TMI Blog2024 (1) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 and 3.2.4 where the unscrupulous borrower enjoy credit facilities under valuable banking arrangement after defrauding one of the financial banks continue to enjoy facilities of other financial banks and in some cases availed even higher limit at those banks. 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. It is surprising that none of the banks while sanctioning or disbursing the funds have ever checked the background of the petitioner-company. The petitioner-company was already defaulting and was NPA in the other banks but still the other banks went ahead with sanctioning huge amount of loan to the petitioner without any proper collateral security or documentation. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative Societies). 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the petitioner company in NCLT, 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, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. He further submits that after depositing the money, the meeting 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, Alla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s counsel for the petitioner requested that this matter may be listed before the next date fixed in the NCLT, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -176, Defence Colony, New Delhi-110024 3. Mr. Gurpal Singh s/o Late Sardar Pritam Singh Sandhu Director 12, Tilak Marg, New Delhi-110001 4. Mr. S.N. Mishra s/o Late Kedar Nath Misra Director, Chief Operating Officer WZ-401, HRC Professional Hub, Vaibhav Khan, Indirapuram, Ghaziabad, UP-14 13. Hence, we have no other option except 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... protection for three months. The entire endeavour of the petitioner company was just to buy time and not to pay back the loan amount. 16. This Court had an opportunity to peruse the affidavits filed by the banks and realized that there is a clear connivance whereby 1300 crores principal plus interest of the public money has been given away by the banks to the petitioner company. Normally, this Court would not venture to enhance the scope of the writ petition but in this case since fraud has been played by the petitioner 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the information sought by the Court, only a part of the information was put in the affidavit. The contents of the affidavits are absolutely surprising. 22. Now we will deal with the contentions of the affidavits filed by the individual banks. First Bank - State Bank of India 23. As per the affidavit of State Bank of India, the petitioner-company has been banking with it since 1933. Sometime in the year 2002 the petitioner-company had defaulted in making the payment, hence:- (i) The bank had for the first time restructured 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the borrower had default for a few consecutive times. Since the account was classified as NPA on 31.03.2013 so it seems that the first default happened in December, 2012, January and February, 2013 and then the loan was classified as NPA in the month of March, 2013. 28. As per the affidavit of UCO Bank the petitioner had given a cheque of outstanding amount of Rs.150 crores (Rs.128 crores and second cheque of Rs.32 crores) and both the cheques got dishonoured. The bank filed an application under Section 138 of Negotiable Instruments Act on which summons 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. After taking loan and not paying to State Bank of India, UCO Bank and ICICI bank, the petitioner turned towards Oriental Bank of Commerce. Again surprisingly the credit/management committee of the Oriental Bank of Commerce happily proceeded to sanction a loan of Rs.110 crores and more surprisingly the State Bank of India, who themselves were to recover money from the petitioner had gone ahead and given a No Objection Certificate on 28.06.2016 for ceding first sub-servient charge on the entire fixed assets of the borrower company in favour of Oriental Bank of Commerce. 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sugar stocks were sold, and the Punjab National Bank allowed it to be sold off, without asking for the money. Within five months from taking this loan the account was declared NPA on 31.03.2017. However, the first legal notice was sent on 29.10.2017, but it took more than half year for the bank to issue notice under Section 13 (2) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. After issuing the notice under Section 13 (2) of SARFAESI Act nothing has happened till date. The banks seems to have filed an Original Application before Debt 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 def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the above facts and record, it is evident that the instant case is a clear case of fraud being played by the petitioner in connivance with the bank officers as the banks one after the other had gone to sanction loans to the petitioner knowing the fact that the petitioner has defaulted in paying money to the other banks and shown no intention of paying back the loan. The loans given by the banks as working capital was well secured with the sugar stocks, even if the petitioner want to sell a bag of the sugar, the sale consideration, would necessarily has to come in the Escrow account. Surprisingly, every time when the 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 guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ambit of fraud. Clause 3.2 of the circular of RBI is as follows:- 3.2 Frauds committed by unscrupulous borrowers 3.2.1 It is observed that a large number of frauds are committed by unscrupulous borrowers including companies, partnership firms/proprietary concerns and/or their directors/partners by various methods including following: (i) Fraudulent discount of instruments or kite flying in clearing effects. (ii) Fraudulent removal of pledged stocks/disposing of hypothecated stocks without the bank s knowledge/inflating the value of stocks in the stock statements and drawing excess bank finance. (iii) Diversion of 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal gratifiction, negligence and cash shortages, cheating, forgery, etc. to the State Police authorities: (a) In dealing with cases of fraud/embezzlement, banks should not merely be actuated by the necessity of recovering expeditiously the amount involved, but should also be motivated by public interest and the need for ensuring that the guilty persons do not go unpunished. (b)Therefore, as a general rule, the following cases should invariably be referred to the State Police: i) Cases of fraud involving an amount of Rs.1.00 lakh and above, committed by outsiders on their own and/or with the connivance of bank staff/officers. ii) Cases of fraud committed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks, continue to enjoy the facilities with other financing banks and in some cases avail even higher limits at those banks. In certain cases the borrowers use the accounts maintained at other financing banks to siphon off funds by diverting from the bank on which the fraud is being perpetrated. This is due to lack of a formal arrangement for exchange of information among various lending banks/Fis. In some of the fraud cases, the securities offered by the borrowers to different banks are the same. 49. Further, the RBI in Clause 6.2 of the circular makes it mandatory on public sector banks to report to the economic offence wings of the Central Bureau of Investigation (in short CBI ) in all cases involving more than Rs.5.00 crores 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken against similarly situated Sugar Mill owners against whom F.I.R. was lodged, we are not going into this fact as it is not a subject matter in this lis. 56. Mr. Ravindra Singh, who has filed an impleadment application on behalf of the Cane Union has also mentioined that as of now Rs.379 crores of cane dues and interest of the farmers of the last year is outstanding (by all the three units of Simbhaoli). He further submits that as per the judgement of Hon ble Supreme Court in the matter of S.K.G. Sugar Limited vs. State of Bihar and others3 outstanding dues of the farmers has the first charge on the sugar and assets of the factory over any contractual liabilities. He further submits that a similar view has been taken in Augusta Sugar 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its filed by the banks, which may indicate that any point of time they had communicated to the RBI in the matter. In case, there is any fraud then in every eventuality the matter is to be referred to the CBI for investigation. Even otherwise, there is complicity as indicated above. 64. We also find that the bank officials had given a complete go bye to the Circular. In such situation, we direct to the CBI to investigate against each and every bank as to how the loans were sanctioned in contravention of the RBI Guidelines and Circulars and also enquire the officers of the banks, who had accorded approval while sanctioning the loan being Member of the Board/Credit Committee and also the officers, who had not taken any effective steps to recover the amount and also against the officers of the banks who failed to take any prompt action to realise the amount from the borrower and allowed the petitioner to siphon off the money. 65. As the CBI is not a party before us, we request the Registrar General of this Court to communicate the present order to the Director, Central Bureau of Investigation, New Delhi. 66. In case, the CBI finds that there is a case of money laundering as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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