The court ruled that a bank's decision to reject an unsatisfactory forensic audit report and appoint an independent auditor is a technical decision within its administrative domain, protected from judicial interference under Article 226 unless proven arbitrary, mala fide, or contrary to statutory requirements.

O R D E R:

Challenge in this Writ Petition is to the communication dated 14.10.2024 whereby Respondent Bank rejected the request of petitioner and appointed M/s Sagar and Associates, Chartered Accountants, an IBA-empanelled Forensic Auditor, to conduct a fresh forensic audit. It is the case of petitioner that the said action was taken despite the directions of this Court in Writ Petition No. 294 of 2024 and Writ Petition No. 26069 of 2024 directing Bank to consider the re-forensic audit report dated 30.04.2022 prepared by the Bank’s recommended audit firm. Petitioner contends that the earlier communication dated 09.10.2023 rejecting the same request had already been set aside by this Court, therefore the impugned communication amounts to repeated rejection and disobedience of the orders passed by this Court.

1.1. Petitioner further states that the action of the Respondent Bank in not considering the request in accordance with the orders of this Court and appointing a new auditor is arbitrary, illegal and a colourable exercise of power, therefore the impugned communication is liable to be set aside. It is stated, the company and its employees are facing serious livelihood difficulties due to the continued classification of the account.

1.2. Petitioner company was stated to have been incorporated in 2010 under the Companies Act, 1956 and is engaged in the manufacture of starch and its by-products used in food, pharma and textile industries. Respondent Bank is a financial institution which granted financial facilities including cash credit to petitioner. For expansion of business, petitioner approached Respondent Bank for credit facilities and the Bank sanctioned Rs.27 Crores vide sanction letter dated 27.11.2012. Due to escalation in raw material costs, lack of increase in product value and adverse market conditions, petitioner company could not generate expected income and failed to meet interest obligations, resulting in the loan account being classified as Non-Performing Asset on 31.03.2015. In 2020, nearly five years after the account became NPA, Respondent Bank ordered a forensic audit and appointed M/s M.K. Agarwal and Company, Chartered Accountants, New Delhi to conduct the audit for the period from 08.11.2012 to 31.03.2015.

1.3. Petitioner states that forensic auditor was appointed on 17.02.2020 and submitted the report on 31.07.2020. Prior to the audit, the Founder Director of petitioner company Sri S.P.Y. Reddy passed away and therefore, the family members were unable to provide the necessary documents to the auditor. According to petitioner, the auditor reported that borrower was not cooperating, factory was closed and in possession of the bank and several vital documents required for the audit were not available. The auditor therefore, concluded that there was no basis to examine the transactions and relied on the information provided by the bank and the MCA portal.

1.4. Based on the forensic audit report dated 31.07.2020, the Respondent Bank informed the Reserve Bank of India, Credit Rating Information Services India Limited (CRISIL), Credit Information Bureau of India Limited (CIBIL) and investigating agencies that petitioner was a defaulter and was treated as a wilful defaulter. Thereafter, representations were made to Respondent Bank explaining that due to the demise of its Chairman Sri S.P.Y. Reddy, the required data could not be provided during the audit. Considering the request, the Bank addressed e mail dated 14.03.2022 to the same auditor M/s M.K. Agarwal and Company seeking re-forensic audit stating that company was now in a position to provide the required data.

1.5. It is stated, upon such request, M/s M