M/S Agarwal Industries Pvt Ltd VsAllahabad Bank

This Writ Petition is filed seeking writ of mandamus declaring the master directions of Fraud-Classification and Reporting by Commercial Banks and select FIs dated 01.07.2016 issued by the 2nd respondent as violative of principles of natural justice and consequently to declare the action of the 1st respondent (presently merged with the 3rd respondent) in declaring the loan account of the petitioner with the respondents as Fraud Account as illegal and arbitrary and consequently to set aside the said declaration vide reporting dated 21.08.2019 under Fraud Number ALLA 1903-0051.

Heard Sri Ambadipudi Satyanarayana, learned counsel for the petitioner and Smt.V.Dyumani, learned Standing Counsel for the respondents 1 and

3.

Learned counsel for the petitioner submits that the account of the petitioner was declared as Fraud Account basing on forensic audit report dated 26.03.2019, which is based on the master circular dated 01.07.2016 issued under Section 35-A of the Banking Regulation Act, 1949 and that a copy of which is not served on the petitioner. He also submits that the Division Bench of this Court vide judgment dated 10.12.2020 in W.P.No.19102 of 2019 held that principles of natural justice have to be read into in the circulars, as such, the impugned action of the respondents in declaring the action of the petitioner’s account as Fraud Account is in violation principles of natural justice. He also submits that the judgment of the Division Bench of this Court dated 10.12.2020 is subsisting as on today, as such, the petitioner is entitled for relief. He submits that the same auditor issued letter dated 15.05.2019 to the 1st respondent Bank before its merger into Indian Bank-3rd respondent Bank stating that the petitioner’s account does not come across any fraudulent transactions in the petitioner’s account and that the said aspect was also not considered by the respondents while passing the impugned proceedings, which goes to show that there is no application of mind on the part of the respondents.

On the other hand, learned Standing Counsel for the respondents 1 & 3 submits that the Division Bench of this Court in the judgment dated 10.12.2020 cannot be relied upon as it is under challenge before the Hon’ble Supreme Court. She also submits that already criminal proceedings have been initiated against the directors of the petitioner’s company and that the petitioner can explain the same to the Central Bureau of Investigation, but not to this Court. She also submits that there are some more batch of writ petitions are pending.

In this case, it is to be seen that there is no dispute that the lis in this writ petition is squarely covered by the judgment of this court in Rajesh Agarwal v. Reserve Bank of India [2021 (2) ALD 290], but only contention raised is that the same is under challenge before the Hon’ble Supreme Court, but no order suspending the aforesaid judgment is produced before this Court, as such, we do not see any reason why the Judgment of Division Bench of this Court should not be relied upon. That apart, when the petitioner has made specific assertions and that without issuing notice, petitioner’s account has been declared as Fraud Account, which is not been disputed in the counter affidavit filed on behalf of the respondents.

Though, it is specifically asserted that a copy of the audit report dated 26.03.2019, which is relied upon by the respondents for declaring the petitioner’s account as Fraud, even according to the counter affidavit, is not served on the petitioner. The Division Bench of this Court in the judgment dated 10.12.2020 at paragraphs 54 to 58, elaborately discussed the issue and held that declaration of petitioner’s account as fraud account has serious civil consequences and that too, without issuing notice. Even if the petitioner’s account is declared as fraudulent, principles of natural justice has to be read into circular and that notices have to be issue to the petitioner before initiating any action for declaring the petitioner’s account as fraud. In the instant case also, since no notice was issued to the petitioner and that basing on a report, the petitioner’s account was declared as fraud, we are of the opinion that the said action of the respondents’ Bank is in violation of principles of natural justice.

In view of above facts and circumstances, without expressing any opinion on merits of the case, the impugned action of the respondents in declaring the petitioner’s account as Fraud, is set aside. Since the 1st respondent Bank is stated to be merged with the 3rd respondent Bank, the 3rd respondent shall issue notice to the petitioner and supply a copy of the forensic audit report dated 26.03.2019 and after affording an opportunity of hearing to the petitioner, pass an appropriate orders, in accordance with law.

Accordingly, the Writ Petition is allowed to the extent indicated above. There shall be no order as to costs. As a sequel thereto, miscellaneous petitions, if an, shall stands closed.