Telangana High Court quashes FIC’s resolution declaring former Chairman and MD, as ‘fraud’ and ‘willful defaulter’ [Read Order]

Telangana High Court - FIC - resolution declaring - Managing Director - fraud - willful defaulter - Taxscan

The Telangana High Court quashed the Fraud Identification Committee (FIC) resolution declaring former Chairman and Managing Director, as ‘fraud’ and ‘willful defaulter’.

The petitioner, Mr. Rajesh Agarwal was aggrieved by the non-inclusion of principles of natural justice in the Master Directions on Fraud, dated July 1, 2016, issued under Section 35-A of the Banking Regulation Act, 1949 by the Reserve Bank of India, aggrieved by the decision of the Joint Lenders Forum (JLF) dated February 15, 2019, and aggrieved by the resolution of the Fraud Identification Committee (FIC), whereby both the JLF and the FIC have classified the account of M/s. B. S. Limited,, of which the petitioner was the former Chairman and Managing Director, as ‘fraud’ and ‘willful defaulter’, the petitioner, Mr. Rajesh Agarwal, has approached this Court.

The division judge bench headed by the Chief Justice Ragvendra Singh Chauhan and Justice B. Vijay Sen Reddy noted that neither the borrower Company, nor the petitioner, nor any other Director was given a chance to explain, or to challenge the finding of the said Report.

The court held that the decision taken by FIC is again based on a piece of evidence, which was never brought to the notice of the borrower Company, or to the notice of the petitioner. Therefore, a vital requirement of the audi alteram partem is conspicuously missing. Therefore, the resolution of the FIC is legally unsustainable.

The court while allowing the petition issued various directions.

Firstly, the principle of audi alteram partem, part of the principles of natural justice, is to be read in Clause 8.9.4 and 8.9.5 of the Master Circular.

Secondly, the decision passed by the JLF, and the resolution passed by the FIC were set aside.

Thirdly, the JLF is directed to give an opportunity of hearing by furnishing copies of both the Reports, namely the Forensic Auditor Report and the subsequent Report submitted by Dr. K.V. Srinivas, IRP, to the petitioner, and to the OL.

Fourthly, the JLF is directed to give an opportunity of personal hearing both to the petitioner and to the OL before taking any decision on the issue whether the account should be classified as ‘fraud’ or not.

Fifthly, after the JLF has taken its decision, the FIC is directed to pass its resolution whether the decision of the JLF should be confirmed or not?

Lastly, the said exercise shall be carried out by the JLF within a period of three months from the date of receipt of the certified copy of this judgment. Furthermore, the subsequent exercise by FIC shall be carried out within two months from the date of the decision of the JLF.

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