The classification of a loan account as 'fraud' based on forged documents is valid if it adheres to the existing regulatory framework and does not require a pre-decisional hearing.

ORDER :

Nagesh Bheemapaka, J.

This Writ Petition is filed questioning the action of Respondent No. 2 – Regional Manager, State Bank of India in classifying the account of petitioners as 'fraud' vide impugned declaration dated 02-11-2006 as illegal, arbitrary and to quash the consequential proceedings arising out of the impugned notification.

2. It is stated, petitioner No.1 is a partnership firm and is in the business of leasing and infrastructure development, more precisely construction of projects such as roads, dams, etcetera; it availed credit facility of Rupees Two Crores and a bank guarantee of Rupees One Crore on 22-07-2011 giving collateral security of open land admeasuring 16940 square yards (Acs.3.20 guntas) in Survey Nos.158 and 162 in Kismatpur Village and Gram Panchayat, Rajender Nagar Mandal, Rangareddy District which was purchased vide sale deed dated 29-05-2011. Subsequently credit facility was enhanced from two to three crores on 28-03-2013 by sanctioning asset-backed limit of Rs. Eight crores on 17-11-2014. It is stated, additional collateral security of residential open plot No. 46 admeasuring 268.66 sq. yards in Survey No. 109/A, Sitharam Nagar, Neredmet Block No. 32, GHMC, Malkalgiri Mandal, RR District was given. The sole proprietorship establishment was converted into a partnership firm and petitioners could not repay the loan as per schedule resulting in the loan account becoming NPA on 26-09-2015, with an outstanding balance of Rs.8.20 crores.

2.1. Petitioners state that at the time of pursuing the proceedings under the SARFAESI Act, Respondent No. 2 bank came to know that both the collateral securities mortgaged with the bank were unenforceable and therefore the bank was unable to recover the outstanding amount. The respondent bank allegedly uncovered that the property subject of sale deed no. 1456 of 2011 dated 23-5-2011 was initially an agricultural land and the bank could not sanction ABL on the said land and further the bank also could not sanction CC facility based on mortgage of agricultural land as collateral security since it cannot be sold or disposed of and which do not come under the purview of SARFAESI Act. Despite petitioner submitting letter written to the RDO, Chevella, for conversion of land from agriculture to non-agriculture, the bank authorities could not take the same into consideration and there are other title disputes.

2.2. It is stated, regarding the second property mortgaged with Respondent No.2, it was alleged that the bank received legal notice disputing the ownership of petitioner No.2 and in addition, Respondent No.2 bank made further allegations against petitioner regarding siphoning of the loan amounts and bank guarantees by fabricating agreements and work orders. At this stage, the bank filed a criminal complaint with CBI (EOB), Chennai dated 02-03-2019 with FIR No. RC0692019. Subsequently, a charge sheet was filed which is pending on the file of Hon'ble XII Additional Metropolitan Magistrate for CBI cases, Nampally, Hyderabad. They further stated they have applied for OTS but instead of considering the same sympathetically, the respondents registered the criminal case which is illegal and arbitrary.

2.3. It is also stated, petitioner firm submitted various representations to Respondent No.2 bank proposing One Time Settlement Scheme on 08.02.2016 and 17.04.2023 which were not considered by Respondent No.2, who, instead, reported the case directly to CBI. When petitioners through Manging Partner filed RTI query dated 15.05.2023, it was learnt that Respondent No.2 bank declared the account of petitioner as fraud vide FMSBI16040040 dated 02.11.2016 whi