Final Order 1

Order Details: Notice of Motion
Pdf Text: Order on
Notice of Motion No. 519 of 2020 1
MHCC010013832020
IN THE BOMBAY CITY CIVIL COURT AT MUMBAI
NOTICE OF MOTION NO. 519 OF 2020.
IN
SHORT CAUSE SUIT No.306 of 2020.
Abhay Narendra Lodha. … Plaintiff./
Applicant.
In the matter of
Abhay Narendra Lodha. … Plaintiff.
V/s.
1. Bank of Baroda and 4 Ors. ....Defendants
Appearance:
Adv Megha Gupta for Plaintiff.
Adv Mitali Devkar for defendant Nos.1, 3 to 6.
Adv Sunil Kadam for defendant No.2.
CORAM : SHRI. S. B. PAWAR
Judge (C.R.No.59)
DATE : 09th March, 2023
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Order on
Notice of Motion No. 519 of 2020 2
ORDER
Plaintiff has taken out the present Notice of Motion with
following prayers:
a. This Hon’ble court be pleased to declare the action of the
defendantbanks, declaring the company’s account as Fraud/
Willful Defaulter, to be void, perverse, illegal and bad in
law.
b. This Hon’ble court be pleased to restrain the defendantbanks,
their agents, servants, officers and/or any person claiming
through them by an order of permanent injunction of this Hon’ble
court from acting upon the illegal declaration of the account of
the company as Fraud/Willful Defaulter account and taking any
further course of action on account of such a declaration, in any
manner of whatsoever nature.
c. This Hon’ble court be pleased to direct the defendantbanks to
reverse the declaration of account of the company as
Fraud/Willful Defaulter.
d. Pending the hearing and final disposal of the present suit this
Hon’ble court be pleased to declare that the action of the
defendant banks to declare the account of the company as
Fraud/Willful Defaulter, as illegal, in violation of guidelines of
RBI dated 01.07.2016.
e. Pending the hearing and final disposal of the present suit this
Hon’ble court be pleased to restrain the defendantbanks, their
agents, servants, officers and/or any person claiming through
them from acting upon the defendantbanks declaration of the
company’s account as Fraud/Willful Defaulter and/or taking any
coercive action on account of and/or basis of the said declaration,
in any manner of whatsoever nature.
f. Pending the hearing and final disposal of the present suit this
Hon’ble court be pleased to direct the defendantbanks to reverse
the declaration of account of the company as Fraud/Willful
Defaulter.
2. It is the case of the plaintiff that he has filed the present
suit against the defendants for declaration, injunction and other reliefs.
For the facts and circumstances and the reasons stated in the plaint, the
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present Notice of Motion is required to be allowed and made absolute.
The balance of convenience is in favour of the plaintiff. If the injunction
is not granted, plaintiff would suffer irreparable loss. The plaintiff has
good case on merits and has a very good chance to succeed in the
present suit. No loss, harm or prejudice will be caused to the defendants
if interim reliefs as prayed are granted. In the above circumstances, it is
prayed that the Notice of Motion be made absolute.
3. Defendant No.1, defendant No.2 and defendant Nos.3 to 5
filed their separate affidavits in reply. They have denied the contentions
and averments made in the plaint and in the Notice of Motion. It is
contended that the present Notice of Motion is an attempt to delay the
proceedings initiated by the banks pursuant to the borrower account
declared as Fraud as per the RBI guidelines dated 01.07.2016. It is
contended that plaintiff is the Director and Guarantor of the borrower
company ‘Topworth Steels & Power Pvt. Ltd.’ and has availed various
fundbased and nonfundbased credit facilities under the consortium
arrangement led by the State Bank of India from the defendants. It is
further contended that the plaintiff is the suspended Director of the
Board of the borrower company. The Liquidator of the High Court,
Bombay has been appointed as the provisional Liquidator of the
borrower company at the time of filing of the suit and therefore the
plaintiff has no locus standi to file the suit against the defendants. The
Notice of Motion is not maintainable under the provisions of Section 41
(d) of the Specific Relief Act. This court has no jurisdiction to try and
entertain the suit.
4. It is further contended that the account of borrower
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company is classified as NPA. In spite of restructuring, the borrowing
company failed and neglected to regularize the account. Certain
irregularities were found in the account of the borrower company which
are detailed in the reply affidavits. Therefore, the members of the
consortium banks have classified the account of the borrower company
as Fraud account under the RBI guidelines, prior to the filing of the suit.
IRP is appointed by NCLT, for the borrower company. Therefore, the
suit at the instance of plaintiff is not maintainable. Ultimately, it is
contended that there is no breach or violation of any guidelines as
alleged by the plaintiff and therefore Notice of Motion is liable to be
dismissed.
5. Defendant No.2, in addition to the above grounds, further
contended that after classifying the account of the borrower company as
NPA on 08.02.2016 Forensic Audit was carried out in the account by
consortium to verify possible angle of fraud. Based on the findings of
Forensic Audit and internal examination of borrower’s records with the
defendant No.2, account of the borrower company has been declared as
Fraud on 16.10.2019 based upon the suspicious circumstances
enumerated in the reply affidavit. The fraud is reported to RBI on
31.10.2019 and in terms of the RBI guidelines, defendant No.2 has filed
complaint with CBI on 10.12.2019. Defendant No.2 has followed due
process of law while classifying the account of the borrower company as
Fraud. The borrower company and the plaintiff have systematically
committed Fraud upon the defendant No.2.
6. In view of the rival contentions of the parties, following
points arise for my determination to which I record my findings for the
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reasons to follow.
Sr.
No.
Points Findings
1 Whether plaintiff has made out prima
facie case?
Yes
2 Whether the balance of convenience lies
in favour of the plaintiff?
Yes
3 Whether plaintiff will suffer irreparable
loss if injunction is refused?
Yes
4 What order? As per final order.
REASONS
7. Heard Ld. advocate for the plaintiff and Ld. advocate for
defendant Nos.1, 3 to 6 and defendant No.2. Ld. advocate for the
plaintiff argued that the Master Circular of RBI on the basis of which the
account of the borrower company is declared as Fraud is pending before
the Hon’ble Apex Court. Defendants have not followed the principles of
natural justice. The plaintiff company was a renowned company but it
received a setback due to the market conditions. The majority of the
steel companies have suffered loss. Stressed restructuring of the
borrower company’s account was required but instead of this, banks are
bent upon to take coercive steps against the company and the plaintiff.
Plaintiff has already paid Rs.600 crores. There is no intention to cheat
the banks. In the year 2019, in a routine meeting, the plaintiff was
informed about the declaration of Fraud. The documents are not
supplied to the plaintiff. The basis for declaration is not intimated to the
plaintiff. Forensic Audit Report is not even produced before the court or
shown to the plaintiff. The Forensic Audit took two years for completion
and the Fraud is declared in 2019 without following the guidelines
under the RBI Circular. The plaintiff is not seeking any prayer to stall
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the proceedings under SARFAESI Act. Ultimately, she urged that as the
validity of the RBI Circular is pending before the Hon’ble Supreme
Court, injunction order to restrain the banks from taking any
precipitative action against the plaintiff on the basis of declaration as
Fraud be passed.
8. Ld. advocate for defendant Nos.1, 3 to 6 submitted that
plaintiff has claimed final reliefs at the interim stage and the same
cannot be granted. The banks are acting under the Master Circular. The
declaration of Fraud is complete. As such action is complete, the banks
have already taken the coercive steps. There is no requirement under
the Circular to serve the Audit Report to the borrower. There was a time
lapse because of the plaintiff as plaintiff failed to provide the
information and vital documents. The declaration of Fraud is based
upon findings in Forensic Audit Report. RBI is a necessary party. Public
money is involved and it needs to be recovered in time. If the account is
not declared as Fraud, other banks could be defrauded and the vicious
cycle will go on. If the plaintiff has grievance about the Circular,
plaintiff should have challenged the Circular. The Forensic Audit Report
is a confidential document. There is no personal vendetta of banks and
the action is taken to safeguard the banking institutions. She further
submitted that petition before NCLT is admitted therefore plaintiff, as
the suspended Director, has no locus standi to file the suit.
9. Ld. advocate for defendant No.2 submitted that the issue
pending before the Hon’ble Supreme Court is argued and the matter is
closed for order. The defendant No.2 has declared the account of
borrower company as Fraud on 16.10.2019 on the basis of suspicious
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transactions mentioned in the Forensic Audit Report. The CBI complaint
is already filed on 10.12.2019 and the entire process of declaration and
filing of complaint is completed. The role of complainant is over. He
further submitted that civil court has no jurisdiction and only Writ
Court can entertain the players of the plaintiff. There is no contractual
obligation and violation therefore there is no case to entertain the
players for injunction. He submits that even complaint can be lodged
without conducting Forensic Audit. The only requirement is that banks
should follow the guidelines. In the present case defendant No.2 bank
has followed the guidelines in the Master Circular on Fraud. The action
is already complete. Therefore, he submits that the Notice of Motion is
liable to be dismissed.
As to point Nos. 1 to 4:
10. In the prayer clauses of the suit as well as of the Notice of
Motion, Fraud/Willful Defaulter declaration is mentioned while seeking
reliefs against the defendants. Ld. advocate for the plaintiff submitted
that at the time of institution of the suit, the plaintiff was not aware of
the actual declaration which was being proceeded by the banks
therefore both the declarations are included in the prayer clauses.
However, during submissions, she made it clear that the reliefs are
being sought in respect of declaration of account of the company as
Fraud only. Accordingly, the present Notice of Motion is taken for
consideration in reference to the action of defendants in declaring the
account of borrower company as Fraud.
11. It appears the admitted position that all the defendants had
declared the account of the borrower company, of which plaintiff is a
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Director and Guarantor, as Fraud prior to the date of institution of the
suit. As regards the defendants, defendant No.2 has already filed a
complaint to CBI on 10.12.2019 prior to the date of the suit. Other
defendants have yet not filed CBI complaint on the basis of the
declaration of borrower company’s account is Fraud. Therefore,
proceedings initiated by defendant No.2 under the Master Circular on
Fraud is complete.
12. The plaintiff has included detail pleading in the plaint
regarding financial condition of the borrower company and the causes
for receiving setback. It is tried to suggest that owing to market
conditions, the plaintiff's company received setback and there is no
deliberate or willful default on the part of the company in repayment of
the dues of defendant banks. It is also tried to suggest that there is no
intention of the company to cheat the banks. On the other hand,
defendants claim that there were suspicious transactions in the accounts
of the plaintiff’s company as per the Forensic Audit Report and internal
examination by the banks and therefore the account of the company is
classified as Fraud.
13. The grievance of the plaintiff is that the documents and
basis for declaration of Fraud are not provided by the defendants to the
plaintiff and the Forensic Audit Report is also not shown to the plaintiff
or produced before the court. In short, it is the contention on behalf of
the plaintiff that defendant banks have not followed the principles of
natural justice and therefore the proceedings for declaration of account
as Fraud are illegal. In reference to this submission, it may be noted that
the Master Circular on Fraud dated 01.07.2016, as it stands today, does
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Notice of Motion No. 519 of 2020 9
not provide for any opportunity of personal hearing to be provided to
the borrower unlike that which is provided in the Master Circular on
declaration of account of borrower as Willful Defaulter.
14. Ld. advocate for defendant Nos.1, 3 to 5 has relied upon
judgment of the Hon’ble Supreme Court in State Bank of India Vs. Jah
Developers Pvt. Ltd and others, (2019) 6 SCC 787 to submit that oral
hearing is not requisite to be given in all the cases. This authority is
basically on the Master Circular dated 01.07.2015 which deals with
declaration of account of borrower as Willful Defaulter. The issue in
the present case is altogether different.
15. The Hon’ble Telangana High Court in Rajesh Agarwal Vs.
Reserve Bank of India, Writ Petition No.19102 of 2019 held that the
principles of natural justice have to be read in the relevant clauses of
the Master Circular on Fraud. In the appeal against the said judgement,
the Hon’ble Supreme Court has stayed the above observation of the
Hon’ble Telangana High Court. It is submitted during the course of
arguments that the arguments on the issue before the Hon’ble Supreme
Court is over and the matter is closed for order. It needs to be
mentioned that the rights of plaintiff depend largely upon the verdict of
the Hon’ble Supreme Court. In the event, the Hon’ble Supreme Court
upholds the decision of the Hon’ble Telangana High Court in Rajesh
Agarwal’s judgement, the ground raised by the plaintiff in the present
suit will stand for challenge to the declaration of Fraud. On the other
hand, in case the Hon’ble Supreme Court allows the appeal and sets
aside the observation of the Hon’ble Telangana High Court, the plaintiff
will not have cause of action to challenge the declaration of Fraud.
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Thus, the fate of the present suit as well as the Notice of Motion
depends upon the decision of the Hon’ble Supreme Court.
16. Defendants have disputed locus standi of the plaintiff to file
the suit on the ground that official liquidator and IRP is appointed for
the borrower company. In this regard it may be observed that the
declaration of Fraud of the account of the borrower company involves
criminal consequences against the Director or Guarantor as well.
Therefore, prima facie it cannot be said that the plaintiff has no locus
standi to institute the suit.
17. Ld. advocate for plaintiff relied upon judgment of the
Hon’ble Supreme Court in Bank of Rajasthan Ltd. Vs. VCK Shares &
Stock Broking Services Ltd., Civil Appeal No.89728973 of 2014 and
judgment of the Hon’ble High Court in Bank of India Vs. Gupta Coal
India Pvt. Ltd, Nagpur and another, Civil Revision Application
No.97/2017 to submit that this Court has jurisdiction to try and
entertain the suit. The judgment of the Hon’ble Supreme Court deals
with jurisdiction of the civil courts visvisvis the scheme of RDB Act in
relation to the proceedings for recovery of debt by a Bank of Financial
Institution. The issue in the present suit is squarely covered in the
judgment of the Hon’ble Bombay High Court in Bank of India Vs.
Gupta Coal India Pvt. Ltd, Nagpur and another (supra). Thus, prima
facie this court has jurisdiction to try and entertain the suit.
18. Perusal of the prayer clauses, reproduced hereinabove
indicate that except player clause (e), all the other prayers are in the
nature of final relief which, admittedly, cannot be granted at this
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interim stage. The action initiated by defendant No.2 bank is already
over as the bank has filed CBI complaint prior to the date of the suit.
Therefore, the Notice of Motion as against defendant No.2 has become
infructuous. However other defendants have yet not filed complaint to
CBI on the basis of declaration of Fraud. In the facts of the present case,
when the issue as to whether principles of natural justice should be read
in the relevant clauses in the Master Circular on Fraud is pending for
decision of the Hon’ble Supreme Court, in my considered view, it is
desirable that the banks which have not completed the proceedings of
Fraud by filing a complaint to CBI, shall maintain status quo as regards
the declaration till the issue is clarified by the Hon’ble Supreme Court.
19. In the above circumstances plaintiff has made out prima
facie case to the extent of proceedings initiated by defendant Nos.1, 3
to 5 and that too, till the decision of the Hon’ble Supreme Court on the
issue pending before it. To that extent, balance of convenience lies in
favour of the plaintiff and plaintiff may suffer irreparable loss if
injunction is refused. Thus, point Nos. 1 to 3 are answered in the
affirmative to the extent of above observation only. The Notice of
Motion deserves to be partly allowed. In the result, I pass following
order:
ORDER
1. Notice of Motion No.519 of 2020 is partly allowed.
2. Defendant Nos.1, 3 to 5 are restrained from taking any
precipitative action on the basis of declaration of account of
borrower company as Fraud, till further order.
3. Prayer against defendant No.2 is refused.
4. It is made clear that defendant banks are at liberty to continue
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recovery proceedings against the plaintiff as per rules and
this order shall not be construed as any restraint on the
said recovery proceedings.
5. Notice of Motion No.519 of 2020 is disposed of
accordingly.
(S.B. Pawar)
Judge,
Dated : 09.03.2023 City Civil and Sessions Court,
Greater Bombay (CR 59).
Declared on : 09.03.2023
Direct Dictated on : 09.03.2023.
Checked on : 10.03.2023
Signed on : 10.03.2023
CERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL
SIGNED JUDGMENT/ORDER”
10.03.2023 at 5.40 p.m. Mrs. P.R.Wagh
UPLOAD DATE AND TIME NAME OF STENOGRAPHER
Name of the Judge (with Court
Room No.)
HHJ SHRI.S.B.Pawar,(C.R.No.59)
Judge.,City Civil & Sessions Court,
Date of pronouncement of /Order 09.03.2023
Order signed by P.O. on 10.03.2023
order uploaded on 10.03.2023
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