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Strikes Down Fraud Label on RCFL Ex-CEO: SCN Never Delivered, Rules Bench
In a swift rebuke to procedural lapses in banking fraud probes, the on , set aside 's order classifying former CEO Devang Pravin Mody's accounts as 'fraud'. A bench of Justices Prathiba M. Singh and Madhu Jain ruled that the bank's was never effectively served, denying Mody his right to respond— a cornerstone of .
This decision, echoing sentiments in media reports like those highlighting the bank's failure to provide a hearing opportunity, underscores ongoing tensions around 's post- Rajesh Agarwal fraud guidelines.
From Consortium Loans to Fraud Shadow: The RCFL Saga Unfolds
The saga traces back to massive wholesale loans—totaling ₹16,455.62 crores—disbursed by a bank consortium to RCFL, with ₹11,218.58 crores linked to related entities. Mody, who served in key roles including CEO from , found himself ensnared when banks began classifying RCFL accounts as fraudulent under 's 2016 Master Directions from .
RCFL and individuals challenged these tags in court. The 's landmark State Bank of India v. Rajesh Agarwal ((2023) 6 SCC 1) prompted 's revised Master Directions on Fraud Risk Management ( ). issued an SCN to Mody on , followed by the order declaring him fraudulent alongside Dhananjay Tiwari Bhagwanprasad, citing fund diversion per forensic audits.
Mody filed this petition, also challenging the 2024 Directions, learning of the order only via a co-noticee since the SCN bounced back undelivered.
Petitioner's Cry: No Notice, No Fair Play vs. Bank's Defense of Due Diligence
Mody's counsel,
, hammered on non-service: the SCN targeted an outdated address (
"Flat No. 704/M3 Hills and Dales Society"
), while Mody resided at
"C 1502, Verde Apartment, Kalyani Nagar, Pune,"
with provided email and mobile. No reply was possible, they argued, invoking precedents mandating a hearing opportunity. They pushed for a
, citing
's
IDBI Bank Ltd. v. Gaurav Goel
(LPA 536/2024) and
rulings.
's noted full compliance with Rajesh Agarwal in issuing 2024 Directions but flagged their challenge in SLPs ( ). 's countered that the SCN was sent to the "last known address," dismissing the new details as an afterthought, and claimed hearings were offered.
Peeling Back Layers: Why Procedure Trumped Allegations Here
The court zeroed in on service failure, not merits like alleged fund diversion or forensic findings. Drawing from
and
precedents, it affirmed:
an opportunity to reply to an SCN is
non-negotiable
. The bank's own order admitted the SCN to Mody
"returned back... with a remark that no such person reside[d]."
Justices clarified mutual duties—banks must serve properly, parties update addresses post-loan. No evidence showed Mody informed the bank of his move. Yet, undelivered notice vitiated the process. 's 2024 Directions face SC scrutiny (judgment reserved), but weren't the focus here.
The bench reconciled conflicting HCs: Bombay's stricter stance vs. Delhi/Calcutta's hearing emphasis, now converging as the bank conceded a .
Key Observations
"There can be no doubt... that an opportunity to reply to a SCN ought to be given to parties like the Petitioner."(Para 21)
"From the above paragraph of the impugned order itself, it is clear that as per the bank itself, copy of the SCN sent to the Petitioner was returned back with the noting that no such person resides at the address..."(Para 25)
"Petitioner and similarly placed parties also have a duty to intimate banks of their fresh addresses..."(Para 22)
"After filing of the reply, let abe granted to the Petitioner..."(Para 30)
Fresh Start Ordered: Reset Button on Fraud Probe
The court disposed the petition with clear directives: - Set aside the fraud order. - Serve SCN afresh via Mody's email (modydevang@gmail.com) and mobile (9764036999), with 2 weeks for reply. - Post-reply, grant and pass fresh order per 2024 Directions. - Mody must update contact changes.
This procedural win doesn't exonerate Mody—allegations of cheating via diversions linger for fresh scrutiny. But it reinforces safeguards in -mandated fraud classifications, potentially aiding others in consortium loan disputes. With SC looming over the Directions, banks must tighten service protocols to avoid such reversals.
