Ankit Bhuwalka v. IDBI Bank Limited & Ors

Judgment

(Per Dr Neela Gokhale J.) 1) Rule. Rule made returnable forthwith. With consent of the parties the matter is taken up for final hearing. 2) The Petitioners seek quashing of Show Cause Notice (‘SCN’) dated 5th April 2023 issued by the Respondent No.1-Bank and Order dated 14th September 2023 issued by the Wilful Defaulter Committee of the Bank. He also assails the subsequent Order dated 25th October 2024 passed by the Wilful Defaulter Review Committee (‘WDRC’) and Order dated 13th June 2024 issued by the Wilful Defaulter Committee (‘WDC’). 3) The Petitioner is the erstwhile Director of the company known as Bhuwalka Steel Industries Limited (“BSIL”). Pursuant to a resolution of BSIL, under the Insolvency and Bankruptcy Code, 2016 (‘IBC’), the company came under the control of a new management.

The Petitioner is essentially aggrieved by orders passed by the Respondent No.1 declaring him as Wilful Defaulter on the basis of a Shivgan 2/33 901-WP-12-2025-J-.doc Transaction Audit Report (‘TAR’) prepared by one M/s. G.D. Apte & Co. at the behest of the erstwhile Resolution Professional (‘RP’) of BSIL. His main grievance is that he was deprived of a substantial opportunity of being heard inasmuch as the documents on the basis of which a decision to declare him as Wilful Defaulter was taken, were not provided to him and the TAR relied upon by the Respondent No.1 was held by the NCLT, Bengaluru Bench to be based on surmises and conjectures. 4) The facts of the case reveal that in 2018, a Company Petition (IB) No.

228/BB/2018 was filed by one Indu Corporation Private Limited against BSIL before the NCLT, Bengaluru Bench. The Petition was admitted by the NCLT on 8th April 2019 under the Corporate Insolvency Resolution Process (‘CIRP’) and one Mr. Shivadutta was confirmed as RP. During the course of the CIRP, M/s. G.D. Apte & Co. were appointed as auditors by the RP to carry out the transaction audit/ forensic audit of the BSIL. Based on the findings in the TAR, the RP filed an application before the NCLT alleging that certain fraudulent transactions had taken place in BSIL including certain related party transaction between BSIL and its group company, called Shree Durga Trade Links Private Limited (‘SDTL’). It transpires Shivgan 3/33 901-WP-12-2025-J-.doc from the observation made in the order dated 10th March 2021 passed by the NCLT that the forensic audit report/transaction audit report was based on surmises and conjectures and only assumed that the transactions were fraudulent.

The NCLT observed that the said Report seemed to be based on assumptions which were neither examined nor cross-checked by confronting the parties to the transactions. Placing reliance solely on this report, the Respondent No.1 Bank proceeded to declare the Petitioner as Wilful Defaulter. It is the grievance of the Petitioner that he was not given an opportunity of a meaningful hearing since the documents underlying the TAR were inaccessible to him thereby compelling him to approach this Court by filing the present petition. 5)

Mr. Simil Purohit, learned Senior Counsel appeared for the Petitioner while Mr. Prakash Shinde, learned counsel appeared for the Respondent No.1-Bank. Mr. Mohamedali Chunawala, learned counsel represented the Respondent No.2. We have heard counsels for all the parties and perused the documents with their assistance. 6) Mr. Purohit took us through the correspondence between the parties in detail. He pointed out the show-cause notice dated 5th Shivgan April 2023 issued to him and his brother and co-director, Mr. Ajay under the Master Circular on Wilful Defaulters dated 1st July 2015 issued by the RBI. According to him, the show-cause notice merely reproduced an extract from the TAR, which reflected the opinion of the auditor without any supporting documents. The Petitioner then addressed an e-mail dated 22nd April 2023 to the Respondent No.1 conveying that since BSIL was under a new management, the Petitioner did not have access to previous information and data. He sought time to reply to the SCN. 7) Petitioner again by e-mail dated 25th May 2023 sought more time to respond as the earlier staff and CA of BSIL were not available to provide data to him. The WDC without waiting for his reply to the SCN nor providing a personal hearing, passed an order dated 14th September 2023 declaring the Petitioner and the co- director as ‘Wilful Defaulter’. By e-mail dated 17th October 2023, the Petitioner once again requested the Respondent No.1 to provide him copies of all the documents/materials on the basis of which the SCN was issued to him by the WDC. According to Mr. Purohit, there was no response to the said e-mail. The Petitioner thus, issued a response dated 28th October 2023 to the SCN without the benefit of Shivgan supporting documents. 8) Mr. Purohit submits that the Petitioner sought the supporting documents on multiple occasions, but the Respondent No.1 failed to furnish the same apart from an extract of the TAR provided by e-mail dated 2nd November 2023. The Petitioner, by e- mail dated 20th November 2023 conveyed his objection that the TAR only reflects the opinion of the auditor and does not contain an independent analysis by the Respondents in arriving at the decision to declare the Petitioner as ‘Wilful Defaulter’. He reiterated his request for grant of personal hearing, which was eventually granted on 28th February 2024. This hearing, according to him was not a meaningful representation without access to the supporting documents. The Petitioner tried to get the required information from the erstwhile CA of BSIL namely, Mr. Nilamadhab Mishra, who was also unable to provide the same. 9) Thereafter, the order dated 13th June 2024 was issued by the WDC recording its findings that the Petitioner and his brother have committed wilful default as per RBI’s Master Circular and are fit to be declared as ‘Wilful Defaulters’. The WDC recommended that its Shivgan decision be submitted to WDRC for confirmation. By order dated 25th October 2024, the WDRC confirmed the order of the WDC, which was communicated to the Petitioner on the same day. The Petitioner addressed an e-mail dated 11th November 2024 to the RP seeking access to old documents of the company, however, the RP by e-mail dated 12th November 2024 indicated his inability as the new management had taken over the company and the RP stood discharged. The Petitioner by e-mail dated 27th November 2024 even reached out to the new management seeking inspection of old documents, which went unanswered. 10) Mr. Simil Purohit contended that the orders impugned herein are passed without application of mind and in complete disregard of the principles of natural justice. He says that the Respondent No.1 had an obligation to provide access to the material based on which the Petitioner was declared to be a ‘Wilful Defaulter’. Most importantly, he points to the NCLT order dated 10th March 2021, which held the TAR to be inconclusive. He asserts that the allegations in the SCN were based on documents leading to the TAR. The Respondent No.1 is under a statutory obligation to share the said documents without which the Petitioner cannot be expected to Shivgan meaningfully defend himself. He thus says that the entire action of the Respondent No.1 is in contravention of the RBI’ Master Circular and urges the Court to quash the orders impugned in the Petition. 11) Mr. Purohit placed reliance on the following judgments: (a) Milind Patel v. Union Bank of India & Ors.1 (b) State Bank of India v. Jah Developers Pvt. Ltd. & Ors.2 (c) Kotak Mahindra Bank v. Hindustan National Glass & Ind. Ltd.3 (d) Hindustan National Glass Ind. Ltd. v. Reserve Bank of India4 (e) Vishambhar Saran & Anr. v. CBI & Ors.5 (f) State Bank of India & Ors. v. Rajesh Agarwal & Ors.6 12) Per contra, Mr. Prakash Shinde raised a preliminary 1 2 3 4 5 6