SC Refuses Stay on Telangana HC Judgement on Classification of Fraud as per RBI Circular

IANS 19 April 2021

Economy & Nation

In a setback to State Bank of India (SBI) and the Reserve Bank of India )RBI), the Supreme Court (SC) has refused to stay the judgement dated 10 December 2020 of a division bench of the Telangana High Court, in appeals filed by SBI and RBI.

In the matter of State Bank of India & others vs Rajesh Agarwal & others, the appeals of SBI and RBI were heard by the Supreme Court bench of Justice RF Nariman, Justice BR Gavai and Justice H Roy.

The SC has allowed the parties to file replies and rejoinders and listed the matter on 13 July 2021.

The SC also directed that the minutes / order of the joint lenders' meeting dated 15 February 2019 is not to be acted upon.

This order would be a major relief to other parties who are similarly placed and affected by fraud classification by lenders without the principles of natural justice being followed. As per the RBI circular on fraud classification, lenders are to file the complaint with CBI in the stipulated time. Based on this order, lenders and CBI cannot proceed.

The Telangana High Court had provided following reliefs as per its judgement dated 10 December 2020:

"70.1. 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.

70.2. Secondly, the decision, dated 15.02.2019, passed by the JLF, and the resolution dated 31.07.2019, passed by the FIC are, hereby, set aside.

70.3. Thirdly, the JLF is directed to give an opportunity of hearing by furnishing copies of both the Reports, namely the Forensic Auditor Report, dated 06.04.2018 and the subsequent Report submitted by Dr. K.V. Srinivas, IRP, to the petitioner, and to the OL.

70.4. 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?

70.5. 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?"

In a minor concession to the appellants, the SC stayed the Telangana High Court's observation that a personal hearing be given.

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