TaxTMI 
TaxTMI 
2024 (5) TMI 1702
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....-9071-2024(O&M), CWP-22309-2022(O&M), CWP-25934-2022(O&M), CWP-26758-2022(O&M), CWP-29609-2022(O&M), CWP-29615-2022(O&M) M/s. K.K. Continental Trade Limited And Others, M/s. Jindal Oil And Fats Limited And Others, PDM Religious And Educational Association And Others, M/s. Nirbhai Textiles Private Limited And Ors, M/s. Nirbhai Textiles Private Limited And Others, Krishan Kumar, M/s. G.H Crop Science Pvt. Ltd. And Ors., M/S. A.B. Infra Investments Pvt. Ltd. And Ors., M/s. Farming Resources Llp And Ors., M/s. AB World Trade Pvt. Ltd. And Ors., Hakam Chand Josan And Ors, Ishwar Chand Goel And Ors, Sukhinder Singh And Ors, M/s. Bharat Papers Ltd And Ors, Gautam Gupta And Another, Gautam Gupta And Another, M/s. Amyra Foods Private Limited And Another, Raman Kumar Aggarwal And Others, Pranav Gupta And Anr, Karnal Agricultural Industries Pvt Ltd., Ashok Kumar Miglani And Ors, Dr. Naresh Malhotra And Ors, M/s. H.K. Narang Hosiery Pvt. Ltd. And Ors, Sanjeev Kumar, Harinder Singh, M/S. Kissan Fats Ltd. And Ors., Vimal Kumar And Ors., Bhagwan Dass Garg And Others, Kalarithara Michael Sebastine And Ors., Ritu Soin, Navneet Gupta And Ors., Abhishek Soin And Anr, Ajay Dhingra, Raja Singh Kapoo....
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.... classifies 'frauds' into different categories based merely on the provisions of the Penal Code, 1860, the said clause is extracted hereinafter:- "2.2 Classification of Frauds 2.2.1 In order to have uniformity in reporting, frauds have been classified as under, based mainly on the provisions of the Penal Code, 1860: a. Misappropriation and criminal breach of trust. b. Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property. c. Unauthorised credit facilities extended for reward or for illegal gratification. d. Cash shortages. e. Cheating and forgery. f. Fraudulent transactions involving foreign exchange. g. Any other type of fraud not coming under the specific heads as above." 4. Further Clause 8.2 of the impugned Master Circular deals with the objective of the framework, the said clause is extracted hereinafter:- "8.2 Objective of the framework: The objective of the framework is to direct the focus of banks on the aspects relating to prevention, early detection, prompt reporting to the RBI (for sys....
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....uch. As of now, this requirement is in addition to the extant requirements of reporting to RBI as mentioned in Para 3.2 above. 8.3.4 The modalities for monitoring of loan frauds below Rs. 500 million threshold is left to the discretion of banks. However, banks shall continue to report all identified accounts to CFMC, RBI as per the existing cut-offs. 8.3.5 The tracking of EWS in loan accounts should not be seen as an additional task but must be integrated with the credit monitoring process in the bank so that it becomes a continuous activity and also acts as a trigger for any possible credit impairment in the loan accounts, given the interplay between credit risks and fraud risks. In respect of large accounts it is necessary that banks undertake a detailed study of the Annual Report as a whole and not merely of the financial statements, noting particularly the Board Report and the Managements' Discussion and Analysis Statement as also the details of related party transactions in the notes to accounts. The officer responsible for the operations in the account, by whatever designation called, should be sensitised to observe and report any manifestation of t....
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....ourthly, the JLF is directed to give an opportunity of personal hearing both to the petitioner and to the OL before taking any decision on the issue whether the account should be classified as 'fraud' or not? 76.5. Fifthly, after the JLF has taken its decision, the FIC is directed to pass its resolution whether the decision of the JLF should be confirmed or not? 76.6. Lastly, the said exercise shall be carried out by the JLF within a period of three months from the date of receipt of the certified copy of this judgment. Furthermore, the subsequent exercise by FIC shall be carried out within two months from the date of the decision of the JLF." 8. A reading of the above made conclusions, but patently reveals that the principles of natural justice and/or of the principle of audi alteram partem, became read into the above referred clauses, as embodied in the Master Circular. Consequently, a direction was passed upon the lending institution concerned to assign an opportunity of hearing to the borrowers, through furnishing copies of both the reports, mainly the Forensic Auditor Report dated 29.08.2016 and the subsequent report submitted by Dr. K.V. Srinivas,....
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....ities. They constitute substantive obligations that need to be followed by decision-making and adjudicating authorities. The principles of natural justice act as a guarantee against arbitrary action, both in terms of procedure and substance, by judicial, quasi-judicial, and administrative authorities. Two fundamental principles of natural justice are entrenched in Indian jurisprudence: (i) nemo judex in causa sua, which means that no person should be a judge in their own cause; and (ii) audi alteram partem, which means that a person affected by administrative, judicial or quasijudicial action must be heard before a decision is taken. The courts generally favor interpretation of a statutory provision consistent with the principles of natural justice because it is presumed that the statutory authorities do not intend to contravene fundamental rights. Application of the said principles depends on the facts and circumstances of the case, express language and basic scheme of the statute under which the administrative power is exercised, the nature and purpose for which the power is conferred, and the final effect of the exercise of that power. 30. While the borrowers argue that....
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....ragraphs, are that, the Hon'ble Apex Court while making a decision upon Civil Appeal supra, made an unflinching conclusion, that the twin principles of natural justice are entrenched in Indian jurisprudence, inasmuch as, the principles of (i) nemo judex in causa sua, which means that no person should be a judge in their own cause; and (ii) audi alteram partem, which means that a person affected by administrative, judicial or quasi-judicial action must be heard before a decision is taken. Moreover, the Hon'ble Apex Court also thereby concluded that though Chapter VIII of the Master Directions on Fraud provides detailed procedures to be followed by the banks before forming an opinion, to proceed with a criminal complaint against the borrowers. Nonetheless, the classification of the borrower's account as 'fraud' is stated therein to not simplicitor lead to reporting of the criminal complaint with the enforcement authorities, but it also entails civil consequences for the borrowers as laid down under Clause 8.12 of the relevant circular. 13. The Hon'ble Apex Court in the judgment supra also concluded that the process of forming an informed opinion under the Master Directions on Frau....
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....debarment under Clause 8.12.1 of the Master Directions on Frauds is akin to blacklisting the borrowers for being untrustworthy and unworthy of credit by banks. This Court has consistently held that an opportunity of hearing ought to be provided before a person is blacklisted; v. The application of audi alteram partem cannot be impliedly excluded under the Master Directions on Frauds. In view of the time frame contemplated under the Master Directions on Frauds as well as the nature of the procedure adopted, it is reasonably practicable for the lender banks to provide an opportunity of a hearing to the borrowers before classifying their account as fraud; vi. The principles of natural justice demand that the borrowers must be served a notice, given an opportunity to explain the conclusions of the forensic audit report, and be allowed to represent by the banks/ JLF befcre their account is classified as fraud under the Master Directions on Frauds. In addition, the decision classifying the borrower's account as fraudulent must be made by a reasoned order; and vii. Since the Master Directions on Frauds do not expressly provide an opportunity of hearing to th....
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....Therefore, he vehemently argues that the pleas, if any, raised before this Court, thus at the instance of the petitioners, that the FIRs which stand lodged against the petitioners concerned, be quashed and set aside, thus, are not amenable to be accepted by this Court. 19. The above made submission before this Court by the learned counsel for the respondent/lending institutions concerned, suffers the casuality of same becoming rejected, thus for the hereinafter assigned reasons:- (i) The above argument is mis-premised on the ground that the Hon'ble Apex Court, thus in making the above conclusion in the verdict supra, therebys the coercive actions, if any, are unquashable, besides is ill-grounded qua with the Hon'ble Apex Court, rather not purportedly quashing the FIR as became lodged against one Rajesh Aggarwal, the respondent in the said SLP, therefores but obviously this Court likewise is also forbidden to quash such coercive action takings. (ii) The fact that is but mis-premised, thus becomes more firmly grooved on the ground that the learned counsel for the respondent concerned, rather has remained oblivious to the factum, that the FIR, if any, which became....
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.... the above view, this Court finds support from paragraphs 105 to 111, which are carried in a verdict made by the Hon'ble Apex Court, in cases titled as "State of Punjab Vs. Davinder Pal Singh Bhullar and others" and in case titled as "Sumedh Singh Saini Vs. Davinder Pal Singh Bhullar and others" reported in 2011 (14) Supreme Court Cases 717, paras whereof becomes extracted hereinafter: "105. The FIR unquestionably is an inseparable corollary to the impugned orders which are a nullity. Therefore, the very birth of the FIR, which is a direct consequence of the impugned orders cannot have any lawful existence. The FIR itself is based on a preliminary enquiry which in turn is based on the affidavits submitted by the applicants who had filed the petitions under Section 482 Cr.P.C. 106. The order impugned has rightly been challenged to be a nullity at least on three grounds, namely, judicial bias; want of jurisdiction by virtue of application of the provisions of Section 362 Cr.P.C. coupled with the principles of constructive res judicata; and the Bench had not been assigned the roster to entertain petitions under Section 482 Cr.P.C. The entire judicial process appears ....
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....d against the petitioners and which are insegregably interlinked with the declarations of 'fraud' as became made vis-a-vis the petitioners' accounts concerned, besides if the said declarations of 'fraud' are so made without evident non-adherences by the entity concerned, vis-a-vis the principles of audi alteram partem, therebys when the FIR is born from such stained or declarations of frauds visa-vis the accounts of the petitioners concerned. Resultantly, the inevitable consequence thereof, is that, the child or the FIR procreated by the stained declaration of 'fraud', is also likewise required to be quashed and set aside. 25. Furthermore, apposite to the instant situation, the High Court of Madhya Pradesh at Indore, in case titled "M/s Rajshree Cotex, A Partnership Firm through its Partner Narendra Mahajan and others Vs. Bank of Baroda and others", to case whereof, Writ Petition No. 22475 of 2023 is assigned, has in paragraph 10 of verdict supra, para whereof becomes extracted hereinafter, has taken a view alike to the one which has been taken supra by this Court. "10. As a consequence any action taken against the petitioners example registration of FIR etc and de....