TMI Blog2021 (5) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular, it would suffer from vagueness. For, on the one hand, Clauses 8.9.4 and 8.9.5 of the Master Circular prima facie seem to deny the opportunity of hearing to the borrower. Yet, Clause 8.12.1 of the Master Circular clearly states that the procedure for declaring a borrower as a willful defaulter has to be followed. In the case of Jah Developers (supra), the Hon ble Supreme Court has already declared that prior to declaring a borrower as a willful defaulter, an opportunity of hearing has to be given. If the principle of audi alteram partem were not read into Clauses 8.9.4 and 8.9.5 of the Master Circular, there would be a contradiction between the procedure adopted for declaring a borrower as a willful defaulter , and the procedure adopted for declaring an account as fraud . Obviously, the Master Circular could not speak in self-contradictory terms. Therefore, to erase the self-contained contradiction, and to save the Master Circular from the virus of vagueness, the principles of natural justice perforce would have to be read into Clauses 8.9.4 and 8.9.5 of the Master Circular. Since the right to livelihood is part and parcel of fundamental right to life under Art. 21 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the intricacies of the accounts, or of the business dealings, to denounce a person is to act unfairly, unjustly, unreasonably, and arbitrarily. Even in an administrative action, justice should not only be done, but also must appear to be done to the satisfaction of all the parties. Therefore, the principles of audi alteram partem, howsoever short, have to be applied before declaring a party as a fraudulent borrower , or as a holder of fraudulent account . Once the JLF was of the opinion that further clarification is required from the Forensic Auditor, once it is in the process of taking a decision, once it has decided to wait till further clarification is submitted, the JLF is not justified in concluding that the account be treated as fraud . In fact, the JLF was legally required to wait for further clarification, or non-clarification from the Forensic Auditor - A bare perusal of the resolution of FIC, dated 31.07.2019, also reveals that the said resolution is based on the Report submitted by Dr. K.V. Srinivas, IRP. However, there is no evidence available on record to establish the fact that a copy of the said Report was furnished to the borrower Company, or to the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s approached this Court. 2. Briefly, the facts of the case are as under: 2.1. The petitioner was the Chairman and the Managing Director of the Company-a Company incorporated and registered under the Companies Act, 1956, having its registered office at Hyderabad. The Company was engaged in the business of Power Transmission Distribution, Passive Telecom Infrastructure; it also worked in the area of Renewable Energy, and Mineral Resources. During the period 2006-2014, in the course of its business, the Company approached several banks, including the respondent Banks, and availed a loan of ₹ 1406.00 Crores. In the year 2013, the Madhya Pradesh Power Transmission Company Limited ( MPPTCL ) awarded the work of construction of 220KVA and 132KVA Sub-Stations, Transmission Lines, Augmentation Works and Feeder Way works to the Company. However, according to the MPPTCL, as there was delay in execution of the works, and shortage of working capital, it terminated the contract with the Company. Consequently, the MPPTCL also encashed the bank guarantees of ₹ 140.00 Crores. Due to the cancellation of contract, and the encashment of the bank guarantee, the Company suffered huge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nwhile, the SBI, the respondent No. 2, the Lead Bank, filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ( the Code , for short) before the National Company Law Tribunal, Hyderabad Bench ( NCLT , for short). The petition was filed for declaring the Company as insolvent. By order, dated 01.11.2018, the NCLT admitted the application, and declared a moratorium against all proceedings towards the Company till the completion of Corporate Insolvency Resolution Process. Further, the NCLT appointed Dr. K.V. Srinivas, as Interim Resolution Professional ( IRP , for short); it directed the IRP to take charge of the management of the Company, and to issue the necessary public announcement. The NCLT also directed the IRP to discharge its functions under Section 20 of the Code. However, as the resolution plan could not revive the Company, by order dated 04.11.2019 the NCLT directed the winding up of the Company and appointed an Official Liquidator ( OL , for short). 2.6. While things stood thus, by invoking Clause 2.2.1(g) of the Master Circular, on 15.02.2019, the JLF declared the account of the Company as fraud . Subsequently, on 31.07.2019, the FIC resolved to id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penal provisions would not only affect the fraudulent borrower, i.e. the Company, but would also adversely affect the Promoter, Directors and other Whole Time Directors of the Company, such as the petitioner. For, these Directors would be debarred from availing the bank finance from Scheduled Commercial Banks, Development Financial Institutions, Government owned NBFCs, Investment Institutions, etc., for a period of five years from the date of full payment of the defrauded amount. Even after the lapse of five years, discretion is given to the financial institutions to decide whether to lend money to the Director(s) of the Company or not. Therefore, the petitioner would be denied the right to borrow finances from financial institutions at least for five years, and perhaps, for the rest of his life. Consequently, the petitioner would be denied the fundamental right to carry on a trade, or a business. Hence, the impugned decision of the JLF, and the resolution of the FIC adversely affect the petitioner s fundamental right under Article 19(1)(g) of the Constitution of India. Further, since the right to livelihood has been interpreted as part of the fundamental right to life, under Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Institutions, etc., for a period of five years from the date of full payment of the defrauded amount. After this period, it is for individual institutions to take a call on whether to lend to such a borrower. The penal provisions would apply to non-whole time directors (like nominee directors and independent directors) only in rarest of cases based on conclusive proof of their complicity. 8.12.2. No restructuring or grant of additional facilities may be made in the case of RFA or fraud accounts. However, in cases of fraud/malfeasance where the existing promoters are replaced by new promoters and the borrower company is totally delinked from such erstwhile promoters/management, banks and JLF may take a view on restructuring of such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters /management . 7. A bare perusal of Clause 8.12.1 of Master Circular clearly reveals that once a company is declared to be a fraudulent borrower, the Promoter, Director(s) and other whole time Directors of the company are denied a right to avail the bank finance from the financial institutions for a period of five years. Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FIC on 31.07.2019, whereas the OL was appointed on 04.11.2019. Thus, the OL was appointed after the decisions were taken by the JLF and the FIC. Further, mere appointment of an OL does not dilute the impact of Clause 8.12.1 and Clause 8.12.2 of the Master Circular. Therefore, the petitioner can still challenge the legality of the Master Circular, and also the impugned decisions mentioned hereinabove. Hence, this Court does not find any force in the preliminary objection raised by Mr. B.S. Prasad, the learned Senior Counsel for the respondent No. 2. Thus, the preliminary objection is, hereby, rejected. 10. Mr. Mukul Rohatgi, the learned Senior Counsel appearing for the petitioner, has raised the following contentions before this Court:- 10.1. Firstly, the Master Circular issued on 01.07.2016 (updated on 03.07.2017) has been issued under Section 35-A of the Banking Regulation Act, 1949. Thus, the Master Circular has statutory force. 10.2. Secondly, the Master Circular is an elaborate one, which not only reveals the purpose of the Circular, but also contains general and specific guidelines to be followed by the banks. Furthermore, it contains elaborate procedure for dealing w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , advocates etc., who are also held to be accountable if they played a vital role in credit sanction/disbursement, or facilitated the preparation of frauds, such persons have to be provided with an opportunity of hearing under Clause 8.12.5. Thus, while others who may be remotely related to the alleged fraud are provided with an opportunity of hearing, the same is denied to the borrower. 10.6. Sixthly, relying on the case of Jah Developers (P) Limited (supra) the learned Senior Counsel has pleaded that the said case deals with the case of willful defaulters. The case of willful defaulters is on a lower rung than a case of borrower/holder of a fraudulent account. Yet, in the Jah Developers (P) Limited (supra), while dealing with the case of willful defaulters, the Hon ble Supreme Court has opined that before the borrower can be declared as a willful defaulter, an opportunity of hearing necessarily has to be given to the borrower. Therefore, while an opportunity of hearing is being given to a willful defaulter a borrower who allegedly has committed a lesser civil wrong, a fraudster who has allegedly committed a graver civil wrong, is denied an opportunity of hearing. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally read against the borrower. For, the JLF was satisfied by the explanation given by the borrower Company to the Forensic Auditor; (ii) on three different accounts (in item Nos. 1, 3 and 8) the JLF had decided to call for further clarification from the Forensic Auditor. However, the JLF was of the opinion that if no clarification is sought from the Forensic Auditor , the account will be classified as fraud . According to the learned Senior Counsel, fraud cannot be presumed or alleged; it must be established. Moreover, as pointed out above, on the basis of the clarification submitted by the borrower, and on the basis of the finding of the Forensic Auditor on four different accounts, the objections raised by the JFL were closed. Therefore, according to the learned Senior Counsel, before declaring the Company s account as fraud , in fact, the JLF should have waited for further clarification by the Forensic Auditor. But instead of doing so, the JLF jumped to the conclusion that the Company is not only holder of a fraudulent account, but is also a willful defaulter ; (iii) as far as the analysis dealing with the trading activity other than coal is concerned, an inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f information by the Reserve Bank of India to banks on the details of frauds, unscrupulous borrowers and related parties, based on banks reporting so that necessary safeguards / preventive measures by way of appropriate procedures and internal checks may be introduced and caution exercised while dealing with such parties by banks . Therefore, according to both the learned counsel, it is imperative that a decision be taken by the JLF at the earliest to declare the account as fraud , to report its decision to the RBI, and to expeditiously initiate the criminal investigation. Moreover, in case the decision is not taken expeditiously, and not reported to the RBI, or to the investigating agency, fraudsters will continue to play fraud on other banks. Such illegal actions on their part will endanger the stability of the banking sector. Since the banking sector deals with the monies of the public at large, it is in the interest of the public that the decision be taken as quickly as possible without undue wastage of time. It is for these reasons, that the Master Circular purposefully does not include an opportunity of hearing being given to the borrower. 12.2. Secondly, the very title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illful defaulters cannot be applied, and should not be applied to the case of a fraudster. Moreover, an obiter of the Apex Court is not binding on the High Court. In order to support this contention, the learned counsel have relied on Girnar Traders v. State of Maharashtra (2007) 7 SCC 555, State of Haryana v. Ranbir (2006) 5 SCC 167, and C.I.T. v. Sun Engineering Works (P) Limited (1992) 4 SCC 363. 13. While dealing with the factual matrix of the case, Mr. B.S. Prasad, the learned Standing Counsel for SBI, has raised the following counter-contentions:- 13.1. Firstly, the IDBI Bank had brought the Forensic Audit Report to the notice of the borrower Company in its letter, dated 21.04.2018. In fact, the Company had replied to the same. Therefore, the petitioner is unjustified in claiming that the Company was not given an opportunity of hearing by the JLF. 13.2. Secondly, according to the Final Assessment Order, dated 29.11.2017, the Income Tax Department had also noticed that some sham transactions were carried out by the Company. Therefore, the JLF was justified in declaring the borrower as a holder of a fraudulent account. Moreover, in its order dated 27.02.2018, the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company as a willful defaulter . Therefore, even before declaring the Company as a willful defaulter, an opportunity of hearing had to be given in accordance with the principles laid down by the Apex Court in the case of Jah Developers (P) Limited (supra). 14.3. Thirdly, the contention raised on the basis of the Final Assessment Order of the Income Tax Department, dated 29.11.2017, is highly misplaced. For, the said Final Assessment Order was challenged before the Income Tax Tribunal. By order, dated 29.11.2018, the Income Tax Tribunal had set aside the Final Assessment Order. Therefore, by relying upon the Final Assessment Order, the learned Standing Counsel for the SBI is cleverly trying to mislead this Court. 14.4. Lastly, even the alleged finding given by the NCLT is irrelevant. For, the said finding was given after the decision was taken by the JLF on 15.02.2019. Most importantly, neither the Final Assessment Order passed by the Assessing Authority, dated 29.11.2017, nor the finding given by the NCLT form the basis of the decision reached by the JLF in its meeting, dated 15.02.2019. Hence, the reliance on both these documents is highly mischievous. 15. Heard the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distinction between administrative and quasi-judicial functions are (sic) no longer relevant. The principles of natural justice are as much applicable to an administrative action as they are to a quasi-judicial one . Therefore, it is irrelevant whether the function of the JLF, or of the FIC is an administrative one, or a quasi-judicial one. Even if JLF performs an administrative function, the moot issue is whether the principles of natural justice should still be read into its procedure, or not? 20. Lord Parker in the Queen's Bench decision in In re H.K. (Infants) [(1963) 3 All ER 191] had opined that as good administration and an honest or bona fide decision require not merely impartiality or merely bringing one's mind to bear on the problem, but acting fairly. Thus irrespective of whether the power conferred on a statutory body or tribunal is administrative or quasi-judicial, a duty to act fairly, that is, in consonance with the fundamental principles of substantive justice is generally implied, because the presumption is that in a democratic polity wedded to the rule of law, the State or the legislature does not intend that in the exercise of their statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court was, in our judgment, right in setting aside the order of the State. 22. In the case of Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664, the Apex Court posed two questions: what is natural justice? And what is the extent of applicability of principles of natural justice? The Hon ble Supreme Court opined as under:- 26. Well then, what is natural justice ? The phrase is not capable of a static and precise definition. It cannot be imprisoned in the straight-jacket of a cast-iron formula. Historically, natural justice has been used in a way which implies the existence of moral principles of self-evident and unarguable truth . [Paul Jackson : Natural Justice, 2nd Edn., p 1] In course of time, Judges nurtured in the traditions of British jurisprudence, often invoked it in conjunction with a reference to equity and good conscience . Legal experts of earlier generations did not draw any distinction between natural justice and natural law . Natural justice was considered as that part of natural law which relates to the administration of justice . Rules of natural justice are not embodied rules. Being means to an end and not an end in themselves, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) opportunity to explain. This rule is universally respected and duty to afford a fair hearing in Lord Lore-burn's oft-quoted language, is a duty lying upon everyone who decides something , in the exercise of legal power. The rule cannot be sacrificed at the altar of administrative convenience or celerity; for, convenience and justice - as Lord Atkin felicitously put it - are often not on speaking terms [ General Medical Council v. Spackman, 1943 AC 627, 638 ]. (Emphasis added) 25. The Hon ble Supreme Court further summarized the position as under:- 44. In short, the general principle - as distinguished from an absolute rule of uniform application - seems to be that where a statute does not, in terms, exclude this rule of prior hearing but contemplates a post-decisional hearing amounting to a full review of the original order on merits, then such a statute would be construed as excluding the audi alteram partem rule at the pre-decisional stage. Conversely, if the statute conferring the power is silent with regard to the giving of a pre-decisional hearing to the person affected and the administrative decision taken by the authority involves civil consequenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the assessee audited by an accountant has to be formed only by having regard to: (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the Revenue. The word and signifies conjunction and not disjunction. In other words, the twin conditions of nature and complexity of the accounts and the interests of the Revenue are the prerequisites for exercise of power under Section 142(2-A) of the Act. Undoubtedly, the object behind enacting the said provision is to assist the assessing officer in framing a correct and proper assessment based on the accounts maintained by the assessee and when he finds the accounts of the assessee to be complex, in order to protect the interests of the Revenue, recourse to the said provision can be had. It further opined that before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the assessing officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But, opinion required to be formed by the assessing officer for exercise of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealt with the aspect of principles of natural justice, which reads as under:- 24. Rules of natural justice are not embodied rules. The phrase natural justice is also not capable of a precise definition. The underlying principle of natural justice, evolved under the common law, is to check arbitrary exercise of power by the State or its functionaries. Therefore, the principle implies a duty to act fairly i.e. fair play in action. 30. Relying on its earlier decisions, rendered in A. K. Kraipak (supra), Swadeshi Cotton Mills (supra), and Sahara India (Firm) (supra), the Hon ble Supreme Court concluded that if the requirement of an opportunity to show cause is not read into the said Rule, an action thereunder would be open to challenge as violative of Article 14 of the Constitution of India on the ground that the power conferred on the competent authority under the provision is arbitrary . 31. In the case of State of Haryana v. Ram Kishan (1988) 3 SCC 416, the Hon ble Supreme Court dealt with the scope and ambit of Section 4-A of the Mines and Minerals (Regulation and Development) Act, 1957 ( the Act , for short). Section 4-A of the Act permitted the State Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slation, or by a circular, invariably they will have to be read into the provisions of the law, especially where a decision, administrative or otherwise, would have civil consequence; (v) In order to see whether the principles of natural justice are impliedly ousted or not, certain factors would have to be kept in mind, namely the language and the basic scheme of the provision conferring the power, the nature of the power, purpose for which it is conferred, and the effect of the exercise of the power; and (vi) Moreover, the principles of natural justice may be impliedly ousted in cases of urgency where obligation to give notice and an opportunity of personal hearing would obstruct the taking of appropriate action, or a preventive, or remedial nature. Thus, the purpose of provision would need to be examined. But while seeing the existence of urgency, the Court is required to balance between hurry and hearing . Since the principles of natural justice are not contained in a straightjacket formula, they can be adapted to urgent situations. In an urgent situation, it is not necessary to give an elaborate hearing to the affected person. The hearing can be short but subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnal checks, may be introduced and caution exercised while dealing with such parties by the banks. Thus, in short, the purpose seems to be not just to discover a fraud being committed on a bank, but also to alert the other banks to take necessary safeguards / preventive measures against such parties who may be declared as fraudster . Moreover, the purpose is to initiate the investigation through investigating agencies. 39. Clause 2.2 of the Master Circular classifies frauds into different categories based merely on the provisions of the Indian Penal Code. Clause 2.2 of the Master Circular is as under:- 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 Indian Penal Code: 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 excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posure of 500 million or more at the level of a bank irrespective of the lending arrangement (whether solo banking, multiple banking or consortium). All accounts beyond 500 million classified as RFA or Frauds must also be reported on the CRILC data platform together with the dates on which the accounts were classified as such. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, an incentive has been provided by Clause 8.7 of the Master Circular. 44. While Clause 8.8 of the Master Circular deals with bank as a sole lender, Clause 8.9 deals with a consortium of banks, who have lent money to a given borrower, or with multiple banking arrangements. According to Clause 8.9.2, all the banks, who have financed a borrower under multiple banking arrangement , should take coordinated action, based on commonly agreed strategy, for legal / criminal actions, follow up for recovery, exchange of details on modus operandi, achieving consistency in data / information on frauds reported to Reserve Bank of India. Therefore, the bank which detects a fraud is required to immediately share the details with all other banks in the multiple banking arrangements. 45. According to Clause 8.9.4 of the Master Circular , the initial decision to classify any standard or Non-Performing Assets ( NPA ) account as RFA or Fraud would be at the individual bank level. It would be the responsibility of this bank to report the RFA or Fraud status of the account on the CRILC platform so that other banks are alerted. In case it is decided at the individual bank level to classify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JLF to classify an account as fraud , either by consensus, or by majority rule of agreement, neither of these provisions import the applicability of principles of natural justice before the JLF decides to classify the account as fraud . These provisions further impose a duty upon the JLF to report to the RBI within thirty days of their decision about classifying the account as fraud . Moreover, the bank is duty bound to lodge a complaint with the CBI on behalf of all the banks in the consortium. Therefore, the moment an account is classified as fraud , within thirty days the classification needs to be reported to the RBI, and to the law enforcement agency in order to trigger off the criminal investigation. Moreover, according to Clause 8.9.6 of the Master Circular, the overall time allowed for the entire exercise to be completed is six months from the date when the first member bank reported the account as RFA or Fraud on the CRILC platform . 49. Clause 8.11 of the Master Circular deals with filing of complaints with Law Enforcement Agencies. It is as under:- 8.11 Filing Complaints with Law Enforcement Agencies 8.11.1 Banks are required to lodge the complaint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the defrauded amount. After this period, it is for individual institutions to take a call on whether to lend to such a borrower. The penal provisions would apply to non-whole time directors (like nominee directors and independent directors) only in rarest of cases based on conclusive proof of their complicity. 8.12.2 No restructuring or grant of additional facilities may be made in the case of RFA or fraud accounts. However, in cases of fraud/malfeasance where the existing promoters are replaced by new promoters and the borrower company is totally delinked from such erstwhile promoters/management, banks and JLF may take a view on restructuring of such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters/management. 8.12.3 No compromise settlement involving a fraudulent borrower is allowed unless the conditions stipulate that the criminal complaint will be continued. 8.12.4 In addition to above borrower- fraudsters, third parties such as builders, warehouse/cold storage owners, motor vehicle/tractor dealers, travel agents, etc. and professionals such as architects, valuers, chartered accountants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aborate hearing proceeding, the proceeding can be short but substantive, prompt but effective. Undoubtedly, the JLF needs to form an opinion whether the borrower is playing fraud on the bank or not? Obviously, evidence needs to be placed before the JLF for it to formulate its opinion. Therefore, the evidence to be read against a party needs to be furnished to the party. The party has to be given an opportunity to explain, or to challenge the evidence. Thus, the argument of urgency cannot be accepted for jettisoning the applicability of principles of natural justice. 53. Even on factual matrix, the argument of urgency is belied by the record. For, the Company s account was declared as NPA on 29.06.2016; the JLF declared the Company s account as fraud on 15.02.2019, yet the FIC did not declare the Company s account as fraud till 31.07.2019. Thus, there is a gap of 4 months between the decision of the JLF and the FIC. Hence, obviously, the decision to declare the account as fraud has not been taken on an urgent basis. 54. Furthermore, if the requirement of principle of nature justice is not read into the Master Circular, it would suffer from vagueness. For, on the one hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Promoter / Director to carry on a trade or a business, which is guaranteed under Article 19(1)(g) of the Constitution of India. Therefore, such a classification would have grave civil consequences for Promoter / Director of a borrowing Company. 56. Further, since the right to livelihood is part and parcel of fundamental right to life under Art. 21 of the Constitution of India, the fundamental right can be deprived only by a reasonable procedure established by law. However, to deny the said fundamental right without giving an opportunity of hearing would be highly unreasonable, unfair and unjust. Thus, the Master Circular, as interpreted by the RBI, would be in violation of Article 21 of the Constitution of India. Therefore, to save Clauses 8.9.4 and 8.9.5 of the Master Circular from being declared as unconstitutional, it is essential to read the principle of natural justice into the said Clauses. 57. Furthermore, since the Master Circular also imposes a duty on the banks to lodge a complaint with the CBI / criminal investigating agency within a short period, after detecting / declaring an account as fraud , obviously, the borrowing Company, its Promoter / Director would qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral accomplices are granted an opportunity of hearing, the main actor is denied the right to speak and to defend his position. Considering the grave civil consequences and penal action, which would be followed as a result of classifying a borrower as a fraudulent borrower , or a holder of a fraudulent account , it is imperative that principles of natural justice must be read into Clauses 8.9.4 and 89.9.5 of the Master Circular. 60. Fair play in governance is the gravitational force which binds the entire State. Therefore, before a person or entity is obliterated, or is subjected to civil and penal consequences, the person or entity must be given an opportunity of hearing. Without giving an opportunity of hearing, without giving an opportunity to explain the intricacies of the accounts, or of the business dealings, to denounce a person is to act unfairly, unjustly, unreasonably, and arbitrarily. Even in an administrative action, justice should not only be done, but also must appear to be done to the satisfaction of all the parties. Therefore, the principles of audi alteram partem, howsoever short, have to be applied before declaring a party as a fraudulent borrower , or as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gally unsustainable. 63. A bare perusal of the decision taken by the JLF in its meeting on 15.02.2019, and the resolution by the FIC on 31.07.2019 clearly reveal that the JLF and the FIC have relied upon the Report of the Forensic Auditor, dated 06.04.2018. Moreover, FIC has relied upon the Report submitted by Dr. K.V. Srinivas, IRP, for concluding that the account of the borrowing Company should be declared as fraud . According to Mukul Rohatgi, copies of these reports were never furnished, either to the borrower Company, or to its Directors such as the petitioner. It is, indeed, trite to state that a party must be informed about the evidence which is likely to be used against it. For, a chance to meet out the evidence, to challenge the same has to be given to the party. However, even this rudimentary principle has been ignored by the JLF. Thus, the decision dated 15.02.2019 of the JLF is legally unsustainable. 64. Mr. B.S. Prasad, the learned Senior Counsel, has of course argued that the IDBI Bank in its letter, dated 21.04.2018, had furnished a copy of the Forensic Auditor s Report. However, the said contention is belied by the record. For, in its letter dated 21.04.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from the Forensic Auditor. Instead, instantaneously the JLF, in its meeting, unanimously decided that the account be treated as fraud . Interestingly, according to Item Nos. 1, 3 and 8, the JLF had also decided that in case no clarification is received from the Forensic Auditor, only then it will treat the account as fraud . Yet, curiously, it had not waited to receive further clarification from the Forensic Auditor, but has jumped to the conclusion that the account be treated as fraud . Hence, the JLF has drawn conclusion in absence of the relevant evidence. Therefore, the conclusion is legally unsustainable. 68. The final conclusion of the JLF reads as under:- Hence, it was unanimously decided that the account be treated as fraud for the above reasons . (Emphasis added) Once the JLF was of the opinion that further clarification is required from the Forensic Auditor, once it is in the process of taking a decision, once it has decided to wait till further clarification is submitted, the JLF is not justified in concluding that the account be treated as fraud . In fact, the JLF was legally required to wait for further clarification, or non-clarification from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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