Saiyyed Owais Ali vs. Bank Of INDIA

Held

The Court dismissed all three petitions. It held that while the petitioners argued that their records were seized by the GST Department, hindering their ability to file a reply, the respondent bank had granted 31 days, which exceeded the minimum 21 days stipulated by the Master Circular. The Court found that the classification of accounts as fraud was based on observations made in the forensic audit, and these observations were not merely based on suspicion. The Court also found no procedural impropriety in the notices being issued by the Zonal Manager and the order being passed by the Fraud Monitoring Group, stating that such issues are decided based on available material and the authority passing the order had valid authority and applied its mind. The Court reiterated that writ petitions challenge the decision-making process, not the correctness of the decision itself. It found no arbitrariness, impropriety, or illegality in the process followed by the authority. The Court noted that classifying accounts to the tune of Rs. 43 Crores as fraud implies diversion of funds, which was further scrutinized by the forensic audit. Therefore, the action taken by the respondent authority was deemed not unjust, improper, or against the settled principles of law, including natural justice.

Facts

Three writ petitions were filed before the Madhya Pradesh High Court at Indore, challenging orders dated August 24, 2026, and September 10, 2026, which declared the accounts of SA Infrastructure, SMO Ferro Alloys Ltd., and VR Construction as "Fraud." The petitioners, SA Infrastructure (through its proprietor Sayyed Afsar Ali), Saiyyed Owais Ali and others, and VR Construction (through its proprietor Saiyyed Mohabbat Ali), argued that their accounts were classified as fraud based on forensic audits without proper adherence to natural justice principles. They contended that the GST Department had seized their records, hindering their ability to file a complete reply to the show cause notices. The petitions sought to quash the impugned orders, direct the respondents to follow principles of natural justice, including granting adequate time and personal hearing, and permit them to submit their replies and documents.

Key Issues

1. Whether the classification of the petitioners' accounts as "Fraud" based solely on forensic audit reports, without providing sufficient opportunity to submit a reply and documents, violates the principles of natural justice, particularly in light of the Supreme Court's ruling in State Bank of India & Ors. v. Rajesh Agarwal & Ors.? (Question of law turning on principles of natural justice and procedural fairness). 2. Whether the decision-making process, involving notices from the Zonal Manager and orders from the Fraud Monitoring Group, was flawed and did not adhere to the prescribed legal procedure, thereby vitiating the impugned orders? (Question of mixed law and fact concerning procedural propriety). Petitioner's Arguments: - Classification as "Fraud" based on forensic audit is impermissible without adhering to natural justice, as per State Bank of India & Ors. v. Rajesh Agarwal & Ors. - The GST Department seized their records, making it impossible to file a proper reply. - The notices were issued by one authority (Zonal Manager, Bank of India) and the order by another (Fraud Monitoring Group), indicating a procedural flaw. - Inadequate opportunity was given to collect documents and file a reply before the impugned order was passed. Respondent's Arguments: - The Supreme Court's judgment in State Bank of India Vs. Amit Iron Private Limited and Ors. clarified that while personal hearing is required, the principles laid down in Rajesh Agarwal have been incorporated into the RBI Master Directions on Fraud Risk Management, 2024. - A minimum of 21 days is required, and 31 days were granted in this case. - Relied on the Bombay High Court judgment in Urvil Akshaya Jani Vs. Punjab National Bank, which stated that the Court, under Article 226, is concerned with the decision-making process, not the merits of the decision, and that if due process is followed for any one ground, the order cannot be assailed. - The petitioners failed to produce a reply, but the respondent argued that the necessary procedure was followed, and the classification was based on forensic audit observations.