J U D G M E N T

MINI PUSHKARNA, J: (ORAL)

CM APPL. 17772/2024 (For Exemption)

1. Exemption allowed, subject to just exceptions.

2. Application is disposed of.

W.P.(C) 4340/2024 & CM APPL. 17773/2024

3. The present petition has been filed seeking quashing of the declaration of the account of M/s Delhi Control Devices Pvt. Ltd., i.e., respondent no. 6- company, as a „Fraud‟ account vide separate declarations by respondent nos.

1 to 5.

4. Learned counsel appearing for the petitioner submits that the account of the respondent no. 6 was declared as „Fraud‟ by respondent no. 2 on 29th July, 2020 and by respondent no. 1 on 29th May, 2021. He further submits that respondent nos. 3 to 5 have also declared the account of respondent no. 6-company as „Fraud‟ account, however, the decisions with regard thereto have not been communicated to the petitioners till date.

5. Learned counsel appearing for the petitioners submits that the petitioners were the ex-directors of the respondent no. 6-company. The company had availed of various credit facilities from respondent nos. 1 to 5 under consortium agreement.

6. It is submitted that as per the allegations in the complaint filed with the Central Bureau of Investigation (“CBI”), from October, 2014 onwards, the company failed to meet payment obligations. Thus, the account of respondent no. 6-company was declared as Non Performing Asset (“NPA”)

on 25th January, 2016.

7. It is submitted that the classification/declaration of the account as „Fraud‟ of the respondent no. 6-company by the respondent nos. 1 to 5 is bad in law and is liable to be struck down. It is submitted that while declaring the account of the company as „Fraud‟, the petitioners herein were never given any opportunity of hearing.

8. It is submitted that the petitioners were not even informed of the declarations which took place on 29th July, 2020 or 29th May, 2021 or by the respondent nos. 3 to 5. Thus, it is submitted that the petitioners are yet to be provided with a copy of the declaration order dated 29th July, 2020 or order dated 29th May, 2021 or any other order passed by respondent nos. 3 to 5, by which the account of the respondent no. 6-company have been declared as a „Fraud‟ account.

9. Learned counsel appearing for the petitioner submits that the aforesaid action by the respondents is in violation of the Principles of Natural Justice and the Principle of Audi Alteram Partem, as laid down by the Supreme Court in the case of State Bank of India & Ors. Versus Rajesh Agarwal & Ors., 2023 SCC OnLine SC 342.

10. It is further submitted that the petitioners gained knowledge of such declaration only when the FIR was lodged and copy of the same was provided to the petitioners during the investigation.

11. Issue notice. Notice is accepted by learned counsel appearing for respondent nos. 1 and 2.

12. Learned counsel appearing for respondent no. 1 categorically submits that since in the present case the declaration of fraud happened in the year 2020 and 2021, therefore, no Show Cause Notices were issued to the petitioners and no opportunity of any representation against the said Show Cause Notices was granted to the petitioners.

13. The law in this regard is no longer res-integra that the Principles of Natural Justice have to be read into the Master Directions for Declaration of Fraud, as issued by the Reserve Bank of India. Supreme Court in the case of Rajesh Agarwal (Supra) has categorically held as follows:

“xxx xxx xxx

65. The competence of RBI to issue the Master Directions on Frauds is not a bone of contention in these appeals. RBI, in its estimation, has the power to determine and frame economic measures in the public interest to ensure the proper management of banking companies. The point however is that the implementation of a decision to secure the health of banking companies must comport with the due process of law. The civil consequences which follow upon a classification of a borrower's account as fraud are serious and prejudicial to the int