Nandi Grain Derivatives Pv T LTD vs. Bank Of Baroda

Facts

The petitioner, Nandi Grain Derivatives Pvt. Ltd., filed a writ petition challenging a communication dated October 14, 2024, from the respondent, Bank of Baroda. This communication rejected the petitioner's request to consider a re-forensic audit report dated April 30, 2022, and instead appointed a new forensic auditor. The petitioner argued that this action was arbitrary and illegal, especially in light of previous High Court orders in W.P. No. 294 of 2024 and W.P. Nos. 26069 of 2024, which directed the bank to consider the re-forensic audit report. The bank's earlier communication dated October 9, 2023, rejecting a similar request, had already been set aside by the Court. The petitioner's loan account became an NPA on March 31, 2015. A first forensic audit report dated July 31, 2020, indicated fraud and diversion of funds. A subsequent re-forensic audit report dated April 30, 2022, found no evidence of fraud or diversion.

Held

The Court held that the decision of whether to accept or reject a forensic audit report lies primarily within the domain of the financial institution that commissioned the audit. The Court, exercising its jurisdiction under Article 226 of the Constitution, does not sit in appeal over such technical and financial decisions unless they are shown to be arbitrary, mala fide, or contrary to statutory provisions. The Respondent Bank had placed on record reasons for not accepting the re-forensic audit report dated April 30, 2022, and for appointing another independent forensic auditor. The impugned communication dated October 14, 2024, enclosed a detailed explanation for why the conclusions of the re-forensic audit report were found unsatisfactory. Therefore, the action of the respondent bank could not be said to be arbitrary or without application of mind. The contention that the bank disobeyed previous court orders was also rejected, as the earlier order directed the bank to consider the re-forensic audit report and pass appropriate orders, not to mandate acceptance of the report or removal from the Fraud List. The bank had reconsidered the report and found it unsatisfactory, leading to the order for a fresh audit, which was not a violation of the court's directions. The petitioner's financial status, while noted, did not determine the legality of the bank's decision regarding the forensic audit and fraud classification. The Court found no ground to interfere with the impugned communication.

Key Issues

1. Whether the Respondent Bank's action in appointing a new forensic auditor, despite previous High Court directions to consider the re-forensic audit report dated April 30, 2022, is arbitrary, illegal, and a colourable exercise of power, thereby constituting disobedience of court orders? Petitioner's arguments: The petitioner contended that the bank's decision to appoint a new auditor was a repeated rejection of their request and a clear disobedience of the orders passed by the High Court in W.P. No. 294 of 2024 and W.P. Nos. 26069 of 2024. They argued that the bank's action was arbitrary, illegal, and a misuse of power, particularly as the earlier communication rejecting their request had been set aside. They relied on the re-forensic audit report dated April 30, 2022, which found no fraud or diversion of funds, and highlighted that the bank had previously accepted a One Time Settlement proposal and issued a No Dues Certificate. Respondent's arguments: The respondent bank argued that in compliance with the court's order, they had reconsidered the re-forensic audit report dated April 30, 2022, but found its conclusions unsatisfactory. They stated that the re-forensic report did not adequately explain the departure from the earlier findings of fraud and diversion of funds. Therefore, they entrusted the audit to a new, independent forensic auditor. The bank contended that the petitioner was attempting to evade a proposed forensic audit and that the writ petition was an abuse of process.