Vr Construction Through Its Prpietor Saiyyed Mohabbat Ali vs. Bank Of INDIA

Held

The Court held that the petitioners' accounts were identified as fraud based on observations in a forensic audit, and it could not be said that these observations were merely based on suspicion. The Court found that the respondent authority had appreciated the material available on record before passing the order. The Court noted that while 21 days is the minimum time required as per the Master Circular, the petitioners were granted 31 days, and their contention that they failed to produce a reply because their documents were with the GST Department was not a sufficient ground to interfere. The Court reiterated that a writ petition cannot challenge the decision itself but only the decision-making process. Finding no arbitrariness, impropriety, or illegality in the process followed by the authority, and considering that accounts to the tune of Rs. 43 Crores were identified as fraud, indicating diversion of funds and scrutiny by forensic audit, the Court concluded that the action taken by the respondent authority was not unjust, improper, or against the settled principles of law, including natural justice. Therefore, no interference was called for.

Facts

Three writ petitions were filed before the Madhya Pradesh High Court at Indore. The petitioners, M/s SA Infrastructure, Saiyyed Owais Ali and others, and VR Construction, challenged orders declaring their accounts as "Fraud". The impugned orders were passed by the Fraud Monitoring Group (respondent no. 2) based on notices issued by the Zonal Manager, Bank of India, Ujjain (respondent no. 3). The petitioners argued that the classification of their accounts as fraud, based on forensic audit reports, violated principles of natural justice, as they were not afforded adequate time or opportunity to submit replies and documents, especially since their records were seized by the GST Department. They sought quashing of the impugned orders and directions to follow natural justice principles.

Key Issues

1. Whether the classification of the petitioners' accounts as "Fraud" based solely on forensic audit reports, without providing adequate opportunity to submit a reply and documents, violates the principles of natural justice, particularly in light of the Supreme Court's decision in State Bank of India & Ors. v. Rajesh Agarwal & Ors.? 2. Whether the decision-making process, where the notice was issued by one authority (Zonal Manager) and the order was passed by another (Fraud Monitoring Group), was in consonance with the law and principles of natural justice? Petitioner's arguments: The petitioners contended that the classification of their accounts as fraud based on forensic audit was impermissible. They relied on the Supreme Court judgment in State Bank of India & Ors. v. Rajesh Agarwal & Ors., arguing that principles of natural justice were not followed as they were not given sufficient time to file a reply, especially since their documents were seized by the GST Department. They also argued that the decision-making process was flawed as the notice was issued by one authority and the order by another, without proper opportunity for them to collect documents and file a reply. Respondent's arguments: The respondent Bank opposed the petitions, citing the Supreme Court judgment in State Bank of India Vs. Amit Iron Private Limited and Ors., which clarified the scope of Rajesh Agarwal. They argued that the RBI Master Directions on Fraud Risk Management, 2024, incorporated the principles of natural justice, including the requirement of personal hearing. They contended that the petitioners were granted 31 days, exceeding the minimum 21 days stipulated in the circular, and that the challenge was to the decision itself rather than the decision-making process. They also relied on the Bombay High Court judgment in Urvil Akshaya Jani Vs. Punjab National Bank.