WP/23229/2021 of Mr. Yashdeep Sharma Vs Reserve Bank of India on 31 December 2021

HIGH COURT FOR [THE STATE ][OF ][TELANGANA AT HYDERABAD](Special Original Jurisdiction)

FRIDAY ,THE THIRTY FIRST DAY [OF DECEI\4BER]TWO THOUSAND AND [TWENTY ][ONE]

PRESENT

THE HONOURABLE THE CHIEF JUSTICE SATISH [CHANDRA SHARMA],\N DTHE HONOURABLE SRI JUSTICE [N.TUKARAMJI]

wRlT PETITION NO: 23229 OF 2o2'l

Between:

Mr. Yashdeep Sharma, S/o [Laxmi ][Narayana Sarma,Aged ][about ][35 ][Flat ][904,]Tower 1, Blo;k A, NCC Urban Gardenia,HlTEC [City Main Road Madhapur, ][K.V.]Rangareddy, Telangana [- ]500081 [.]

...PETITIONER

ANO

'1. ReseNe Bank of lndia, Through its Regional Director 6-1-56, Secretariat [Road,]Saifabad, Hyderabad [- ]500 [004.]Saifabad, Hyderabad [- ]500 [004.]

2. Bank of Baroda, Zonal Stressed [Assets Recovery Branch, ][No. ][6-1-84/13, ][First]Floor, Khusru Jung House, Secretariat [Road, ][Saifabalt' ][Hyderabad ][- ][500 ][004']in-ia Corporate Oifice. Coiporate [Financial Services Branch ][1st ][Floor ]' [3-5-26212,]Thirumali Estales Building, [Himayatnagar, Hyderabad ][' ][Telangana' ][lndia.]Floor, Khusru Jung House, Secretariat [Road, ][Saifabalt' ][Hyderabad ][- ][500 ][004']in-ia Corporate Oifice. Coiporate [Financial Services Branch ][1st ][Floor ]' [3-5-26212,]Thirumali Estales Building, [Himayatnagar, Hyderabad ][' ][Telangana' ][lndia.]

3. Puniab National Bank, [Large Corporate Branch, ][Sufi ][Chambers, ][Road ][No. ][1,]Ban]ara Hills. Hyderabad [- ][500034]Ban]ara Hills. Hyderabad [- ][500034]

4. Canara Bank, Flat No. 104, [First Floor, ][H. No. ][6-3-639/640/642, Golden ][Edifice]Complex, Khairtabad, [Hyderabad-500004]Complex, Khairtabad, [Hyderabad-500004]

5. lJnion Bank of lndia. 1-2-235, G [and ][H Park ][Lane, M.G. ][Road, ][Secunderabad-]500003.500003.

6. Jammu and Kashmir [Bank,22-7-110, ][SYJ ][Shopping Mall, ][Pathergatti,]Hyderabad - 500002Hyderabad - 500002

7. Punjab and Sind Bank, Abids [Road, Metro ][Estate, Hyderabad ][- ][500001.]

8. Bank of Maharashtra, Safilguda [Branch, ][R.K. ][Nagar, ][Ivlalkaigiri, ][Hyderabad ][-]500047500047

9. Central Bureau of lnvestigation, [Banking ][Security ][and ][Fraud ][Zone ][5-8, ][1oth]Ftoor, A-Wing, CGO Complex, [Lodhi ][Road, New Delhi ][- ][110003]Ftoor, A-Wing, CGO Complex, [Lodhi ][Road, New Delhi ][- ][110003]

l0.Central Bureau of lnvestigation Anti Corruption [Branch, Hyderabad 3rd ][Floor,]Kendriya Sadan, Sultan Bazar, Koti, [Hyderabad ][Telangana - ][500095]Kendriya Sadan, Sultan Bazar, Koti, [Hyderabad ][Telangana - ][500095]

ll.Enforcement Directorate, No. 5-10-174, 3rd [Floor, Shakar Bhavan, Basheerbagh]Hyderabad [- ]500004 Telangana.Hyderabad [- ]500004 Telangana.

12. M/s. Golden Jubilee Hotels Pfl. Ltd., [Through ][its ][Resolution Professional ][Mr.]Subodh Kumar Aqrawal Survey No. 64, [Beside Shilpakalavedika, Shilparamam,]tuladhapur Hyderabad [- ]500081, Telangana, [lndia.]Subodh Kumar Aqrawal Survey No. 64, [Beside Shilpakalavedika, Shilparamam,]tuladhapur Hyderabad [- ]500081, Telangana, [lndia.]

...RESPONDENTS

Petition under Article 226 of the Constitution of lndia [praying ][that ][in ][the]circumstances stated in the affidavit [filed therewith, ][the ][High Court may be pleased ][to]issue a writ order or direction more [particularly ]one [in ][the ][nature ][of ][WRIT ][OF]MANDAMUS (a) declaring the circular bearing [number ][DBS.CO.CFMC.BC,No.1/]23.04.001 I 2016-17 titled Reserve Bank of [lndia (Frauds classification and ][reporting]by commercial banks and select Fls) [Directions 2016 ][(the ][RBI ][l\4aster ][Directions ][on]Frauds) dated 01.07.2016 issued by the [Respondent ]No. [1 as ][arbitrary, ][illegal,]violative of Articles 14 and 21 of the Constitution of lndia and [set ][aside the same ][(b)]Declare the action of the Respondent Nos. 2 to 8 in [classifying ][the ][account ][of]Respondent No. 12 as fraud under RBI Master Directions on [Frauds ][as ][arbitrary,]illegal, unconstitutional and violative of [principles ]of natural [justice and ][set ][aside ][the]same and consequently declare all actions/investigations/proceedings/enquiries [by]the Respondents which are dependent on and is [pursuant ]to [fraud classification of]the account of Respondent No. 12 by the Respondent Nos. 2 to I under RBI [Master]Directions on Frauds as arbitrary, illegal, unconstitutional and [violative ]of [principles ][of]natural [justice ]and set aside the same andior any such other order as the [Honble]Court may deem fit and [proper ]in the circumstances of the case.

lA NO: 1 OF 2021

Petition under Section ['151 ]CPC [praying ]that in the circumstances stated inthe affidavit filed in support of the [petition, ]the High Court may be [pleased ]to stay allactions/investigations/proceed ings/enquiries by the Respondents which aredependent on and [pursuant ]to the fraud classification of the account of RespondentNo. 12 under RBI Master Directions on Frauds, [pending ]disposal of the main writpetition.

lA NO: 2 OF 202'l

Between:

The Enforcement Directorate, No. 5-10-174, 3rd Floor, Shakar Bhavan,Basheerbagh Hyderabad [- ]500004 Telangana.

...PETITIONER/RESPONDENT NO. 1 [1]

I

I

AND

1Mr. Yashdeep Sharma, [S/o ][Laxmi Narayana ][Sarma,Aged ][about ][35 ][Fiat ][904']Tower 1, Block [A, ][NCC Urban Gardenia,HlTEC City ][lvlain ][Road lvladhapur' ][K ][V']Rangareddy'Telangana-500081 ....RES'.NDENTMR,rpETrroNERTower 1, Block [A, ][NCC Urban Gardenia,HlTEC City ][lvlain ][Road lvladhapur' ][K ][V']Rangareddy'Telangana-500081 ....RES'.NDENTMR,rpETrroNER

The Reserve Bank [of ][lndia, ][through Regional Direclor, ][6 ][Sansad ][Marg, ][New]Delhi.Delhi.

3Bank of Baroda, [Zonal Stressed Assets ][Recovery ][Branch, ][No ][6-1-84/13, ][First]Floor, Khusru Jung [House, Secretariat ][Road, ][Saifabad, Hyderabad - ][500 ][004']lndia Corporate Oifice. [Corporate ][Financial ][Services Branch ][1st ][Floot,3-5'?6212']Thirumala Estates Building, [Flimayatnagar, Hyderabad ][- ][Telangana, lndia']Floor, Khusru Jung [House, Secretariat ][Road, ][Saifabad, Hyderabad - ][500 ][004']lndia Corporate Oifice. [Corporate ][Financial ][Services Branch ][1st ][Floot,3-5'?6212']Thirumala Estates Building, [Flimayatnagar, Hyderabad ][- ][Telangana, lndia']4Punjab National [Bank, Large Corporate Branch, H.No.8-2-672, Sufi Chambers']Road No. 1, Baniara [Hills, Hyderabad - ][500034]Road No. 1, Baniara [Hills, Hyderabad - ][500034]

Canara Bank, Fl;t [No. ][104, ][iirst ][Floor, ][H. ][No ][6-3-639/640/642, Golden ][Edifice]Complex, Khairtabad, [Hyderabad-500004]Complex, Khairtabad, [Hyderabad-500004]

Union eant of [lndia, ][1-2-235, ][G and ][H ][Park Lane, ][M ][G ][Road, ][Secunderabad-]500003.500003.

Jammu and [Kashmir Bank, 22-7'110, SYJ Shopping ][Nilall, ][Pathergatti,]Hyderabad [[- ]]500002Hyderabad [[- ]]500002

[[- ]]8Punjab and Sind [Bank, ][Abids Road, Metro Estate, ][Hyderabad ][- ][500001']9Bin'k of lrilaharashtra, [Safilguda Branch, ][R ][K ][Nagar, Malkajgiri, Hyderabad ][-]5000479Bin'k of lrilaharashtra, [Safilguda Branch, ][R ][K ][Nagar, Malkajgiri, Hyderabad ][-]500047

l0.Central Bureau [of lnvestigation, ][Banking Security ][and ][Fraud ][Zone 5-B' ][1oth]Floor, A-Wing, CGO [Complex, Lodhi Road, ][New Delhi ][- ][1 ][10003]Floor, A-Wing, CGO [Complex, Lodhi Road, ][New Delhi ][- ][1 ][10003]

l l.Central Bureiu [of lnvestigation Anti Corruption Branch' ][Hyderabad ][3rd Floor']Kendriya Sadan, Sultan [Bazar, Koti, ][Hyderabad ][Telangana -.500095]Kendriya Sadan, Sultan [Bazar, Koti, ][Hyderabad ][Telangana -.500095]

tz.v7s. cotoen Jubilee [Hotels pvt. ][Ltd., ][Through its Resolution professional ][Mr.]Subodh Kumar [Agrawal Survey No. ][64, ][Beside Shilpakalavedika, Shilparamam']l\iladhapur Hyderabad [- ][500081, ][Telangana, ][India']Subodh Kumar [Agrawal Survey No. ][64, ][Beside Shilpakalavedika, Shilparamam']l\iladhapur Hyderabad [- ][500081, ][Telangana, ][India']

...RESPONDENTS

PetitionUnderSectionl5lCPCprayingthatinthecircumstanoesstatedinthe affidavit [filed in support of ][the ][petition, ][the ][High ][court ][may ][be ][pleased ][to ][vacate]the interim order in w.P [No ][23229 ][0l ][2021 daled ][0411012021.]

counsel for the Petitioner:SRl. [KANKAR ][ASHWINI ][TARA ][REDDY]Counsel for [the Respondent ][Nos. 9 ][& ][10: SRl. ][K' ][SUREDER]Coun"effortheRespondentNo.ll:SRI.N.RAJESHWARRAO,ASST'SOLICITORGENERALCounsel for the [Respondent ][Nos ][l ][to ][8 ][& ][12: ][NONE ][APPEARED]The Court made the following:

THE HON'BLE THE [CHIEF JUSTICE SATISH ][C][HAND][ RA SHARMA]ANDTHEON'BLE SRI [JU][STICE ][N. TU]WRIT PETITIO[N No.2][ 3229 ][0F ][2021]

ORDER: Per [the ][ltott'ble ][the ][Chiel ]''Li"^rice [Satl.sh ][(l/ronclra ][Sh..rttttt)]

The petitioner [before ][this ][Court, who ][was ][a ][Director]ald Promoter of [M ]/ [s. ][Golden ][Jubilee Hotels ][Private]Limited, has [filed ][the ][present ][writ ][petition ][challenging ][the]validity of Circular [dated ][01 ][.07.2016 issued by ][the ][Reserve]Bank of India [as ][arbitrary ][and unconstitutional, ][alleging]that it viotates [Articles ][14 ][and ][2 ][1 ][of the ][Constitution ][of]india as it does not [provide ][for ][opportunity ][of]hearing/ issuance [of ][sholv ][cause ][notice. The ][petitioner ][has]prayed for the following [relief.]

"lt is [therefore prayed ][that this ][Honble ][Court ][may ][be]pleased to issue a rvrit, [order ][or ][direction ][more]particularly one in lhe nature [of Writ of ][Mandamus ][(a)]circular [bearing ][No.DBS CO CFMC ][BC'No ][l]declaring the l23.O4.OOt /2016-17, [titled ]['Rescrve ][Bank ][ol ][India](Frauds - Classification and [Reporting ][by ][Commercial]Banks and Setect FIs) [Directions,20i6 (the'RBi ][Master]Directions on Frauds) [dated ][0i.07.2016 ][issued ][by ][the]respondent No. [1 ]as [arbitrary, ][illegal, ]'"iolative [of ][Articies]14 and 2l of the Constitution [of India ][and ][set aside the]same [(b) ]declare [the action of the ][respondent ][Nos ][2 lo ][8]in classifuing the account [of ][respondent ][No'12 as fraud]under RBI Master [Directions ][on ][Frauds ][as ][arbitrary,]illegal, unconstitutionai [and ][violative ][of ][principles ][of]natural [justice ]and set [aside ][the ][same ][and ][consequently]declare all actions/ investigations/proceedings/enquiriesby the respondents [which are ][dependent ][on ][and ][is]pursuant to fraud classification [of ][the ][account ][of]

respondent No.12 by the respondent Nos.2 to 8 underRBI Master Directions on Frauds as arbitrary, illegal,unconstitutional and violative of [principles ]of natlraljustice and.set aside the same and/or any such otherorder as the Hon'ble Court may deem fit and proper inthe circumstances of the case."

This Court in identical matters i.e., W.P.Nos.22588 of2019 and 3648 a-nd 3667 of 2020, [passed ]a common orderdated 22.12.2021 dismissing the writ petitions andparagraphs 16 to 27 of the aforesaid order are reproducedas under; [-]

Conclusion

"16. The lacts of the case reveal that the petitionercompany, incorporated in the year 1999, is engaged inthe business of manufacture of edible oils and otherproducts and availed credit facilities from a consortium ofbanks with Andhra Bank [(Union ]Bank of India) [as ]a [Lead]Bank for a sum of Rs.675 Crores. The account of thepetitioner company was declared as NPA on 14.05.2018and the consortium of banks has taken steps to [realise]the sccurities and also filed an Application before theDebt Recovery Tribunal for recovery of a sum ofRs.b17,40,94.702.61 I The petitioner company isaggrieved by the action of the respondent No.3/AndhraBank (Union Bank of India) in declaring the [petitioner's]account as 'fraud'. The Reserve Bank of India is [a]Slatutory CorporaLion constituted by the [provisions ]ofSection 3 of the Reserve Bank of India Act, 1934, for thepurpose of regulating the issue of Bank Notes andkeeping thc reserves with a [vier.l' ]to secure monetarystability in the country and generaily to operate currencyand credit system of the country. [The ][Reserve ][Bank ][of]India has been, inter olia, entrusted with the statutoryobligation of administering lhe provisions of BankingRegulation Act, 1949.In the Bankin8 Regulation [Act, ][the]

Reserve Bank of India has been vested with variouspowers with respect to banking companies, such asgranting licences, conducting inspections, givingdirections, advises etc. The Reserve Bank of India hasbeen vested with the powers to determinc the Bankingpolicy in the interest of banking system, in the interest ofmonetary stability and sound economic growth, havingdue regard to the interests of the depositors. The ReserveBank of India is also concerned with organization of asound and healthy banking system, ensuring effectivecoordination and control over credit through a properMonetary and Credit Policies. The Reserve Bank of lndiahas the primary responsibility to ensure stability of thebanking system in the country and Directions/ Guidelineshave been issued by the Reserve Bank of India from timeto time. The Reserve Bank of India being an expert body,its decisions u,'ith regard to regulation ol banks deserve tobe given due weightage. Section 35A of the BankingRegulation Act empowers the Reserve Bank of India t<rissue directions to the banks. Section 35 A of theBanking Regulation Act is reproduced as under:- '35A. Power of thc Reserve Bark to glve directlons.- (1)Where the Reserve Bank is satisfied that- (a) in the public interest; or (aa) in the interest of banking polic],; or (b) to prevent the affairs of any banking company beingconducted in a manner detrimental to the interests of the depositorsor in a manner prejudicial to the interests of the banking company;or

(c) to secure the proper management of any banking companygenerally, it is necessary to issue directions to banking companies generaih.orto any banking compan,v in particular. it mav, from time to time,issue such directions as it deems fit, and the banking companies orthe banking company, as the case mal,be, shall be bound to complvwith such directions.

(2) The Resen'e Bank ma]., on representation made to ir or on irso$n motion, modifl or cancel an\.direction issLtcd under sllb-section(l), and in so modifying or cancelling an-\.direction ma\ impose sucho$n motion, modifl or cancel an\.direction issLtcd under sllb-section(l), and in so modifying or cancelling an-\.direction ma\ impose such I

conditions as it thinks fit. subject to $'hich the modification orcancellation shall have effect.'

17. The 'Master Directions on Frauds'has been issuedby the Reserve Bank of India rn public interest underSection 35A of the Banking Regularion Act. The ReserveBank of lndia being the regulator and supervisor of thebanks in the couutry has issued many instructions to thebanks to sensitize them against banking frauds and tohave deterrent systems against such frauds. The ReserveBank of lndia has issued a'Master Circular on Frauds'dated 01.07.2016 incorporating the earlier circularsissued on the subject and the Reserve Bank of lndiaupdates the Master Circular on Frauds annually,generally in Julv incorporating the instructions issued tillthen. ln 2016, rhe Rcserve Bank of lndia has startedissuing Master Directions of each subject covering all theinstructions on that subject and the Master Directionsarc also updated sujtablv rvhenever there is a change inthe policv. A)l rhe changes so made are reflected in theMaster Directions available on the Reserve Bank websiteand finallr"Master Directions on Frauds - Classificationand Reporting of Commercial Banks and select FIs'wasissued on Ol.O7 .2016. It is, in fact, more or less anupdation of the existing Master Circular on Frauds -Classification and Reporting, dated 01.07.2015.Subsequently, Master Directions on Frauds was updatedon 03 .O7 .2017 .

18. Clause 1.3 of the 'Master Directions on Frauds' isreproduced as under:-"1.3 Purpose These directions are issued with a view to providing a fiamework tobanks enabling them to detect and report frauds early and takingiimeh'consequent aclions like reporting to the investigative agenciesso that frardsters are brought to book early, examining staffaccountat)ilit! and do effective fraud risk management. Thesedirections also aim to enable faster dissemination of information b-ythe Resene Bank of India (RBI) to banks on the details of frauds, I

unscrupulous borrowers and related parties, based on banks,reportrng so thal necessary safeguards/ preventive measures b). wa].of appropriate procedures and internal checks may be introducedand caution exercised rvhile dealing n'ith such parties by banks.,,reportrng so thal necessary safeguards/ preventive measures b). wa].of appropriate procedures and internal checks may be introducedand caution exercised rvhile dealing n'ith such parties by banks.,,

19. The purpose set out in the Master Circular clearlyestablishes that the classification of account as [,fraud, ]ispurely an administrative exercise, which is necessary totake follow-up actions and is also a preventive exercise toensure that other banks also share the information whichis in the Central Fraud Registry for the purpose ofexercising caution while dealing lr,'ith such parties. Muchhas been argued before this Court on the Bround 01.principles of natural justice and fair piay and a prayerhas been sought to quash the [,Master ]Djrections onFrauds', dated 01.07.2016 to the extent they do notprovide for opporruniry of hearing.

20. Healy reliance has been placed upon theJudgment delivered by this Court in the case of RajeehAgaipa! v. Rcscwe BaaL of Iadle (2021 l2l ALD29O:2021 (t) att454). It is true that a coordinate Bench of this Court hascertainly held that the principle of audi alteram partem,part of the principles of natural justice, is to be read inClause 8.9.4 and 8.9.S of the Master Circular. Theaforesaid Judgment delivered by the Division Bench hasnot attained finality. In Special Leave petition filed by thestate Bank of India, i.e., s.L.p. (c) No.3931 of 2021, theHon'ble Supreme Court, by order dated 15.04.2021, hasgranted interim order and the observation of the Higl]Court to the extent of personal hearing bc given, hasbeen staved. The Order passed b1.the Hon,ble SupremeCourt is reproduced as under:

'Applications seeking exemprion from filingcertified copv of the impugned order are allo\r.ed_Issue notice.certified copv of the impugned order are allo\r.ed_Issue notice.

Dqsti service, in addition, is perrnir!ecl_

Learned counsel is permitted to fiie counteraffldavit $'ithin a period of four r|eeks lrorn torla,v.Rejoinder affidavit rvjthin tu.o weeks thereafrer.Rejoinder affidavit rvjthin tu.o weeks thereafrer.

Sct dorrn for hearing on Tuesday, the 13'i Ju1y,2021 on top of the Board. I

Meanu'hile, the Minutes/Order dated 15.02.2019passed bv the Joint Lenders Meeting is not to be actedupon. Thc High Court insofar as it observed that apersonal hearing be given is staled."upon. Thc High Court insofar as it observed that apersonal hearing be given is staled."

21. In the considered opinion of this Court, as theissue of principle of natural justice and fair play ispending before the Honble Supreme Court, the same hasnot been dealt with at present. However, the facts of thecase reveal that the forensic audit, which was conducted,\vas not a unilateral exercise on the part of the auditor.The audit u,as conducted with full participation of thepetitioner company and based upon the audit report,which u,as certainl!' prepared with the participation of thepetitioner, the petitioner account has been classified as'fraud'.

22. Learncd counsel lor the petitioner has muchargued upo:t the 'Conclusion' part of the Audit Reportand tlre samc is reproduced as under:- ''Conclusion:

The Companv SARL rvhich is in edible oil andrice business has continuously progressed its tumoverand reached to a peak turnover of Rs.2450 Cr in the last]ear [cnding ][31.03.2018. ][To ][sustain ]high tumover atultra lo$ profitability, the request for enhancement ofworkirlg capital was made but was rejected. The resultsof thb business at everv year end has been very bleak internls of margins not eyen being 1% of the tumover ascan be seen from the financial statements, led tovulnerability of business.

It is interesting to analyze what circumstancesmade compan.y as defaulter and NPA account withbankers during laws few months post closure of FY 18though indication could be seen in last 2 years itselfwhen cornpan.v.egistered high revenue growth withreduced prolitabilitv at cost of Supply chain risks andIack of control on debtors, which increased substantially.The Companv continued to do higher business volumes$'ith insignificant enhancement in working capital limits

in the last 3 [years- The ][company ][had ][to ][thce ][rnany]regulatory hurdles during [the current.vear which ][$ere]reported and are knolvn [in ][public domain and ][it ][being a]business entirelJ'based [on ][imports, the ][btlsiness ][came ][to]grinding halt with the change in [government policies and]tax structure, sources [of ][funds dried, with ][loss ][ol faith ][by]financial institLttions, [leading ]the [productio!1 ][to ][stop.]supplies could not be [made, ][customers started blocking]old money, because no new [suppll'being ][possible ][and ][as]a result all letter of credits started [devolving ][and ][account]became irregular with banks, [with ][no ][possibilitt for ][the]company to react by shifting [fully to ][indigenous ][sources]or arrange Ior an-t" funds.

The huge amount of debtors [of ][about ][Rs.50O ][Cr]and above leaves an important [observation ][about ][the]traditional practices of business [control, ][extension ][of]credit to customers without [concrete ][agreements,]grouping the credits at broker level leading to limitedvisibility of receivables [party ]wise from a [longer ][period.]Further the lack ol unit level financial control and interdependence of all the businesses [with ][a ][common slrpply]chain and distribution [proved ][fuel in fire ][u'hen]management was unable to serve the [customers ][and ][de-]risk any of its business *'ith the change in [lax ][regime]and govemment [policy ]in the lead business. [!'urther ][the]insistence of Statutory Auditor on [creating provision ][ancl]writing off these debtors as bad debts [resulted ][these ][bad]debts falling the prey of legal [proceedings ][and forcing ][the]company to commit itself towards [a bleak ][recoverl for ][the]receivables- . A [qllestion ][arises ][as ][to ][$hether ][thc ][overall]management accounting slstem [\tas ][ade(lLlatc enoLlgh to]run such large operations, [\\'hich resulted ]into a [total]collapse in event of business exigenc\' [$'hich has ][hit ][the]entire edibie oil industry and [\ras ]be-\'ond [thc control ][of]management, where over leveraging \ljthotlt [adequate]control aDd absence of strollg tisk [mitigation ][measllres]led to the do*n fall.

The compan)' has conveled that it has takenlegal action against debtors recovery [but ][being ][civil ][suits,]la\i, will take its own time and on the [other hand counter]claim of the debtors indicate long dral('n futile [process of]recovery. The abov€ observation and also kel linding [and]executive summar,v narrated in this report leaves [a]question on management system control and lack in I

adopting aclequate risk measures in areas such asrecoven from debtors, legal documentations with thbbrokers and trails of transaction adequate which areessential lor the recovery of receivables, results in bleakrecovcn of the same.

SARL was a [profitable ]Company as there hasbeen positive increase in its revenue, but with highleverage and thin margins, it would be difficult to runand operate the units in the current situation withoutincurring major repairs and renovation cost and furtherdeterioration will make the plants unviable foroperations.

The majority of investment made by thecompanv with a prime objective was in distribution,brand buiiding and increasing the reach other thancreating hard assets of building plant and machinery.

The intangibte asset of brand investment indistribution and non-runoing frxed assets does have asevere erosion calling for an impairment in very shortperiod of time, given the plant and machinery hardlyprovides for any cover against the debt.

with the above observations read with keyfindings & execul.ive summary and other [points ]narratedin our report, we conclude that management andpromoters should have been more carcful in financialcontrol and one \ronders lvhy aggressive steps forrecovcl} of dcbtors (overdue for ettra ordinary time withno confirmations) is not taken which was main reason ofaccount becoming NPA. Basis the sample audit, review oflegal cases, ir)t.'rvieu s of brokers, understanding of tradepracliacs, clarificaliorl on rcconcilialion of debtors bystatlrtor'\ auditors :n recent iime. overall substance of theaccounl and subject to reliance on the data for therecover.y o[ debtors, rve find no diversion of funds or fraudbeing intentionailr carrjed out by the management."

23. Learned counsel for the petitioner contends thatthe Forensic Audit did not come to a conclusion that ofdeclaring the account of the petitioner as fraud'.

24. Learned counsel for the Andhra Bank [(Union ]Bankof India) has drawn the attention of this Court towardspages 213, 216 and 219 (of the petitioner's paper book) ofthe Forensic Audit Report. They read as under:-

lor settlcmcnt of the accountcustomers separately, [given]the commonality ofcustomcr accounts led !o- The Company have been sanctionedloss ol control on Riskcredit tacilities for Oil [and ][Rice]parameters. However, fundsdivisions separately [{'ith ][specified]sanctioned for Rice divisionlimits by tie lead banker as Per [lhe]carry lcss potential risk thansanction letters, holvever [funds]Oit division.sanclioned for Rice drvision in itsaccount sere berng translcrred [anci]ulilrsccl in the Oil divisi.,n. [Thc funds]carricd separate charges as securitieson its slocks and rcceivablc divisionrvrse. and $ere supposcd to [be]ulrliscd lbr the specific [purposc ][lhet]!ver( sanctioned for. \vhich [\^as]violarcd.RESPONSE TO ABOVE [0BSERVATION]Menagernent ResponseForensic Auditot's Comm€nt:The Compan) utjlrzed lunds [r)i ][Rs.:60]Funds were spcnt by SARL on behalf ofCrores bt mnkrns [pa]menl ][!1) ][Fikaakshara]Ekaakshara during the [period ]07.10.2016Subsequently, lhc Company [has ][rcalised]!o 2q.08.2017 amoun! to INR [2,60,01,508,]rhe enLirc amount [irom ][f:kaaksham]The entirc amount was repaid [bY]Refineries Pvt LtdElkakshara to SARL during 10.09.2018 [to]r 4.09.2018.Unusual Indicators &Conchrsion based on AuditQualined [opinion ][elrd ][EmPhasis ][of]matter in FY 2OI7-18 bY [Dee,]Auditors:Thc Compan| has rcporlcd [a loss ][of]Substantial losses in theINR 2:3.33 Crores due [lo ][which ][net]current Yeat have eroded thelr'orrh ot thr ComP. \ has been [iulll]net lvorlh of the company incrotlcrl liom l\R 204.7f crorcs [to]singl. vear completely.n(galr!c ner \\orth [()l I\il ]25.lrlcro[es. ljurLhrr [Ccv,)lv( ]nrcrrl [()a ][LCs]on iL large scale lirlinf.d [sLlh lo(el]scalc of production/No ProclLrc!ion [in]- These conditions andcertajn unrls grvcs doul)ls about [the]events indicate materialconlinuit\' [(ii ]busincss. [So ][the]Llncertainty which may castCofipil,1\'s abrht]' [1r) ][contrnuc ][Lhc]signiticant doubt on thebusnrss :rs g(,in! [. ][rnrcrr ][n ]iscnliry's ability to continue assigrrir(.nrl\ drp.ndrrr I Lrilori [ihc]gorng concern.vral)il1r\ ,)l lhc IesllJ(lurrriq Pl.irr [to]be.rpproved by Cor:sL)rr:tlrn B.,nksThc proposal forresrructuring of thc account- ['1"h. ]C.)mp;Urt's rarrnA 1)r ll11.k$irrk\\'as declincd by the bank.i\f E DI UMIlrL lllt\ INdr. rr irs i,Pl)rr ["Rtrl"rg]R i,ni,l(j d.|Lo .r.1 Fr',ruj,11 [.)01e. ]Thc dow Erad,ne of rheqhcrc,n ,r iloqnqtdo('d rhc rrr,,iA\ lhe CompanJ to ['tiuR ]llBB-.ior' [,lr"- ].r ,. ,;; ";4,;;p;|1v i.a,.^i".,h" in.fli.i..,cy of theFund Based Bark LoJr [Fa(rlrlrcs ][ol]rNR 106.6r crorcs or rhe c.*p""r :"'[3:11;'Jflj:: [o."-**"]and [(o ]['BWR ]A3+" [firr ][Non-Fund]Based Bank Inan Facilitres [of ][INR]635.1 I Crores.respcct rc thc liabiItv [on]of posl retiremcnt medicalbenefitsol em lovces includin '1

retired employccs, [a]plan, is recognlsed un actual basis [in].esoect of brlls [re(erved ][bv ][rhc]Company rnstead [of ][recognErng ][the]liabilitv fot the samc [as the ][presenl]value of the defined [benellt obiigalion]at the balance sheet [date ][calculated]on the basis of actuarial [valuation in]accordance with the [notified ][AS ]- [15]on EmploYee Benefrts Theconsequential lmpact [or ][adiuslment']rf any, owrng to [thrs ][non_compliance]on the financial [statements ][rs]presently not ascer!ainable.

' [sundn'debtors ][worth ][INR ][397.57]Crores aie doubtful debts [which ][have]been classified as [non_current ][assets]aqainsr a total [debts ][of ][INR ][552.39]crores as on 3i lr4arch [2018, ][of]which balances under [significant]accounts are subject toreconciliations and [confirmation ][Thc]Company has made [a ]Provision [ol]INR 132.02 Crores [$hich ][appears ][l()]be inadequate speciall) [keeping ][rLs]view the [position ]ol [recovery ][tn]subsequent Years [and ][therelore]reported loss of [INR 223.33 ][Crores]rcmains under reported

25. The relevant extracts [of ][the ][audit ][report ][reveals]that it is not a [case ][where no ][adverse ][findings ][have ][been]arrived at by the [Forensic ][Audrtor ][in ][the entirc ][Report]and therefore, this Court [is ][of ][the cpinion ][that ][based]upon the lindings arrived [at ][in ][the Forensic ][Audit ][Report,]the petitioner company's [account ]'"\'as [rightly ][declared ][as]'fraud' and the [scope ][of ][interference ][in ][the peculiar ][facts]and circumstances [does ][not ][arise. There ][is ][no ][illegality ][or]inhrmit-v in the decision [making ][process ][warranting]interference in the [peculiar facts and ][circumstances ][of]the case.

26. This Court has carefully [gone ][through the Audit]Report and it is not a [case ][where ][Lhere ][is ][no ][w'hisper]against the [petitioner ][company. ][This Court ][does ][not ][find]any reason to interfere with [the ][action ][of the ][respondent]Bank in declaring the [petitioncr's account ][as ]['fraud',]which has been done by follolving [due proccss ][of law ][as]prescribed under the Master Circular [issued ][by ][the]Reserve Bank of India.

_)

I

27. In the light of the aforesaid, the writ petitions aredismissed. Miscelianeous petitions, if any pending,'shallstand dismissed. There shall be no order as to costs."

Learned counsel has placed reliance upon theJudgment delivered in the case of UMC Technologies PrivateLimited v. Food Corporatioa of India (Civil Appeal No.2687 of2020. dated 16.I 1.2O2O1.

This Court has carefully gone through the aforesaidJudgment and it was a case of blacklisting in a contractualmatter. The present case is distinguishable on facts as it isnot a case of blacklisting arising out of contract. Thealbresard Judgment is of no help to the petitioner.

The Ma ster Directions on Fraud provide for acomprehensive mechanism and a forensic audit is carriedout in the matter based upon the documents supplied bythe borrower. It is not a case where the forensic auditor onhis own prepares some documents ald the borrower is wellaware of ail such documents on the basis of which forensicaudit takes p1ace. Otheru,ise a1so, there is no [provision for]grant of opportunity of hearing as prayed for and the issueis sti1l pending before the Hon'b1e Supreme Court andtherefore, the same is not berng dealt with by this Court.

Reiiance has [also ][been ][placed ][upon ][the ][Judgments]delivered in the [case ][of ][Government ][of ][Andhra ][Pradesh ][v']P.cautam Kumarl [and ][Palaniswamy ][v' ][State ][of Andhra ][Pradesh2]and the contention [of ][the learned ][counsel ][for ][the ][petitioner]is that suspension [of ][judgment ][in ][respect ][of ][opportunity ][of]hearing by the [Honble ][Supreme ][Court ][in ][Rajesh ][Agarwal](supra) will not [come ][in ][the ][u'ay ][of ][the present ][petitioner']

This Court has [carefully ][gone ][through ][the Judgments]relied upon by [the ][learned counsel ][for the ][petitioner' In ][the]aforesaid cases, [the ][order ][passed ][was suspended' ][whereas]in the present [case, ][the ][Hon'b1e ][Supreme ][Court ][in ][S'L'P'](C) No.3931 of 2021, [vide order ][dated ][15 ][O4'2021' ][has]categorically [stayed ][the observation ][of ][this ][Court ][in ][respect]of personal [hearing. Therefore, ][this ][Court ][is ][of ][the ][opinion]that no relief [can ][be granted ][to the ][petitioner ][in ][so ][far ][as]the issue of [personal hearing ][is ][concerned']

The formation [of opinion ][is ][based ][upon the ][findings]arrived at in [the ][forensic ][audit report and the ][account ][of]M/ s.Golden Jubilee [Hoteis ][Private ][Limited ][was ][rightly]declared as [fraud ][keeping ][in ][view ][the forensic ][audit report']There is no illegality [or ][infirmity ][in ][the ][decision ][making]interference [in ][the ][peculiar facts ][and]process warranting \'2012 [(6) ][Al.D.158:2012 ][(6) ][ALI ][l:jlt]

'20t8 [(3)Al-D ][l8l ][:2018 ][(2) ][ALr ][365]

l-

circumstances of the case. The action has [been ][taken]against M/s.Golden Jubilee Hoteis Private Limited [by]following due process of law, and therefore, this Court doesnot find any reason to interfere with the order [impugned.]Resultaltly, the writ petition is dismissed.Miscellaneous petitions, if any [pending, ]shall [stand]dismissed. There shall be no order as to costs.

SD/.MOHD.SANAULLAH [ANSARI]ASSISTANT REGISTRAR6,SECTION OFFICER

//TRUE COPY'

To,

1. One CC to [Sri. Kankar ][Ashwini ][Tara ][Reddy, ][Advocate ][[OPUC]]

2. One CC to Sri. [K. ][Surender, Advocate ][[OPUC]]a. One CC to [Sri. ][N. ][Rajeshwar ][Rao, ][Asst, Solicitor General ][[OPUC]]4. One Spare [CoPY]5. Two CD [CoPies.]

P\,,]BS+

)

HIGH COURT

DATED"31l12l202'l

ORDERWP.No.23229 of 2021

Dismissing the [WP]Without costs.Co?i4

W*

1\\eSTArFqz,30 4 [lli\H E?2]oL)4+\Ioi)