VISHAMBHAR SARAN vs PUNJAB NATIONAL BANK AND ANR
- Court
- Calcutta High Court
IN THE HIGH COURT AT CALCUTTA
(Constitutional Writ Jurisdiction)
ORIGINAL SIDE
Present:
The Hon’ble Justice Krishna Rao
W.P.O. No. 825 of 2024
Vishambhar Saran
Vs.
Punjab National Bank & Anr.
-AND-
W.P.O. No. 840 of 2024
Vikas Agarwal
Vs.
Punjab National Bank & Anr.
Mr. Sabyasachi Chowdhury, Sr. Adv.
Mr. Rahul Poddar
Mr. Tridib Bose
....For the petitioners.
Ms. Parna Roy Choudhury
Mr. Abhishek Banerjee
Ms. Payel Ghosh
Ms. Trisa Chanda
….For the Punjab National Bank
2
Hearing Concluded On : 17.04.2026
Judgment On : 07.05.2026
Krishna Rao, J.:
1. In both writ applications, the writ petitioners have challenged the show
th
cause notice dated 25 October, 2023 wherein the petitioners have
called upon to show cause as to why their accounts/names should not
be categorized and reported as fraud to the Reserve Bank of India and
th
the order dated 9 August, 2024 wherein the bank has reported the
th
account of the petitioners as fraud to the Reserve Bank of India on 16
July, 2024 vide FMR No. PNB2403-0361.
2. The petitioner Company (presently in liquidation) had availed loan from
the consortium of banks led by the Punjab National Bank for setting up
a Thermal Power Project in Raigarh District in the State of
Chhattisgarh. The respondent no.1 had sanctioned a loan in the name
of the Company in the month of March, 2010 for the said project.
Before the Company could complete the erection and installation, the
coal block allotted to the company was cancelled by the Central
Government pursuant to the orders passed by the Hon’ble Supreme
Court in the month of September, 2014. Due to the de-allocation of
Coal Block in terms of the order passed by the Hon’ble Supreme Court,
the banks withheld further disbursements as there was no clarity with
regard to the supply of coal. The de-allocation of coal block jeopardizes
the project, and as a result the erection and installation work for the
project was put in hold and the project could not achieve its
3
commercial operations. In view of the said facts, the stoppage of fund
disbursement by several members of the consortium of bankers
including the respondent no.1 had cascading effect on the accounts of
the company and the account of the company was declared as Non-
st
Performing Assets on 31 March, 2016.
3. In the year 2017, one of the consortium lenders being Bank of
Maharashtra filed proceedings against the company for initiating the
Corporate Insolvency Resolution Process under the Insolvency and
Bankruptcy Code. The Learned National Company Law Tribunal,
Kolkata Bench admitted the application and initiated Corporate
Insolvency Resolution Process and subsequently, upon no resolution
th
plan being received, the Learned Tribunal by an order dated 11
October, 2018, ordered for the commencement of liquidation
proceedings of the company and appointed a Liquidator. Based on a
mandate given by the Liquidator to conduct a Forensic Audit in the
Company, a Transaction Audit Report was prepared by M/s Deloitte
Touche Tohmastu India LLP and the Liquidator after receiving
instructions from the Committee of Creditors including the respondent
no.1 filed an application before the NCLT with the allegation of
fraudulent, preferential and undervalued transactions on the basis of
the Transaction Audit Report.
4. The Liquidator approached the Learned National Company Law
Tribunal for cancellation of certain transactions on the basis of the
allegations. The application filed by the Liquidator was rejected by the
4
Learned Tribunal. The Learned Tribunal by the said order not only
rejected the plea of the Liquidator that the various transactions covered
under the Audit Report alleged to be fraudulent, but also rejected the
plea of the Liquidator that the said transactions could possibly be
preferential or undervalued. The Order of the Learned NCLT was
affirmed by the Appellate Tribunal.
5. In the meantime, the respondents initiated criminal proceedings with
the Central Bureau of Investigation. From the complaint, the petitioners
came to know that the respondent nos.1 and 2 had purportedly
declared the account of the company as fraud and reported to RBI on
th
11 June, 2019. The respondent nos. 1 and 2 have declared the
account of the petitioners on the basis of the Transaction Audit Report
prepared by Delottie. The petitioners filed a writ petition being WP(C)
No. 4458 of 2021 before the Delhi High Court challenging the vires of
the RBI Master Directions on Frauds - Classification and Reporting by
st
Commercial Banks and select FI’s dated 1 July, 2016. The Delhi High
Court heard the writ petition filed by the petitioners along with several
th
other writ petitions and by an order dated 12 May, 2023, the entire
Bench of writ petitions were disposed of by setting aside the actions
taken against the petitioners under the Master Directions but it was
kept open for the bank to proceed in accordance with law in the light of
the Judgment in the case of State Bank of India & Ors Vs. Rajesh
Agarwal & Ors. reported in (2023) 6 SCC 1 .
5
6. The respondent no.1 also initiated Wilful Defaulter proceedings against
the petitioners on the basis of the Transaction Audit Report but
subsequently the respondent no.1 on its own accord decided to
withdraw the Wilful Defaulter proceeding against the petitioners by
th th
virtue of an order dated 9 November, 2022. On 18 June, 2021, the
respondent nos.1 and 2 filed a complaint before the Central Bureau of
th
Investigation (CBI) and on 18 August, 2023, the CBI registered a case
against the petitioners. The petitioners have challenged the said
proceeding in a writ proceeding being WPO No. 1626 of 2023 and the
th
High Court by a judgment dated 17 November, 2023, quashed the
th
complaint dated 18 June, 2021.
7. Mr. Sabyasachi Chowdhury, Learned Senior Advocate representing the
th
petitioners submits that on 25 October, 2023, the respondent no.2
issued show cause notice to the petitioners which was received by the
th
petitioners on 17 November, 2023, again on the basis of the purported
observations made in the Transaction Audit Report prepared by M/s
Deloitte on the allegation of fraudulent transactions which has been
undertaken by the Company M/s Visa Power Limited (In Liquidation).
The petitioners have submitted reply to the said show cause notice
informing the respondent bank that the respondent nos.1 and 2 have
already dropped the Wilful Defaulter proceedings against the petitioners
on the self-same allegation on account of the order passed by the
Learned NCLT and requested to withdraw the show cause notice as the
6
Learned Tribunal already quashed the Transaction Audit Report and
requested the respondents to withdraw the show cause notice.
8. Mr. Chowdhury submits that in the meantime one of the members of
the Consortium, namely, Central Bank of India had initiated Wilful
Defaulter proceeding against the petitioners on the basis of Transaction
Audit Report prepared by M/s Deloitte. The petitioners have challenged
the said proceeding before this Court in a writ proceeding being WPO
th
No. 212 of 2024. The said writ petition was disposed of on 14 May,
2024, by discrediting the reliability and credibility of the Transaction
Audit Report prepared by M/s Deloitte and quashed the proceeding.
9. The Reserve Bank of India issued a New Master Directions on Fraud
Risk Management in Commercial Banks (Including Regional Rural
th
Banks) and All India Financial Institutions dated 15 July, 2024, for
classifying and reporting of loan accounts as Fraud. The said circular
also superseded the RBI Master Directions on Frauds - Classification
st
and Reporting by Commercial Banks and select FI’s dated 1 July,
2016.
th
10. On 9 August, 2024, the respondent nos.1 and 2 received a letter
wherein the respondents had reported the account of M/s Visa Power
th
Limited (In Liquidation) as fraud to the Reserve Bank of India on 16
July, 2024, wherein it appears that the Consortium of Lenders
organized a Joint Lenders Meeting and in the said meeting 60% of the
7
Lenders of the Consortium reported the account of M/s Visa Power
Limited is fraud.
11. Mr. Chowdhury submits that the petitioners have never received any
communication pertaining to the convening of the JLM. He submits
th
that in the letter dated 9 August, 2024, it is mentioned that more
than 60% of the Lenders of the Consortium have declared the account
of the petitioners as fraud but the same was never informed to the
petitioners and thus the said action of the respondents is dehors both
the Master Circular and the judgment passed by Hon’ble Apex Court
passed in the case of State Bank of India and Others Vs. Rajesh
Agarwal and Others reported in (2023) 6 SCC 1 .
12. Mr. Chowdhury submits that the respondents have proceeded to
declare the account as fraud upon mere a perception and on the basis
that the petitioners did not provide a pointwise response to the
allegations contained in the Transaction Audit Report and also on the
basis that more than 60% of the lenders have already reported the
account of the petitioners as fraud. He submits that such unilateral
action on the part of the other lenders was neither informed to the
th
petitioners by virtue of the show cause notice dated 25 October, 2023,
nor any other communication. He submits that the petitioners were
never provided with the opportunity to deal with the action undertaken
by the other lenders.
8
13. Mr. Chowdhury submits that the respondent bank already reported the
th
account of the petitioners as fraud to the Reserve Bank of India on 16
July, 2024 and thereafter informed to the petitioners by a
th
communication dated 9 August, 2024. He submits that in terms of the
RBI Master Directions on Fraud Risk Management in Commercial
Banks (Including Regional Rural Banks) and All India Financial
th
Institutions dated 15 July, 2024, the respondents could not have
reported the account to the Reserve Bank of India as fraud prior to
classifying such account as fraud.
14. Mr. Chowdhury submits that the Transaction Audit Report prepared by
M/s Deloitte has already been quashed by the Learned NCLT by an
th
order dated 25 July, 2019 and the Learned NCLAT by an order dated
th
30 September, 2019. He submits that this Court by an order dated
th
17 November, 2023, has quashed the criminal complaint initiated by
th
the respondent dated 18 June, 2021, solely on the basis of
Transaction Audit Report prepared by M/s Deloitte. He submits that
th
the Coordinate Bench of this Court by a judgment dated 14 May,
2024, quashed the Wilful Defaulter proceeding solely on the basis of the
Transaction Audit Report initiated by another member of the
Consortium.
15. Mr. Chowdhury further submits that the respondent no.1 had already
withdrawn the Wilful Defaulter proceedings pursuant to the orders
passed by the Learned NCLT and NCLAT and thus the respondent nos.
1 and 2 are estopped from initiating any further action against the
9
petitioners on the basis of the Transaction Audit Report prepared by
M/s Deloitte.
16. Ms. Parna Roy Choudhury, Learned Advocate representing the
respondents submits that by a show cause notice, the bank has given
details of the credit facilities extended to M/s Visa Power Limited and
informed the petitioners that the conduct of accounts maintained with
the bank were not satisfactory and the same was classified as Non-
st
Performing Assets on 31 March, 2016.
17. Ms. Choudhury submits that during periodic monitoring and review of
the loan accounts of the petitioners, it was observed that the accounts
of the petitioners were not in compliance with the terms and conditions
of sanction. In the Transaction Audit Report prepared by M/s. Deloitte
Touche Tohmatsu India LLP also detected some fraudulent activities.
She submits that, accordingly, show cause notice was served upon the
petitioners to explain with regard to the transactions and as to why the
accounts of the petitioners shall not be reported as fraud to the Reserve
Bank of India. She further submits that relevant extracts of the
Transaction Audit Report were also provided to the petitioners along
with show cause notice. She submits that the petitioners have not
replied with regard to the Transaction Audit Report and only requested
th
for withdrawal of the proceedings and accordingly on 9 August, 2024,
the account of the petitioners was declared as fraud.
10
18. Ms. Choudhury submits that prior to show cause notice on the basis of
th
complaint of Punjab National Bank dated 18 June, 2021, the Central
Bureau of Investigation has registered FIR against the petitioners and
M/s Visa Power Limited. She submits that as per the allegations
against the petitioners was for siphoning off and diversion of funds,
criminal misappropriation, criminal breach of trust and cheating by
causing loss of the public money to the tune of Rs. 1964 crores. The
FIR was challenged before the Coordinate Bench of this Court and
being aggrieved with the order passed by the Coordinate Bench of this
Court, the respondent bank has preferred an appeal. The appellate
Court held that the case initiated against the petitioners is not limited
rd nd
to the transaction for a period from 23 December, 2015 to 22
December, 2017. In the complaint, all transactions since inception of
the credit facilities were taken into consideration.
19. Ms. Choudhury submits that the bank has issued show cause notice to
the petitioners and after receipt of reply to the show cause notice only,
the bank has issued the impugned order of declaring fraud. She has
relied upon the Judgments in the case of State Bank of India & Ors.
Vs. Rajesh Agarwal & Ors. reported in (2023) 6 SCC 1 and State
Bank of India Vs. Amit Iron Private Limited and Others reported in
2026 SCC OnLine SC 538.
th
20. On 25 October, 2023, the respondent no.1 issued show cause notice
to the petitioners on the allegation that during periodic monitoring and
review of the loan accounts of the petitioners, the bank noticed that
11
accounts have not been in compliance with the agreed terms and
sanctioned conditions. The bank found certain irregularities, leading to
suspicion of fraudulent activity in the account. The bank has relied
upon the Transaction Audit Report conducted by M/s. Deloitte Touche
Tohmatsu India LLP, wherein it was alleged that element of fraud was
found. The Auditor was appointed by the Resolution Professional/
Liquidator during the CIRP to carry out Forensic Audit of the Corporate
Debtor for two years prior to date of admission of the Corporate Debtor
in CIRP.
21. In reply to show cause notice, the petitioners have informed the
th
respondent bank that by an order dated 9 November, 2022, the
Committee for Identification of Wilful Defaulters dropped the allegations
nd
made by the bank in its show cause notice dated 2 July, 2020 and
wilful default proceedings against borrower and its directors were
withdrawn. The petitioners have also informed that the Committee of
the Bank already noted that the Audit Report of M/s. Deloitte Touche
Tohmastu India (LLP) does not prove any fraudulent transaction and
there is no new independent documentary evidence had been adduced.
The petitioners have also informed that the show cause notice issued
th
against the petitioners are contrary to the order of the bank dated 9
November, 2022, wherein willful default proceedings against the
borrower and its directors were withdrawn.
th
22. The Learned National Company Law Tribunal in its order dated 11
October, 2018, while dealing with the Transaction Audit Report issued
12
by M/s Deloitte Touche Tohmatsu India (LLP) held that the report does
not support the contention of the Liquidator that the Auditor observed
that the transactions in question are either undervalued or preferential
or fraudulent. The order of the Learned Tribunal has been upheld by
th
the Appellate Tribunal by its order dated 30 September, 2019.
23. After the order passed by the Learned National Company Law Tribunal
and Appellate Tribunal, the bank has passed the following order:
“Deliberation of the Committee:
The committee noted that the wilful default
proceedings in the account was initiated on the
ground of Diversion of funds, siphoning of funds
and unauthorized disposal of charged assets, the
basis of which is the Transaction Audit Report of
M/s Deloitte Touche Tohmastu India LLP The
committee further observed that NCLT Kolkata vide
order dated 25.07.2019 has held that audit report
dated 24.08.2018 of DTTILLP, by itself without any
independent material on record does not prove any
preferential undervalued and fraudulent
transaction. The committee also took note of the
fact that the appeal filed by the RP against order of
NCLT was not entertained by the Hon'ble NCLAT
and hence the order of NCLT has attained finality.
The committee observed that the present
proceedings of wilful default have been initiated
solely on the basis of the said Transaction Audit
report dated 24.08.2018 and no other report/
document has been relied upon. In view of the
order of NCLT Kolkata dated 24.08.2018 which
has attained finality, bank cannot solely rely upon
the Audit Report of DTTILLP for identification and
declaration of borrowers as wilful defaulters.
ORDER OF THE COMMITTEE FOR
IDENTIFICATION OF WILFUL DEFAULTERS:
The Identification Committee, headed by the
Executive Director and consisting of other members
i.e. Chief General Managers and Dy. General
13
Manager of the Bank, on the basis of deliberations
and records available decided to drop the present
wilful default proceedings against the borrower
and its directors i.e. M/s Visa Power Ltd
(Borrower), Sh. Vishambhar Saran (Promoter
Director), Sh. Vikas Agarwal (Promoter Director)
with liberty to Zonal SASTRA to re-examine the
wilful default aspect in account on the basis of
independent documentary evidence, (if any) which
proves wilful default as per RBI Master Circular.”
24. Inspite of the order passed by the Learned Tribunal and Appellate
Tribunal which was duly accepted by the respondent bank and earlier
show cause notice was withdrawn even then the bank has issued show
th
cause notice to the petitioners on 25 October, 2023, relying upon
Transaction Audit Report of M/s Deloitte Touche Tohmastu India (LLP).
th
While passing the impugned order dated 9 August, 2024, wherein a
decision has been taken to declare fraud, the bank has relied upon
Joints Lenders Meeting. The operative portion of the impugned order
th
dated 25 October, 2024, reads as follows:
“After considering the facts of the case and the
reply submitted by the parties, the competent
committee directed that the matter be taken up
with other members of the JLM. At the JLM, all the
member Banks informed that there was no change
in fraud classification of the account at their end.
Further, the response submitted by the borrower
did not have any point wise replies to the
observations of the Transaction Audit
Based on the above facts, the competent
committee directed that since more than 60%
lenders have already reported the account as
Fraud, in view of the RBI Master Directions on
Fraud in place, the account was perceived as
fraud. The Competent Authority, further, accorded
approval to report the account as fraud to RBI.
14
The competent authority, after due
consideration of the above said facts and
examining the evidences on record, found that the
borrower M/s Visa Power Ltd. and its directors Sh.
Vishambhar Saran and Sh. Vikas Agarwal are
responsible for above event(s) of fraud and hence
the account is hereby declared as "fraud" on the
grounds of "Diversion of funds" which constitute
cogent ground(s) for the account(s) being classified
as 'fraud' in terms of extant Bank guidelines issued
in consonance with the RBI guidelines/ Master
Directions on Fraud read with Judgement dated
27.03.2023 of Honourable Supreme Court of India
in Civil Appeal No. 7300/2022.
The Bank has reported the account as fraud to
the Reserve Bank of India (RBI) on 16.07.2024 vide
FMR No. PNB2403-0361 as per the directions
contained in the RBI Master Directions/ Circulars
issued time to time, in this regard.”
25. The bank has relied Joint Lenders Meeting comprising of other
Consortium of Lenders stating that since 60% lenders have reported
the account of the petitioners as fraud and the respondent bank also
declared the account of the petitioners as fraud without any
information about the JLM meetings to the petitioners nor the copies of
the proceedings of the meetings was supplied to the petitioners. In the
case of Rajesh Agarwal & Ors. (supra), the Hon’ble Supreme Court
held that:
“ 65. Audi alteram partem, therefore, entails
that an entity against whom evidence is collected
must: (i) be provided an opportunity to explain the
evidence against it; (ii) be informed of the proposed
action, and (iii) be allowed to represent why the
proposed action should not be taken. Hence, the
mere participation of the borrower during the
course of the preparation of a forensic audit report
would not fulfil the requirements of natural justice.
The decision to classify an account as fraud
involves due application of mind to the facts and
15
law by the lender banks. The lender banks, either
individually or through a JLF, have to decide
whether a borrower has breached the terms and
conditions of a loan agreement, and based upon
such determination the lender banks can seek
appropriate remedies. Therefore, principles of
natural justice demand that the borrowers must be
served a notice, given an opportunity to explain the
findings in the forensic audit report, and to
represent before the account is classified as fraud
under the Master Direction on Frauds.”
26. In the case of Amit Iron Private Limited (supra), the Hon’ble Supreme
Court held that:
“126. (f) We reiterate that the rule is to supply
the audit reports, including the forensic audit
reports since even under Clause 4 of Chapter IV of
the 15.07.2024 Master Directions post the red-
flagging of the account banks use the audit
mechanism for further investigation. Even in the
exceptional cases we hope and expect that the
banks will not unreasonably use the power of
redaction since that will only end up delaying the
culmination of proceedings. Clause 4.1.4 also
reiterates that banks shall ensure the principles of
natural justice. That this was the legal position
even under the 2016 Master Directions is clear from
para 95 of Rajesh Agarwal (supra).”
27. The respondent bank during hearing of the instant writ petition relied
upon the FIR initiated by the CBI against the petitioners and Company
M/s. Visa Power Limited for the offence alleged under Section 120(B)/
409/420/477A of the Indian Penal Code, 1860 read with Section 13(2)/
13(1)(d) of the Prevention of Corruption Act, 1988 and contended that
from the said FIR, it is crystal clear that the petitioners have committed
fraud. This Court considered the submissions of the bank and finds the
bank has not relied upon the FIR in the show cause notice. In the
16
impugned order of fraud also the bank has not relied upon the FIR
which now the bank is relying upon.
28. The Transaction Audit Report on the basis of which the respondent
bank issued show case notice, the National Company Law Tribunal has
already held that the report does not support that the transactions in
question are either under value or preferential or fraudulent in nature.
The said order of the Learned Tribunal duly affirmed by the Learned
Appellate Tribunal. The bank has also accepted the said orders and
withdrawn the earlier proceeding initiated against the petitioners by an
th th
order dated 9 November, 2022. In the impugned order dated 9
August, 2024, the respondent bank relied upon the meeting of the Joint
Lenders Meeting but the same was neither relied upon in the show
cause notice nor the same was served upon the petitioners. The
petitioners could not get an opportunity to deal with the meetings of the
JLM. The impugned order also does not record any finding and
reasons. Only on the basis of the Transaction Audit Report and JLM
th
meeting by the impugned order dated 9 August, 2024 is passed.
th
29. Considering the above, the impugned show cause notice dated 25
th
October, 2023 and the impugned order dated 9 August, 2024, are set
aside and quashed. However, this order will not prevent the respondent
bank to take appropriate steps against the petitioners if the bank
desires in accordance with law by taking into consideration of the
Master Circulars issued by the Reserve Bank of India from time to time
and also in compliance of the orders passed by the Hon’ble Supreme
17
Court in the Case of Rajesh Agarwal (supra) and Amit Iron Private
Limited (supra) .
30. WPO No. 825 of 2024 and WPO No. 840 of 2024 are accordingly
disposed of.
(Krishna Rao, J.)