Disposed

Vinod Ramnani v. State Bank of India

Karnataka HC6 Dec 2024WP/10213/2023

Case brief

AI extract

What is this about?

A borrower challenged his loan account's classification as 'Fraudulent' by the bank without prior hearing. Applying SBI v. Rajesh Agarwal, the court held audi alteram partem must be read into the Master Directions on Frauds, found the classification arbitrary, and directed reclassification as non-fraudulent.

What did the court decide?

Respondent directed to reclassify petitioner's account as 'Non-Fraudulent'; liberty given to reclassify as 'Fraudulent' after providing an opportunity for a hearing.

Vinod Ramnani Vs State Bank of India — Banking and Recovery | Karnataka HC (2024)

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NC: 2024:KHC:50483 WP No. 10213 of 2023

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 6^TH DAY OF DECEMBER, 2024

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BEFORE

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THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR

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WRIT PETITION NO. 10213 OF 2023 (GM-RES)

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BETWEEN:

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VINOD RAMNANI S/O LATE PARSARAM RAMNANI AGED ABOUT 67 YEARS PROMOTER, M/S OPTO CIRCUITS (INDIA) LIMITED HAVING OFFICE AT NO.83, ELECTRONIC CITY, BENGALURU-560 100.

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…PETITIONER (BY SRI. KIRAN S. JAVALI, SENIOR COUNSEL FOR SMT. PRIYANKA RAO, ADVOCATE)

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AND:

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Digitally signed by B K MAHENDRAKUMAR Location: HIGH COURT OF KARNATAKA

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STATE BANK OF INDIA STRESSED ASSETS MANAGEMENT BRANCH BENGALURU, REPRESENTED BY ITS MANAGER 2^ND FLOOR, OFFICE COMPLEX BUILDING, LHO CAMPUS, NO.65, ST. MARKS ROAD, BENGALURU-560 001.

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…RESPONDENT (RESPONDENT SERVED - UNREPRESENTED)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DIRECTING THE RESPONDENT TO FURNISH A COPY OF THE RESOLUTION DATED 01/04/2019 AND THE CONSEQUENT FLASH REPORT SUBMITTED BY THE RESPONDENT BANK TO THE RBI AS EVIDENCE IN THE COMPLAINT DATED 02/11/2019 (ANNEXURE-A) AND ETC.

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NC: 2024:KHC:50483 WP No. 10213 of 2023

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR

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ORAL ORDER

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The petitioner is challenging the action of the respondent - Bank in classifying as fraudulent under the fraudulent classification and reporting by Commercial Banks and Select FI's Directions 2016.

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The petitioner is the borrower of loan from the respondent - Bank . The respondent asserting that the petitioners willfully defaulted on the repayment of the loan, classified the petitioner's account as ‘Fraudulent’ on 1.4.2019.

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Sri. Kiran S. Jawali, learned Senior Counsel representing the petitioner, submitted that before classifying the petitioner's loan account as ‘Fraudulent’, respondent was obligated to provide the petitioner's an opportunity to offer an explanation. In this instance, the respondent, without providing an opportunity for a hearing, classified the account as ‘Fraudulent’, which is not legally sustainable. In support, reliance is placed on the decision of the Apex Court in the case of State Bank of India and Others v. Rajesh Agarwal and Others reported in (2023) 6 SCC 1 .

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After carefully examining the submissions of the learned counsel for the parties, the following is noted:

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NC: 2024:KHC:50483 WP No. 10213 of 2023

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" Admittedly, the petitioner is a defaulter, and the loan account has been treated as a ‘non-performing asset’.”

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The contention of respondent is that the loan sanctioned to the petitioner was diverted for purposes of other than those for which it was sanctioned.

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The Apex Court, in the case of SBI v. Rajesh Agarwal, (supra) at paragraph No.2, ruled that the principles of natural justice, particularly the rule of audi alteram partem , must be necessarily read into the Master Directions on Frauds to save them from the vice of arbitrariness. Further, at paragraph No.93, the Court ruled that the classification of a borrower’s account as fraudulent in accordance with the procedure laid down in the Master Directions on Frauds entails significant civil consequences for the borrower. Although the Master Directions on Frauds do not expressly provide an opportunity for the borrower to be heard before classifying an account as fraudulent, the rule of audi alteram partem must be read into the provisions of the said directions to save them from arbitrariness.

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In view of the legal principles established in the aforementioned decision, the classification of the petitioner's loan account as fraudulent is arbitrary, discriminatory, and in violation of the principles of natural justice.

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Accordingly, the petition is disposed of directing the respondent to reclassify the petitioner's account as a ‘Non-

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NC: 2024:KHC:50483 WP No. 10213 of 2023

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Fraudulent Account’. The respondent is granted liberty to reclassify the petitioner's account as ‘Fraudulent’ if permissible, after providing an opportunity for a hearing to the petitioner.

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In view of the disposal of the petition, pending I.As, if any, do not survive for consideration and stand disposed of accordingly.

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Sd/(HEMANT CHANDANGOUDAR) JUDGE

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BKM

Vinod Ramnani v. State Bank of India

Case brief

What is this about?

What did the court decide?

Vinod Ramnani v. State Bank of India

Case brief

What is this about?

What did the court decide?

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