TaxTMI 
TaxTMI 
2025 (8) TMI 1482
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....SAK, J.:- Preface 1. Two appeals have been heard analogously as they emanate out of the same impugned judgment and order dated September 5, 2024 passed by the learned Single Judge in WPA 25668 of 2022. 2. Bank of Baroda has filed MAT 1889 of 2023 while Union of India and its functionaries have filed MAT 1823 of 2023 assailing the same impugned judgment and order. 3. Bank of Baroda had, sought leave to withdraw its appeal on July 17, 2025 when, after observing that Bank of Baroda is the lead banker of a consortium of bankers who lent and advanced various credit facilities to the borrower company, we postponed the decision on the request of Bank of Baroda not to proceed with their appeal. Contentions of SFIO 4. Mr. Sukanta Chakraborty, learned Advocate appearing for the appellants in MAT 1823 of 2023 (for the sake of convenience, the appellants therein are referred to as SFIO) has contended that, SFIO issued a Look Out Notice in terms of the Issuance of Look Out Circular. He has submitted that, such Look Out Circular was amended from time to time and ultimately, on October 12, 2018. He has contended that, the private respondent attempted to leave the country as will....
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....ned Senior Advocate appearing for the respondent Nos. 1 and 2 has submitted that, the respondent No. 1 was stopped by the Immigration Authorities at the international airport at Kolkata on June 9, 2022 from boarding an aircraft to depart for Nepal. It is at that stage, the respondent Nos. 1 and 2 had become aware of the Look Out Circular (LOC) issued by the Bank of Baroda and SFIO. He has submitted that, despite request, copies of the LOC were not made over to his clients. 11. Learned Senior Advocate appearing for the respondent Nos. 1 and 2 has contended that, Ministry of Home Affairs, Foreigners Division, (Immigration Section) from time to time issued office memorandum indicating the guidelines to be followed by the originating agencies for making request for issuance of LOC against a particular person. He has contended that, all office memoranda were consolidated in the memorandum issued on February 22, 2021. According to him, it is incumbent upon SFIO to follow the guidelines contained in the office memorandum dated February 22, 2021. He has drawn the attention of the Court to the affidavit filed by the SFIO in this regard before the learned Single Judge. 12. Learned Seni....
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....Section 9 of the Insolvency and Bankruptcy Code, 2016 had been filed in respect of the affairs of the borrowers before the National Company Law Tribunal (NCLT), Kolkata. 19. Borrower had proposed to set up a 66 MW coal-based thermal power plant at Jharkhand. Borrower had proposed to commission the project by January 2013 and subsequently shifted it to January 2015 and thereafter to December 2016. Borrower had expressed its inability to infuse fresh capital into the project and the same could not be completed. Bank of Baroda had classified the account of the borrower as Non- Performing Asset (NPA) on September 1, 2015. 20. In such proceedings, a Resolution Professional had been appointed. During the Corporate Insolvency Resolution Program forensic audit of the affairs of the borrower for the period from August 2, 2016 to August 3, 2018 was directed when, forensic auditor had pointed out various irregularities. Such Resolution Professional had made a representation to the Central Government with regard to the affairs of the borrower. 21. NCLT had passed an order dated June 28, 2019 for liquidation of the borrower company. 22. The Central Government, apparently acting on t....
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.... issued for cases which are not covered by the guidelines. Analysis on Issue No. 1 27. It is the contention of the respondent Nos. 1 and 2 that, there was no fraud committed in respect of the account of the borrower and in any event, SFIO did not have any materials before it to issue the LOC. 28. SFIO had issued the LOC on August 2, 2021. Such LOC had been issued subsequent to the borrower coming under the Insolvency and Bankruptcy Code, 2016 and a Resolution Professional being appointed therein. Resolution Professional of the borrower had reported to the Central Government of fraud committed in the account of the borrower. Pursuant to such representation of the Resolution was Professional, Central Government had authorized SFIO to undertake investigations under Section 212 of the Act of 2013. - Sections 211, 212 and 447 of the Companies Act, 2013 29. While Section 211 and Section 212 of the Act of 2013 have been placed under Chapter XIV which deals with Inspection, Inquiry and Investigation. Sections 447 is under Chapter XXIX deals with miscellaneous provisions. 30. Section 211 of the Act of 2013 has provided for the establishment of SFIO to investigate frauds re....
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....f any offence punishable under Section 447 of the Act of 2013. 38. Section 212 (9) of the Act of 2013 has mandated that, the officer authorised under sub-section (8) shall immediately after arrest of such person forward a copy of the order along with the material in his possession referred to in sub-section (8) to the SFIO in a sealed envelope which shall keep such order and material for such period as may be prescribed. 39. Under sub-section (10) of Section 212 of the Act of 2013, every person arrested must be produced before the designated court within 24 hours of such arrest. 40. Sub-sections (11), (12) and (13) of Section 212 of the Act of 2013 have dealt with reports of the SFIO. SFIO may submit an interim report in terms of sub-section (11) and on completion of the investigation, SFIO has to submit the investigation report to the Central Government in terms of sub-section (12). Sub-section (13) has permitted any person concerned to obtain a copy of the investigation report by making an application to the Court. 41. Under sub-section (14) of Section 212 of the Act of 2013, the Central Government, upon receipt of the investigation report, may after examining the rep....
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....Sections 320, 321, 322 and 323 thereof. 49. Section 447 of the Act of 2013 has treated fraud involving public interest on a different footing prescribing a much higher minimum punishment than a fraud not involving public interest. Aspect of involvement of public interest has to be kept in mind while dealing with an investigation directed under Section 212 of the Act of 2013, involving recovery of public money. NPA has been judicially recognized to be a cost to the economy. Reference may profitably be made to paragraph 13 of 2008 Volume 1 Supreme Court Cases 125 (Transcore vs. Union of India and Another). Efforts to recover dues involved in an NPA therefore has public interest ingrained. 50. The Act of 2013 has placed at least 2 limitations in addition to the limitation for grant of bail under the Criminal Procedure Code to an accused who is being investigated into by the SFIO. 51. The provisions of the Act of 2013 therefore have placed an offence under Section 447 of the Act of 2013 on a different pedestal than the offence of cheating and fraudulent misappropriation of property under the BNS. Public interest is inherent in an NPA by its nature as it is judicially recognize....
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....ehension of SFIO that, the private respondents would have fled the country without the LOC in place cannot be said to be without any basis. One of the private respondents had been stopped at the Kolkata Airport attempting to board a flight to Nepal. 58. Clause 6(H) of the memorandum dated February 21, 2022 is not qualified with the requirement of the person concerned to have suffered a conviction in a criminal case. The only qualification imposed is that the concerned person is investigated in respect of cognizable offences under the Indian Penal Code, now BNS, or any other Penal law. Sections 447 of the Act of 2013 has prescribed a punishment of 10 years for offences committed thereunder when it was investigating matters which may result in a conviction under Section 447 of the Act of 2013 economic offences have a different ramification and should be treated with seriousness. Invocation of the memorandum dated February 22, 2021 on the basis of clause 6 (H) thereof by the SFIO cannot be faulted. 59. In the facts and circumstances of the present case, the private respondents, as on the date of the issuance of the LOC, were being investigated into by the SFIO for offences punis....
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.... to be kept in mind that, for the purpose of investigations, the presence of the private respondents within the country is required. It is not uncommon for persons who have defaulted in payment to Banks to flee the country and thereby make themselves unavailable to criminal justice system and prevent the discovery of the fraud and recovery of the amount due. Moreover, in the facts and circumstances of the present case, clause 6 (H) of the memorandum dated February 22, 2021 has stood satisfied. Answer to Issue No. 1 67. In view of the discussions above the first issue is answered in the affirmative and in favour of SFIO. Analysis on Issue No. 2. 68. There are facts which are startling in the present matter. Bank of Baroda had filed a recovery proceeding before the Debts Recovery Tribunal which was dismissed on the grounds that, the borrower company was under liquidation. The company being sent to liquidation, does not in any manner wipe away the liability of such company. In any event, the guarantors of the borrower company continue to remain liable and their liability is coextensive that of the principal borrower. 69. Despite the Debts Recovery Tribunal dismissing th....
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.... to a later date. Significantly, Bank of Baroda did not apply formally by way of a written application for withdrawal. Bank of Baroda had however, through the learned Senior Advocate appearing for it made an oral request for withdrawal on the basis of a written communication that the advocate-on-record of Bank of Baroda had received from Bank of Baroda. 73. Although, Code of Civil Procedure, 1908 does not apply stricto sensu in a writ proceedings, however, principles thereof would apply. Principles akin to Order XXIII Rule 1 of the Code of Civil Procedure, 1908 if applied, for the consideration of the prayer of withdrawal of the appeal then, Bank of Baroda has not placed any materials to suggest let alone establish that, the appeal must fail by reason of any formal defect or that, Bank of Baroda has sought to institute a fresh appeal. 74. Bank of Baroda had issued an LOC which has been quashed by the impugned judgment and order. Bank of Baroda had issued the LOC on the basis of the frauds discovered in the account and the complaint to the CBI. Bank of Baroda had issued the LOC under the Master Direction on Frauds. Rajesh Agarwal (supra) has noted that, a criminal complaint ca....
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....mission of penal offences. 81. Banks and financial institutions can invoke the Insolvency and Bankruptcy Code, 2016, Recovery of Debts Due to Debts and Bankruptcy Act, 1993, Securitisation and Reconstruction of Financial Assets and Security Interest Act, 2002, and also Companies Act, 2013, either singularly or cumulatively as the occasion requires. Invocation of provisions of statutes is not dependent upon the result of proceedings if any, under the Master Directions on Wilful Defaulters or the Master Circular on Frauds. Statutes and the Circulars noted in the two preceding paragraphs above have largely provided for the civil consequences. However, Companies Act, 2013 has prescribed penal provisions. Master Directions on Frauds has permitted lodgement of criminal complaint. 82. The trigger point for the four statutes noted in paragraph 77 are not the same. Declaration of the account as an NPA is sine quo non for the invocation of SARFAESI Act, 2002. For the other three statutes noted in paragraph 77, it is not so. However, the fact the account stands classified as an NPA adds weightage to the urgency of the claim and the gravity of the efforts for recovery on the anvil of NPA....
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....dha [Union of India v. W.N. Chadha, 1993 Supp (4) SCC 260 : 1993 SCC (Cri) 1171], a two-Judge Bench of this Court held that that providing an opportunity of hearing to the accused in every criminal case before taking any action against them would "frustrate the proceedings, obstruct the taking of prompt action as law demands, defeat the ends of justice and make the provisions of law relating to the investigation lifeless, absurd, and self-defeating" [Id, SCC p. 293, para 98.] . Again, a two-Judge Bench of this Court in Anju Chaudhary v. State of U.P. [Anju Chaudhary v. State of U.P., (2013) 6 SCC 384 : (2013) 4 SCC (Cri) 503] has reiterated that the Code of Criminal Procedure, 1973 does not provide for right of hearing before the registration of an FIR. ................................................ 98.1. No opportunity of being heard is required before an FIR is lodged and registered." 89. In Rajesh Agarwal (supra) Supreme Court has considered the challenge to the Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions, 2016. It has held that, the Master Directions on Frauds gave rise to both criminal and civ....
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.... of fraud as of specified value. 95. Chapter VIII of the Master Direction on Frauds has dealt with loan frauds. Clause 8.3 has dealt with Early Warning Signal and Red Flag Accounts. Clause 8.3.5 has mandated with the officer responsible for the operation of the accounts by whatever designation, should be sensitized to observe and report any manifestation of the Early Warning Signal promptly to the Fraud Monitoring Group or any other group constituted by the bank for such purpose, immediately. Consequence of failure of non-reporting has also been laid down. 96. Under Clause 8.3.6, the Fraud Monitoring Group or any other group constituted by the bank for such purpose has to consider the issue of classification of the account as a Red Flag Account. Such Fraud Monitoring Group has to transmit its report on the Red Flag Account to the Special Committee of the Board for monitoring and follow up of frauds. 97. Under Clause 8.11.1 of the Master Direction on Frauds, banks have to lodge a complaint with the law enforcement agencies, immediately on detection of frauds. This clause has recognized the obligation of a bank to lodge a criminal complaint on the detection of commission of ....
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....ed to lodge a complaint with the Police once such official has come across materials constituting cognizable offences. An investigating agency is obliged to register the complaint disclosing commission of cognizable offences at a First Information Report. This obligations are not dependent upon an account being declared as a fraud or not under the Master Directions for Frauds, 2016. In a given case, there may be offences committed under the Prevention of Corruption Act or the Companies Act, 2013 or the BNS which may require urgent attention. 103. In such circumstances, requiring the bank to wait till it completes the procedure of declaration of the account as a fraud in terms of the Master Directions on Frauds would vitiate against the right of the bank to lodge the criminal complaint and to ensure that the persons involved does not leave the country to face the criminal charges. 104. In the facts and circumstances in of the present case, Bank of Baroda has complained to the CBI and thereafter issued the LOC. Ability of a bank to cause issuance of a LOC is recognised by the memorandum dated February 22, 2022. Contention of CBI that, Bank of Baroda has to await its decision on....