Final Order 1

Order Details: Notice of Motion
Pdf Text: 1 NM No. 14742020 in
Com.St.No.4708/2020
MHCC010044412020
IN THE BOMBAY CITY CIVIL COURT AT GREATER BOMBAY
NOTICE OF MOTION N0.1474 OF 2020
IN
COMMERCIAL STAMP NO. 4708 OF 2020
MAGNIFICO MINERALS PRIVATE LIMTED )
A company duly registered & incorporated )
under provisions of the Companies Act, )
1956, having its Registered office at: )
75, Khirki Village, Malviya Nagar, )
New Delhi:110 017. )...Plaintiff
Versus
1. BANK OF INDIA )
A Bank constituted under the )
provisions of the Banking Regulation )
Act, 1949, having its Head Office at: )
Chander Mukhi, Nariman Point, )
Star House, C5, G Block BKC, )
Bandra Kurla Complex, Bandra (East), )
Mumbai400 051. )
2. BANK OF BARODA )
(EARLIER DENA BANK ) )
A Bank constituted under the )
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provisions of the Banking Regulation )
Act, 1949, having its Corporate Office at: )
Baroda Corporate Centre, Plot No. C26, )
Block G , Bandra Kurla Complex, )
Bandra(East), Mumbai400 05 )...Defendants.
CORAM: HIS HONOUR JUDGE SHRI R.V.KOKARE
DATE :09/11/2020 (C.R.No.31)
Appearance:
Mr. Shrinivas Bobade, advocate for plaintiff.
Mr.Subhash Menon for defendant nos. 1 and 2.
ORDER
This is a notice of motion taken out by the plaintiff company for
temporarily restraining to the defendants from acting upon its
declaration of plaintiffs account as fraud.
Brief facts of notice of motion of the plaintiff are as under
2. The plaintiff is “Magnifico Minerals Private Limited” which is duly
registered and incorporated under the provisions of the
Companies Act, 1956. The defendants are the lenders of plaintiff under
the Consortium Banking arrangement and are the Banks constituted
under the provisions of the Banking Regulation Act, 1949. Mr. Satyajeet
Pandey has been duly authorized by a resolution dated 13th July, 2020
passed by the plaintiffs Board of Directors. The plaintiff company was
incorporated to capitalize the growing demand of imported coal within
the country and to carry on business activities in India, or elsewhere, in
areas of trading of coal, coke, fly ash, Iron ore etc. The plaintiff
company started its business operations from 2013. The company has
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its presence in two major ports i.e. Navlakhi port and Mangalore port.
3. The plaintiff further states that the current equity shareholding of
the plaintiff is around 1,20,09,000 Shares. There are around thirteen
Directors to the plaintiff company. Mr. Piyoosh Goyal is the Promoter of
Magnifico Minerals Private Limited. The plaintiff company is banking
since 2012 under consortium arrangement with Bank of India i.e.
defendant no.1 as the lead bank and the other members bank of the
consortium being Central Bank of India, Bank of Baroda (Erstwhile
Dena Bank), State Bank of India (Erstwhile State Bank of Patiala),
Canara Bank, Union Bank of India and Andhra Bank. The plaintiff
company has sanctioned credit facilities of Rs. 478 Crores under the
consortium arrangement. The defendants bank sanctioned credit
facilities to the plaintiff company after due diligence of the promoters
and the plaintiff and only after satisfaction had sanctioned the credit
facilities. The defendants bank had regularly renewed and extended
credit facilities to the plaintiff as per sanction letter issued by the
defendant banks. The plaintiff paid Rs. 20.38 Crores to the Bank of
India i.e. defendant no.1 and Rs.14.99 Crores to the Bank of Baroda
(Erstwhile Dena bank) i.e. defendant no.2. The total amount paid to the
defendants of Rs. 35.37 Crores. The defendant banks sanctioned credit
facilities to the plaintiff company after depositing sufficient collateral
securities.
4. The plaintiff has further submitted that the 10th Consortium
Meeting of the MMPL was held on 05/05/2016 and in the said meeting,
the defendants bank decided to conduct a Forensic Audit in the account
of the plaintiff company. Thereafter, on 06/05/2016, the defendants
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bank informed to the plaintiff company that the defendants have
appointed M/s.Haribhakti & Co.LLP as Forensic Auditor. The plaintiff
company issued a letter dated 11/05/2016 to the defendants bank and
gave reply to the letter of the defendants bank dtd. 06/05/2016 and
requested to reconsider its decision of appointment of Forensic Auditor.
The defendant no.1 informed to the plaintiff company by issuing a letter
dtd 19/07/2016 that as per the directions of the C.B.I., the defendant
bank appointed M/s. Haribhakti & Company as Forensic Auditor.
5. The plaintiff further submitted that in the month of December
2017, the Forensic Auditor submitted a draft report to the Lead Bank
and on the basis of the said draft report, the defendant bank informed
to the plaintiff company by issuing a letter dated 28/12/2017 and said
to cooperate with the auditor and furnish the required information to
conclude the audit. The plaintiff company gave its detailed reply by
issuing a letter dated 19/01/2018 to the defendant bank for a letter
dated 28/12/2017. The Auditor submitted his report dated
12/03/2018. The observation in this report is mainly related to
inadequate and inconclusive documents. After auditor's report then
also the defendant no.1 renewed the credit facility of the plaintiff
company on 4/05/2018. Thereafter, on 10/05/2018, the Forensic
Auditors submitted its revised Forensic Audit Report to the Lead bank
i.e. defendant no. 1. The defendant no. 1 informed about the revised
Forensic report by its letter dated 21st May, 2018. Thereafter, on
11/06/2018, the plaintiff company replied to the said letter issued by
the defendant no.1 dated 21/05/2018. Thereafter on 17/07/2018, the
defendant no. 1 informed to the plaintiff to verify the observations
made in Auditors report. The plaintiff company gave its detailed reply
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dated 10/08/2018 and also gave additional reply by Email to the deft
no.1 dated 16/10/2018. Thereafter, the deft no.2 bank informed to the
plaintiff company by its letter dtd. 21/01/2019 that due to prima facie
irregularities in the credit facilities, the defendant bank frozen the debit
operations in the account of the plaintiff company. In the month of
January 2019, all of a sudden the defendant no. 1 and other members
have frozen the debit operations in the the account of the company.
The plaintiff and the defendant bank agreed that the Forensic Auditor,
in its report has not observed any kind of fraud. Thereafter, in the
month of January 30, 2019, the Forensic Auditor has submitted its
report that, “ Updated as of January 30, 2019 ”. There were no
instances of default/irregularities in the accounts of the company with
any of the bank since inception till 2019. Copy of Forensic Audit Report
dated 30/01/2019 is at ExhibitS .
6. The plaintiff further submitted that on 20/04/2019, the plaintiff
company vide its letter dated 15/04/2019, requested consortium
member banks for holding on operations of the company. The company
further identified and disclosed its business and asset. The company
submitted a business valuation report done by Ernst & Young (E & Y)
done in 2017 valuing the group at Rs. 2100 Crores approx. The plaintiff
company also informed that “ Because of freezing of debit operations in
the account, this has severely impacted the operations of the company
as the company's working capital position is highly strained. The
company has also been facing challenges in realization of debtors from
its existing customers since the company has not been able supply
further materials to these customers following nonavailability of
unutilized limits. The plaintiffs have requested by issuing a letter dated
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02/05/2019, to allow holding operations with some of the key measure
company is planning to take in order to overcome the liquidity issues.
7. The plaintiff further submitted that the banks/consortium
members have turned account of the plaintiff company into NPA of
different dates. The defendants have also issued notice to the plaintiff
company under section 13(2) of SARFAESI Act. The Forensic Audit
Report has been submitted by M/s. Chaturvedi & Company in July
2020. In the said report it has concluded that there was no fraud
committed by the plaintiff company.
8. The plaintiff company further submitted that recently from the
officials of the defendants bank, it has come to the information and
knowledge of the plaintiff that defendants have declared the account of
the plaintiff as fraud. The plaintiff by issuing its letter dated
04/08/2020 to the defendants, it has been placed on record that it has
come to the knowledge that during a regular meeting with the
defendant bank, it has declared the account of the plaintiff as fraud. It
was further placed on record that neither any intimation nor any query
was raised by the defendant bank before taking such a drastic step and
further it was specifically stated that the unilateral step taken by the
defendant Bank which is in complete disregard to the principle of
natural justice is not acceptable. The plaintiff intention to pay the bank
dues and therefore made efforts to seek bank support to do so. The
plaintiff issued a letter dated 11/06/2019 about negotiable settlement
of dues of the plaintiffs Company. The plaintiff company also issued a
letter to the defendant dated 03/02/2020 and has submitted an one
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time settlement plan for payment of INR 66.44 crores (25% of the
outstanding) over a period of 2 years in quarterly instalment. On
10/02/2020, a lead bank refused to accept the proposal and the same
was being returned unconsidered citing offer for OTS is too low.
9. The plaintiff has further submitted that the defendants have
failed to follow the due legal procedure while declaring the account of
the plaintiff as fraud and thus, the plaintiff has serious apprehension
that the defendants with the malafide and dishonest intention and
without following any due procedure of law and totally against the
principles of natural justice could go ahead and report the name of the
plaintiff as fraud. Hence, this notice of motion.
10. The defendants resisted this notice of motion taken out by the
plaintiff Company by filing their reply.
Brief facts of reply of the defendants are as under
11. The plaintiff has filed the present notice of motion and this suit
deliberately suppressing several vital facts and by making blatantly false
and untenable allegations and averments with a view to prejudice the
mind of this Hon'ble Court. The plaintiff i.e. M/s. Magnifico Minerals
Pvt. Ltd., New Delhi had availed advance since June 2013, under
consortium arrangement under the defendant no. 1 as Lead Bank at
New Delhi. The account has become Non performing Asset (NPA) on
30/04/2019, due to devolvement of Lcs at New Delhi. Despite of
regular followups and frequent visits from the Defendants Branch
officials to plaintiff's office at New Delhi to request to regularize their
limits, the plaintiff did not adhere to the terms of the sanction issued by
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the defendants at New Delhi and accepted by the plaintiff at New Delhi.
This Hon'ble Court has no jurisdiction to entertain, try and decide the
suit and notice of motion
12. The defendants further submitted that the plaintiff has not added
Reserve Bank of India, New Delhi which is necessary party in the
present suit. Therefore, the present suit of the plaintiff is liable to be
dismissed for want of joining necessary party. The plaintiff had
executed handed over an Undertaking in writing to the defendant no. 1
at New Delhi stating that the plaintiff can be held liable to be declared
as willful defaulters and fraud in case of violation of any
Terms/conditions of the sanction of working capital facilities. A copy of
the said undertaking is annexed hereinto and marked as ExhibitB, i.e.
copy of undertaking dated 25/06/2013. This notice of motion is liable
to be dismissed in view of Section 41(h) of Specific Relief Act, 1963.
The defendants were followed the procedure for declaring willful
defaulter and fraud as per Guidelines of RBI Master Circular
No.DBR.No.CIOD.BC.57/20. 16.003/201415 dt. July 1, 2014.
13. The defendants submitted that a Forensic Auditor was appointed
by the defendants. The following are the findings of the Forensic
Auditors M/s. Haribhakti & Co.LLP., Chartered Accountants who had
identified few doubtful and transactions by which the funds of the
defendants were siphoned off. Findings of Forensic Auditors are as (i)
Inadequate documentation for Merchant Trading transaction page no.
438. (ii) Transaction with potentially related parties. Page No. 439 and
440 (iii) Unusual reversals of receipts and payments in customer and
vendor ledgers page no. 444 (iv) The executive summary narrated in
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page no. 24 to 27 of the Forensic Audit Report.
14. The defendants submitted that “ In view of unusual trading
pattern, receipts and payments in excess of transaction values, high
volumes of trade against potently related parties, lack of prudential
accounting norms and instances of receipts and payments over and
above the actual volume of trade are all indicative of potentially
suspicious trading activities ” . The defendants initiated proceedings as
per the directions of the Reserve Bank of India and show cause notices
for why the plaintiff is not be declared as willful defaulter had been
issued to the plaintiff, for which there were replied, however, there
were no satisfactory response or grounds from the plaintiff. The
defendants further submitted that the plaintiff had failed to furnish the
reasons and failed to appear before the Committee resulted in
declaration of the account as Fraud.
15. The defendants have already initiated the measures under the
said SARFAESI Act 2002. The plaintiff has fully aware of the measures
initiated by the defendant banks. Therefore, in view of Section 34 and
35 of the SARFAESI Act, the Civil Court has no jurisdiction to entertain
and decide the present suit and present notice of motion taken out by
the plaintiff. The present suit is also liable to be dismissed in view of
Order VII Rule 11 r/w. Section 9 of the Code of Civil Procedure. On
these grounds, the defendants requested that the present notice of
motion taken out by the plaintiff is liable to be dismissed with costs.
16. Upon hearing arguments of the learned counsels of both the
parties, on perusal of notes of arguments and documents produced on
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record on behalf of both the sides, during the course of arguments and
in the written notes of arguments, the learned counsel on behalf of the
defendants have been raised various objection such as, this court has no
jurisdiction to try and decide this matter, The suit is barred by non
joining of necessary parties, the plaint does not disclose cause of action,
this suit is barred and etc.
17. The learned counsel on behalf of the defendants has argued that
the present suit is not tenable in view of provisions of Section 9 of the
Civil Procedure Code. It is argued by the learned counsel on behalf of
the plaintiff that this is a suit for declaration against the action initiated
by the defendants bank. The plaintiff Company have challenged the
virus of action taken by defendants bank and therefore, suit will lie as
per Section 9 of Civil Procedure Code.
18. Section 9 of C.P.C. deals with jurisdiction of the Civil Courts and
bar thereon. It says that Court is empowered to try all Civil suits unless
barred by law. It is settled legal position is that Civil Court has every
jurisdiction to try the suit. No doubt, Civil Court cannot try and
entertain the suit which are expressly or implied barred. Here, plaintiff
company are seeking declaration against the action of defendants bank.
The action levelled by defendants bank is based on Master Circular
issued under R.B.I. Guidelines. Therefore, in my opinion, nothing will
bar from presenting such grievance before Civil Court. As such, I am of
the opinion that Civil Court has every jurisdiction to try and entertain
such nature of suit. Therefore, there is no any force for argument of the
learned counsels on behalf of the defendants for saying that this Court
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has no jurisdiction to entertain and decided this suit in view of Section
9 of Civil Procedure Code.
19. The material question whether present suit is teneble before this
court. In Bank of India V/S Gupta Coal (Civil revision 97/2017
decided on 04.09.2018), it is observed that suit relating to red flag and
fraud account as per master circular is maintainable before the Civil
Court. The observations of the Hon'ble Lordship of Hon'ble High Court
of Bombay, Bench at Nagpur are reproduced for sake of convenience,
" The relief as sought is declaration that the action of the defendants in
declaring the account of the Plaintiff Company as fraud is illegal
followed by prayer for permanent injunction. Various documents
including the Forensic Audit Report have been filed on record."
"The relief as sought in the suit is with regard to declaration of the
account of the plaintiff Company as a fraud account. The same cannot
be said to be a dispute arising out of ordinary transactions of bankers
and traders. It is the case of the Plaintiff Company that in view of
various guidelines of the Reserve Bank of India and Master circular, its
accounts has been declared as fraud account without following the due
procedure and in breach of principles of natural justice. In the light of
the challenge as raised , it would be the Civil court that would retain
jurisdiction to entertain the suit."
" Same can not be a reason to reject the plaint. In view of the fact that
the reliefs sought in the plaint are not those reliefs which are
impermissible in view of provisions of the Sections 17 and 18 of the Act
of 1993 as well as Section 34 of the Act of 2002 , the cognizance of the
suit is not barred the civil court."
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20. In view of aforesaid finding of the Hon'ble High Court of Bombay
in Gupta Coal Case (supra)it is crystal clear that present suit is tenable
before the civil court.
21. The Learned Counsel on behalf of the defendants bank has raised
objection that the plaintiffs company has its registered office is at New
Delhi, the Directors of the Company has there registered residence
address at New Delhi, therefore this court has no jurisdiction. The Ld.
Counsel for the Plaintiff Company has submitted that the defendants
bank head office at Mumbai and the plaintiff company asked for
providing necessary documents/information persued to declare the
account of plaintiffs company as fraud to Fraud Monitoring Cell,
Mumbai by issuing letter dated 04/08/2020 which is at Exhibit "FF” at
page no. 524 of the Plaint. On perusal of the said letter dated
04/08/2020 which is at Exhibit “FF” and the address of the defendant
are at Mumbai , therefore I am of the opinion is that this court has
jurisdiction to entertain and decide this Suit.
22. The learned counsel for the defendants bank raised objection that
the plaintiff had obtained loan from seven banks . All borrowings has
became NPA during the year 2019. The Plaintiff had not made the
necessary parties to the suit . During reply by the learned Counsel for
the plaintiff that the defendants bank only declared "Fraud" to the
account of the plaintiffs company. I have satisfied that it is not required
to made parties to all the seven banks, bacause, the plaintiff has
aggrieved only action taken by the defendants bank . Hence , this suit is
not barred by non joinder of necessary parties.
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23. The learned counsel on behalf of the defendants has argued that
in view of provisions of Section 41(d) of the Specific Relief Act,
injunction cannot be granted. I have gone through Section 41 of
Specific Relief Act. It is regarding “ injunction when refused”. As per
Sub Section (d) injunction cannot be granted to restrain any person
from instituting or prosecuting any proceeding or any criminal matter.
No doubt, in such case injunction cannot be granted. However, here the
circumstances are somewhat different. Plaintiff company is challenged
the action taken out by the defendants bank for declaring fraud to the
accounts of the plaintiffs company by submitting that the defendants
bank are not followed due procedure as per Master Circular. In such
circumstances, if said decision is not taken in accordance with the
procedure laid down, then the aggrieved party has every right to ask for
injunction. So, the bar as mentioned in Section 41(d) of Specific Relief
Act is not applicable here.
24. The learned counsel on behalf of the defendants has argued that
the National Company Law Tribunal (NCLT) has jurisdiction to
entertain or dispose of any application or proceeding or any claim made
by or against the Corporate Debtor. Section 63 r/w. Section 231 of the
Insolvency Code, no Civil Court or authority has jurisdiction to entertain
any Civil Suit or proceedings in respect of any matter with respect to
which the NCLT as jurisdiction. As against this, the learned counsel for
the plaintiff has argued that the Civil Court has jurisdiction to entertain
and decide the present suit filed on behalf of the plaintiff Company.
25. I have gone through Section 17 of the I.B.Code 2016. Said
chapter is regarding Corporate Insolvency Resolution Process (CIRP). As
per said section, after appointment of Interim Resolution Professional
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(IRP) the management of affairs of corporate debtor vest in (IRP). So
also the power of directors, partners and guarantors stand suspended.
So also as per section 231 of said Code no Civil Court have jurisdiction
in respect of any matter in which the adjudicating authority is
empowered by or under, this court to pass any order and no injunction
shall be granted by court in respect of any action taken in pursuance of
order passed by adjudicating authority. So on going through above
sections and more particularly section 231 of I.B.Code there is a bar in
respect of matter within the jurisdiction of adjudicating authority i.e.
NCLT. So also there is bar to pass injunction order in respect of any
action taken by said authority.
26. It is an admitted position on record that defendant has
approached before NCLT, DRT and also started recovery proceeding
under the SARFAESI and other available Acts. Since beginning it is
made clear by Ld. Counsel for plaintiff that plaintiff company is not
against the recovery proceedings nor by way of this suit plaintiff is
challenging or restraining the recover proceeding. No doubt, plaintiff is
not challenging the recovery proceedings nor challenging the
proceedings which is pending before NCLT. Here, plaintiff company is
challenging the action of the defendants bank for declaring fraud to the
account of the plaintiffs company. Therefore, in my opinion, the bar as
contemplated under section 231 of I.B Code will not apply here and so
the present suit and notice of motion filed on behalf of the plaintiff are
maintainable.
27. The learned counsel for the defendants argued that the plaintiff
has filed the present suit as a commercial suit which is not maintainable
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and cause of action shows in the plaint does not fit within the ambit of
commercial dispute which is defined under Section 2(c) of the
Commercial Court Act 2015. Thus, the suit is not maintainable as
Commercial Suit. As against this, the learned counsel on behalf of the
plaintiff has argued that the present suit is maintainable in view of
Section 2 (c) of the Commercial Court Act 2015. I have reproduced the
definition 2(c) of the Commercial Court Act 2015 “the Commercial
dispute means a dispute arising out of (i) ordinary transaction of
merchants, bankers, financiers and traders such as those relating to
mercantile documents, including enforcement and interpretation of
such documents. From the definition contained in sec. 2(c) (i), it is
clear that ordinary transactions of bankers and financier are covered in
the definitions. The definition is all inclusive which is reflected from use
of words “such as those relating to mercantile documents including
enforcement and interpretation of such documents”. The definition
makes it clear that the documents which are connected with the
transaction of bankers and financiers are covered. In the present case,
the action of defendants bank for declaring fraud to the accounts of the
plaintiff company i.e “Magnifico minerals pvt. ltd." Is based on Master
Circular which is applicable to all the accounts where under the
defendants have lent money in ordinary course of their transaction.
Thus, the action of the defendants bank declaring fraud to the accounts
of the plaintiff is maintainable as a Commercial Suit.
28. The material question is whether essential conditions as per
master circular are followed by the defendant bank before the plaintiff
account is red flagged and declared as fraud . It is necessary to pursue
some basic conditions as mentioned in the master circular issued by the
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RBI dated 01.07.2016 Para no. 3.2 from said circular is reproduced as
follows
3.2 Reporting of frauds to Reserve Bank of India.
3.2.1. Banks need to furnish Fraud monitoring Return (FMR) in
individual fraud cases , irrespective of the amount involved, to
RBI electronically using FMR Application in XBRL system
supplied to them within three weeks from the date of detection.
3.2.2. A monthly certificate , as per Annex 1, (mentioning that
soft copy of all the FMRs have been submitted to RBI ) is to be
submitted by the bank to CFMC , Bengaluru with a copy to the
respective SSM of the bank , within seven days from the end of
the month.
The para no 3.2.6 speaks about time limit for flash report. It runs as
follows :
3.2.6. In addition to the FMR , Banks ar e required to furnish a
Flash Report (FR) for fraud involving amounts of Rs. 50 million
and above within a week of such frauds coming to the notice of
the bank's head office. The FR is to be furnished in the form of a
DO letter addressed to the PCGM/ CGMincharge , DBS ,
RBI , Central Office , Mumbai with a copy to CFMC,
Bengaluru. The FR , inter alia , should include amount
involved , nature of fraud , modus operandi in brief , name
of the branch/office, names of parties involved, their
constitution, names of proprietors/partners and directors ,
names of officials involved and lodging of complaint with
police / CBI.
3.3 Delays in reporting of frauds.
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3.3.1 Bank should ensure that the reporting system is
suitably streamlined so that delays in reporting of frauds ,
submission of delayed and incomplete fraud reports are
avoided. Banks must fix staff accountability in respect of
delays in reporting fraud cases to RBI.
3.3.2 Delaying in reporting of frauds and the consequent
delay in alerting other banks about the modus operandi
and dissemination of information through Caution
Advice/CFR against unscrupulous borrowers could result in
similar frauds being perpetrated elsewhere. Bank should
therefore , strictly adhere to the time frame fixed in this
circular for reporting of fraud cases to RBI failing which
they would be liable for penal action prescribed under
Section 47 (A) of the Banking Regulation Act , 1949.
It is material to note that the delay as expected in para no. 3.3 of the
Master Circular is not explained by the defendants bank nor
responsibility of staff is fixed for avoiding to report the fraud to RBI , if
any.
Para no 4.4 of master circular speaks about special committee of
the board , which includes MD and C.E.O of the company. Defendant is
failed to clarify in respect of such committee formed by defendant.
Para no 8.3 of master circular is in a respect of EWS and RFA
(early warning signals and red flagged accounts). It expects detail
investigation into RFA . The modalities for monitory and detailed study
of annual report as whole is expected by FMG ( fraud monitoring
group). The report require to submit to the special committee of the
board . Para no 8.7 and 8.8 are in respect of prompt reporting. The
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material part is reproduced as follows .
Delay, for the purpose of this circular, would mean that the
fraud was not flashed to CFMC , RBI or reported on thie CRILC
platform, RBI within a period of one week from its (i)
classification as a fraud through the RFA route which has a
maximum time lime of six months or (ii) detectiojn / declaration
as a fraud ab initio by the bank as hitherto.
8.8 Bank as a sole lender.
8.8.1 In cases where the bank is the sole lender , the FMG will
take a call on whether an account in which EWS are observed
should be classified as RFA or not. This exercise should be
completed as soon as possible and in any case within a month of
the EWS being noticed . In case the account is classified as RFA ,
the FMG will stipulate the nature and level of further
investigations or remedial measures necessary to protect the
bank's interest within a stipulated time which can not exceed six
months .
It is surprising to note that defendant bank is silent in respect of prompt
reporting and stipulated time , as mentioned above. It is incumbent on
the part of bank to use external auditors , including forensic experts and
internal team to investigate before taking final view on the RFA. (Red
Flagged Accounts ) .
29. The learned advocate for the defendants bank has argued that the
courts are not interfere with economic policy which is the function of
the expert bodies. The Ld. counsel on behalf of the defendants bank has
relied on the following judgements.
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1. In the matter of Peerless General Finance & Investment Co. Ltd
and another v. Reserve Bank of India [(1992) 2 SCC 343 ] wherein it
has been held by Hon'ble Supreme Court that Courts are not
interfere with economic policy which is the function of the expert
bodies and submitted that the view taken by the RBI that dues
under derivative transactions covered by the Master Circular should
not be disturbed by the Court. Hereunto annexed and marked as
Exhibit "A" is the copy of the Order of the Hon'ble Supreme Court in the
matter of Peerless General Finance & Investment Co. Ltd and another v.
Reserve Bank of India [(1992) 2 SCC 343].
2. In the matter of Kotak Mahindra Bank Ltd Vs. Hindustan National
Glass & ind. Ltd ( CIVIL APPEAL No. 8916 OF 2012 ( Arising out of
SLP (C) NO. 29599 of 2009 ) the Hon'ble Supreme Court had observed
in Para 5. That the Master Circular had been issued by the RBI inter alia
in exercise of its power under the Banking Regulation Act , 1949 ( for
short 'the 1949 Act) and that sections 21 and 35A of the 1949 Act make
it clear that the directions / guidelines issued by the RBI are mandatory
and binding on the clients . Paragraph 2.1 of the Master Circular defines
the term "willful Default " as a default by a unit in meeting its
payment / repayment obligations to the lender Hereunto annexed and
marked as Exhibit "B" is the copy of the order of the Hon'ble Supreme
Court in the matter of Kotak Mahindra Bank Ltd Vs. Hindustan
National Glass & Ind . Ltd.
3. In the case of Piyush Kumar Goyal Vs Union of India and others,
reported in (2020) 426 ITR 546 (Delhi), in the Delhi High Court,
decided on January 28, 2020.
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It is the contention of the plaintiff that the said judgement is not
relevant in deciding the instant matter as the said writ petition filed by
Mr.Piyush Goyal is for seeking relief against the Look Out Circular
issued against the petitioner, thereby being found diametrically opposite
in nature to the present suit.
I have gone the citations supra referred on behalf of the ld.
Counsel of the Defendants bank , with due respect the ratio held in
above citation are not applicable to the present case in my hand in favor
of the defendants bank due to defer of the facts and circumstances.
30. The learned counsel on behalf of the plaintiff has argued that the
defendants bank has declared fraud to the account of the plaintiff
company without following Master Circular and therefore, the
defendants have not followed the principles of natural justice. The
learned counsel on behalf of the plaintiff company has relied on
Judgement reported in MANU/PH/1231/2017, in the case of Oswal
Apparels Private Limited and Ors. Vs. State Bank of India, Ludhiana
and Ors., the Hon'ble Punjab and Haryana High Court has held that “ It
is also settled principle of law that the documents that are relied upon
by any authority in arriving at a conclusion must be made available to
the affected party to conform to the principles of natural justice. That
apart, the petitioners ought to have been afforded adequate opportunity
to present their case in its correct perspective.” In this judgement the
Hon'ble Court clearly states that not just an opportunity of being heard
is mandated under principles of natural justice but also, documents
which are relied upon by the authority should be made available to the
affected party.
The defendants bank are bound in law to provide the documents
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desired by the plaintiff company , in view of law let down by Hon’ble
Bombay High Court in the case of Finolex Industrices Ltd And Ors Vs
Reserve Bank Of India And Ors.
31. On scrutiny of forensic audit report conducted by M/s Haribhakti
& Company for a period beginning from 01012013 to 30092015
which is at Exhibit “S” of the plaint i.e forensic audit report dated 30
012019 and forensic audit report updated as of 08032019 which is at
Exhibit “X” of the plaint. It appears to me that in forensic audit reports
it has not observed that the plaintiff company has committed fraud.
32. From above my discussion, I come to the conclusion that the
defendants bank have failed to follow the procedure laid down in
Master Circular for declaration of the account of the plaintiffs company
as fraud.
33. It appears from the contention of the plaintiff that the
"MAGNIFICO MINERALS PVT LTD." Company started facing financial
problems. The realization from debtors of the company has been
sluggish resulting in tightness in liquidity and led to a major impact on
the bottom line as well cash flows. The company could not recover dues
from its customers facing restrictions in their cash flows. The plaintiff
has filed various suits for recovery of amount against companies
debtors.
34. It is contended by the learned counsel for the defendants that
plaintiff may repay the loan, thereafter no action will be initiated
against the plaintiff. It appears that the defendants bank has initiated
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the action for recovery of the loan under the grab of Master Circular.
35. Considering wide scope of Master Circular, the balance of
convenience lies in favour of plaintiff company. Obviously, irreparable
loss will be caused to the plaintiff, if the court refuse to grant injunction
as prayed. Hence, the order.
ORDER
1. The Notice of Motion No. 1474/2020 is allowed.
2. The defendants bank personally or through its representatives are
restrained from taking coercive action against plaintiff company on
account of “fraud”, based on Master Circular. Defendants or their
representatives are restrained from branding the plaintiff company as
fraud and publishing the name of plaintiff as fraud till final disposal of
the suit.
3. It is needless to say that defendants are at liberty to proceed against
the plaintiff company regarding recovery proceedings, attachment, sale
of attachment property to recover the defaulted loan.
4. Cost in cause.
5. Notice of Motion No. 1474/2020 is disposed off accordingly.
Dtd: 09/11/2020. Judge
City Civil & Sessions Court,
Gr.Mumbai.
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CERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL
SIGNED JUDGEMENT/ORDER”
UPLOAD DATE TIME NAME OF STENOGRAPHER
11/11/2020 11.30a.m. Mrs. V.V.Malgaonkar
Name of the Judge H.H.J.Shri R.V.KOKARE (C.R.31)
Date of Pronouncement of
Judgement/Order
09/11/2020
Judgement/order signed by P.O on 10/11/2020
Judgement/order uploaded on 11/11/2020
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