Delhi High Court: In a petition seeking to quash and set aside the Show Cause Notices (‘SCNs’) issued by the respondent banks for declaring the account of Educomp Solution Limited as ‘Fraud’, a Single Judge Bench of Mini Pushkarna, J*., directed the State Bank of India (‘SBI’) to provide all documents necessary for the petitioner to provide an efficient reply to the SCNs, among other directions and disposed of the petition.
Background
Through this petition, four SCNs were challenged — SCN dated 13-11-2023 issued by SBI (respondent no. 1); SCN dated 13-10-2023 issued by Canara Bank (respondent no. 2); SCN dated 28-12-2023 issued by Central Bank of India (respondent no. 3); and SCN dated 02-09-2023 issued by ICICI Bank Limited (respondent no. 4). Subsequently, an application was filed to challenge the SCN dated 12-01-2024 issued by Union Bank of India (respondent no. 5), and SCN dated 08-02-2024 issued by IDBI Bank.
The petitioner was an ex-director and guarantor of a company that had availed various credit facilities from the consortium of banks, of which all the respondents were members and SBI was the lead bank. The company was admitted into the Corporate Insolvency Resolution Process (‘CIRP’) under the provisions of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) vide order dated 30-05-2017 passed by the National Company Law Tribunal (‘NCLT’).
Once the company was admitted to CIRP, the Board of Directors was suspended, and a Resolution Professional took over the management of the company under the norms of IBC. The petitioner thus stated that the Resolution Professional, under the control of the Committee of Creditors, took custody of all the documents of the company under Section 17 of IBC. All the books of accounts and statutory records of the company were with the Resolution Professional, which the petitioner could not access.
The petitioner contended that since all documents were under the control of the Resolution Professional, the petitioner did not have information related to the banking transactions, bank loans, and other relevant documents and hence, the SCNs were bad in law and liable to be quashed. The petitioner also wrote several letters to the respondents, seeking the relevant documents so that submissions could be made regarding the account of the company being declared as fraud. However, no response was made by the respondents.
Analysis and Decision
The Court noted that through the SCNs, various allegations were made regarding non-compliance with the agreed terms of the loan documents by the company and various irregularities in the loan account which led to suspicion of fraudulent activities in the account.
As a result, the Court earlier directed the petitioner to approach the respective banks with a list of documents that were required to submit a comprehensive reply to the SCNs. The Court noted that the petitioner mentioned that complete documents were not provided.
The Court stated that it was settled law that as per fair procedure and the Principles of Natural Justice, requisite documents based on which the SCN has been issued, must be provided to the concerned party so that a proper reply can be submitted.
While referring to Natwar Singh v. Director of Enforcement, (2010) 13 SCC 255 and T. Takano v. Securities and Exchange Board of India, (2022) 8 SCC 162, the Court stated that if the relevant documents are not provided to a party, then, the whole procedure of the issuance of a SCN would be reduced to an empty formality since no party can be expected to respond to a SCN effectively in the absence of underlying documents.
The Court stated that the fundamental right of a party cannot be taken away by denying a proper opportunity to submit an efficacious reply which would not be feasible in the absence of requisite documents that form the core foundation of a SCN.
While disposing of the petition, the Court passed the following directions:
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The petitioner or authorized representative shall be allowed inspection of the company records available with SBI.
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The petitioner or the authorized representative shall be allowed inspection of the records of the company that was available with the Resolution Professional.
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The specific documents that are stated by the petitioner shall be provided upon inspection of the records of the company.
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The cost of providing copies of relevant documents shall be borne by the petitioner.
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The process of inspection and stating the specific documents shall be completed by the petitioner within ten days, and the process of providing the relevant documents to the petitioner shall be completed within a week, thereafter.
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Upon receipt of documents from SBI and the Resolution Professional, the petitioner shall file a reply to the SCNs within a week, thereafter.
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The petitioner will be at liberty to request a personal hearing of the respective banks, which may be accordingly considered by the banks.
[Shantanu Prakash v. State Bank of India, 2024 SCC OnLine Del 3870, decided on 22-05-2024]
Advocates who appeared in this case :
For Petitioner — Sr. Advocate Amit Sibal, Advocate Neeha Nagpal, Advocate Malak Bhatt, Advocate Vishvendra Tomar, Advocate Aditi Srivastava, Advocate Darpan Sachdeva, Advocate Ankur Vyas
For Respondents — Advocate Sanjay Kapur, Advocate Surya Prakash, Advocate Devesh Dubey, Advocate Isha Virmani, Advocate Manisha Singh, Advocate George Pothan Poothicote, Advocate Ashu Pathak, Advocate Shubham Kumar Deo, Advocate Jyoti Singh, Advocate Brijesh Kumar Tambea, Advocate Yashu Rustogi, Senior Counsel Santosh Kumar Rout, Advocate Dharna Veragi, Advocate V.P. Singh, Advocate Akshat Singh, Advocate Dacchita Shahi, Advocate Bhanu Gupta, Advocate Utkarsh Kandpal, Advocate Rajat Shah, Advocate Chetna Bhalla
