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2022 Supreme(Online)(MAD) 1496
IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on Pronounced on
05.01.2022 15.02.2022 CORAM THE HONOURABLE MR. JUSTICE M.DHANDAPANI W.P. NO. 20648 OF 2021 AND W.M.P. NO. 21908 OF 2021 Rahoul Jain .. Petitioner - Vs -
1. Reserve Bank of India Fort Glacis, No.16 Rajaji Salai, Chennai 600 001.
2. RBL Bank Ltd.
thro' its Chairman & Managing Director
1st Lane, Shahupuri Kolhapur 416 001, Maharashtra.
3. Kotak Mahindra Bank Ltd.
thro' its Chriaman & Managing Director Regd. Office at 27BKC, C-27, G-Block Bandra Kurla Complex, Bandra (E)
Mumbai 400 051.
Zonal Office at No.555, Capital Building Anna Salai, Opp: Sun TV Teynampet, Chennai 600 018.
4. State Bank of India thro' its Chairman & Managing Director Corporate Centre at State Bank Bhavan, Madam Cama Road Nariman Point, Mumbai 400 021 Maharashtra Zonal Office at, Mannadi Chennai Port Trust, Chennai 600 001.
5. IDFC First Bank Ltd.
thro' its Chairman & Managing Director KRN Tower, 7th Floor No.1, Harrington Road Chetpet, Chennai 600 031.
6. HDFC Bank Ltd.
thro' its Chairman & Managing Director Regd. Office at :
House Senapati Bapat Marg Lower Peral, Mumbai 400 013.
7. Doha Bank QPSC thro' its Chairman & Managing Director Corporate Office at :
Sakhar Bhavan, Ground Floor Plot No.230, Block No.III Backbay Reclamation, Nariman Point Mumbai 400 021 Zonal Office at : No.9, Anna Salai Triplicane, Chennai 600 002.
8. DBS Bank India Ltd.
thro' its Chairman & Managing Director Regd. Office : Ground Floor Nos. 11 & 12 Capital Point, BABA Kharak Singh Marg Connaught Place, Delhi 110 001.
Zonal Office at : LIC Buinding
806, Anna Salai, Chennai 600 002.
9. IDBI Bank Ltd.
thro' its Chairman & Managing Director Regd. Office : IDBI Tower World Trade Complex, Cuffee Parade Mumbai 400 005.
Zonal Office at : 115, Anna Salai Opp. to Ashok Leyland Gotha Medu Housing Board Saidapet, Chennai 600 015.
10. Indian Bank thro' its Chairman & Managing Director Regd. Office No.6, Rajaji Salai Chennai 600 014. 11. Citi Bank N.A.
thro' its Chairman & Managing Director Corporate Office at : 14th Floor First International Financial Centre G Block, Bandra Kurla Complex Bandra (E), Mumbai 400 098.
Zonal Office at : No.2, Club House Road Express Estate, Thousand Lights Chennai, Tamil Nadu 600 002.
12. ICICI Bank Ltd.
thro' its Chairman & Managing Director Regd. Office at : ICICI Bank Tower Near Chalki Circle, Old Padra Road Vadodara 390 007.
Zonal Office at : Arihant Insight Baba Nagar, Jaswant Nagar Industrial Estate, Ambattur Chennai, Tamil Nadu 600 058.
13. Capricon Food Products India Ltd.
thro' its Resolution Professional Mr. J.Karthiga, Insolvency Professional Plot No.100, Door No.C, 4th Avenue Shanthi Colony, Anna Nagar, Chennai 600 040. .. Respondents Writ Petition filed under Article 226 of the Constitution of India praying this Court to issue a writ of certiorari by setting aside the coercive action taken by respondent No.2 to 12 with respect to declaring the account of M/s.Capricorn Food Products India Ltd., the petitioners as 'fraud' in terms of RBI Master Circular bearing No.BI/DBS/2016-2017/28 DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 dated 10.07.2016.
For Petitioners : Mr.N.R.Elango, SC, for Mr. Anand Merathia For Respondents : Mr. R.Rajesh for R-9 Mr. B.Chetan Sagar for R-2 Ms. Ananda Gomathy for R-3 Mr. Vipin Warrier for R-4 Mr. T.Sundarajan for R-10 Mr. V.V.Shivakumar for R-5 Mr. Shivakumar for R-12 Mr. T.Ravichandran for R-13
ORDER
The present petition has been filed against the issuance of Red Flag notice, issued by the 2nd respondent, the a member of the consortium of banks against the 13th respondent, in terms of the RBI Circular, without following the principles of natural justice and to set aside the same.
2. It is the case of the petitioner that he was a shareholder, promoter and erstwhile Managing director of the 13th respondent. It is the further averment of the petitioner that the petitioner company constituted a consortium and all the loans/security documents with the petitioner were jointly executed by and in favour of the consortium of which State Bank of India was appointed as the Lead Bank in the consortium. It is further averred by the petitioner that the consortium of lenders entered into a capital working consortium agreement and other related documents and in that regard a security trustee was also appointed.
3. It is the further averment of the petitioner that due to economic slow down as well as delayed realisation of receivables, there was cash flow mismatch, which was appraised by the 13th respondent to the lenders about the liquidity constraints faced by it and, thereafter, in the year 2019-2020, the 13th respondent also faced financial distress.
4. It is the further averment of the petitioner that relying on the ASM audit report dated 7.3.20, the 2nd respondent, misconceived itself that the company failed to maintain the required level of transparency in terms of submission of data to the lenders of the Consortium, raised objections. In view of the objections raised by the 2nd respondent, second ASM report was requisitioned. However, without waiting for the report, the 2nd respondent classified the account of the 13th respondent as a "Red Flag Account" (for short 'RFA') by invoking the circular of the Reserve Bank of India, which act of the 2nd respondent is in gross violation of Clause 8.3.3 of the said circular of the Reserve Bank of India, as it does same does not satisfy the threshold limit for RFA mandated in the said circular. It is the averment of the petitioner that the RFA classification by the 2nd respondent is erroneous and against the spirit of the consortium and in blatant violation of the circular issued by the Reserve Bank of India.
5. It is the further averment of the petitioner that even the act of the 2nd respondent has been deprecated by the other members of the consortium, in the meeting, where the other members of the consortium also were not in favour of the RFA issued by the 2nd respondent. It is the further averment of the petitioner that aggrieved by the RFA issued by the 2nd respondent, the company filed C.S. No.31/2020 before this Court in which this Court granted an order of interim injunction in favour of the company.
6. It is the further averment of the petitioner that subsequent to the said order, relying of the ASM reports, which were filed by then, the 2nd respondent recalled the credit facilities extended to the company and invoked the guarantees provided.
7. It is further averred that in the meanwhile the National Company Law Tribunal (for short 'NCLT'), vide its order dated 13.11.2020 initiated Corporate Insolvency Resolution Process (for short 'CIRP') and resolution profession has been appointed by NCLT for taking over management and control of the company, who will be acting on the advice and instructions of the Committee of Creditors (for short 'CoC') constituted by the Financial Creditors of the company. It is further averred that subsequent to the order of NCLT, this Court had also vacated the interim injunction, vide its order dated 4.12.20.
8. It is the further averment of the petitioner that in the meeting of the CoC, the 2nd respondent had informed the members that the Bank had already classified the account of the company 'Fraud' in May, 2021, based on the Stock Verification Audit, Transaction Audit and ASM report. It is the averment of the petitioner that the Transaction Audit Report,
