. 2-Canara Bank; SCN dated 28th December, 2023 issued by respondent no. 3-Central Bank of India and SCN dated 2nd September, 2023 issued by respondent no. 4-ICICI Bank Limited, were challenged. Subsequently, CM No. 11262/2024 was filed thereby challenging the SCN dated 12th January, 2024 issued by respondent no. 5-Union Bank of India and SCN dated 8th February, 2024 issued by respondent no. 6-IDBI Bank. 2. The petitioner is an ex-director and guarantor of the Company, which had availed various credit facilities from the consortium of banks, of which the respondent-banks are members, with respondent no. 1-SBI being the lead bank. The company was admitted int....
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....the petitioner. 4.5 Learned Senior Counsel for the petitioner has relied upon various letters written by the petitioner to the respondent-banks, wherein he had prayed for supply of relevant documents, in order to enable the petitioner to submit a proper reply to the respective SCNs. 4.6 On behalf of the petitioner, the following judgments have been relied upon: i) T. Takano versus Securities and Exchange Board of India and Another, (2022) 8 SCC 162. ii) State Bank of India and Others versus Rajesh Agarwal and Others, (2023) 6 SCC 1. iii) Reliance Industries Limited versus Securities and Exchange Board of India and Others, (2022) 10 SCC 181. iv) Milind Patel versus Union Bank of India and Others, 2024 SCC OnLine Bom 745. 5. Responding to the submissions made on behalf of the petitioner, learned counsels appearing for the respondent-banks submit that requisite documents have already been provided to the petitioner. Further, learned counsel appearing for respondent no. 1-SBI, the lead bank, submits that the said bank is ready to give an inspection to the petitioner, of the records of the company available with it. 5.1 On the other hand, learned counsel appearing for respon....
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....uments, which form the basis of the said SCN. Thus, Supreme Court in the case of Natwar Singh Versus Director of Enforcement and Another (2010) 13 SCC 255, has held as follows: "xxx xxx xxx 31. The concept of fairness may require the adjudicating authority to furnish copies of those documents upon which reliance has been placed by him to issue show-cause notice requiring the noticee to explain as to why an inquiry under Section 16 of the Act should not be initiated. To this extent, the principles of natural justice and concept of fairness are required to be read into Rule 4 (1) of the Rules. Fair procedure and the principles of natural justice are in-built into the Rules. A noticee is always entitled to satisfy the adjudicating authority that those very documents upon which reliance has been placed do not make out even a prima facie case requiring any further inquiry. In such view of the matter, we hold that all such documents relied on by the authority are required to be furnished to the noticee enabling him to show a proper cause as to why an inquiry should not be held against him though the Rules do not provide for the same. Such a fair reading of the provision would not amo....
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....antithetical to transparency. It is of utmost importance that in a country grounded in the Rule of Law, the institutions adopt those procedures that further the democratic principles of transparency and accountability. The principles of fairness and transparency of adjudicatory proceedings are the cornerstones of the principle of open justice. This is the reason why an adjudicatory authority is required to record its reasons for every judgment or order it passes. However, the duty to be transparent in the adjudicatory process does not begin and end at providing a reasoned order. Keeping a party bereft of the information that influenced the decision of an authority undertaking an adjudicatory function also undermines the transparency of the judicial process. It denies the party concerned and the public at large the ability to effectively scrutinise the decisions of the authority since it creates an information asymmetry. 29. The purpose of disclosure of information is not merely individualistic, that is to prevent errors in the verdict but is also towards fulfilling the larger institutional purpose of fair trial and transparency. Since the purpose of disclosure of information targ....
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.... "A list of persons marked out for special avoidance, antagonism, or enmity on the part of those who prepare the list or those among whom it is intended to circulate; as where a trades union "blacklists" workmen who refuse to conform to its rules, or where a list of insolvent or untrustworthy persons is published by a commercial agency or mercantile association." (emphasis supplied) Similarly, P. Ramanatha Aiyar's Law Lexicon [P. Ramanatha Aiyar, The Law Lexicon: The Encyclopaedic Law Dictionary (1997 Edn.).] defines the term "blacklist" as follows: "Blacklist is a list of persons or firms against whom its compiler would warn the public, or some section of the public; a list of persons unworthy of credit, or with whom it is not advisable to make contracts. Thus the official list of defaulters on the Stock Exchange is a blacklist. To put a man's name on such a blacklist without lawful cause is actionable; and the further publication of such a list will be restrained by injunction." (emphasis supplied) 57. A blacklist is : (i) a list of insolvent or untrustworthy persons published by a commercial agency or mercantile association; and (ii) a list of persons unwo....
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....portunity 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 95. In light of the legal position noted above, we hold that the rule of audi alteram partem ought to be read in Clauses 8.9.4 and 8.9.5 of the Master Directions on Fraud. Consistent with the principles of natural justice, the lender banks should provide an opportunity to a borrower by furnishing a copy of the audit reports and allow the borrower a reasonable opportunity to submit a representation before classifying the account as fraud. A reasoned order has to be issued on the objections addressed by the borrower. On perusal of the facts, it is indubitable that the lender banks did not provide an opportunity of hearing to the borrowers before classifying their accounts as fraud. Therefore, the impugned decision to classify the borrower account as fraud is vitiated by the failure to observe the rule of audi alteram partem. In the present batch of appeals, this Court passed an ad interim order [Shree Saraiwwalaa Agrr Refineries Ltd. v. Union of India, 2022 SCC OnLine SC 1905] restraining the lender banks fro....