The Bank is required to disclose the documents and evidence which the Identification Committee has relied upon to arrive at the decision to issue the show-cause notice. The disclosure must be such as to enable the noticee to appreciate the scope of the allegations made against it and, if the allegations are based upon documents which the Bank states are already in the possession of the noticee, such as its own accounts, to identify the transactions upon which the Bank seeks to rely. This was held in SHANTANU PRAKASH v.UNION BANK OF INDIA & ORS. [W.P.(C) 5309/2021 & W.P.(C) 5313/2021] in the High Court of Delhi by a single bench consisting of JUSTICE PRATEEK JALAN.
Facts are that the petitioners were promoter-directors of M/s Educomp Solutions Ltd. a borrower of the Bank, and guarantors of loans taken by the Company from the Bank. CIRP commenced against the Company and is pending before the NCLT. The Bank issued show-cause notice to the Company and contemplated declaration of the noticees as wilful defaulters The Identification Committee, in the absence of the petitioners, and passed an order and classified the petitioners as ‘wilful defaulters”.
The Counsel for the petitioners submitted that the procedure adopted by the Bank in the present case was in violation of the principles of natural justice and the provisions of the Master Circular. The documents referred to in the impugned show cause notice were not supplied to the petitioners, despite their requests.
The counsel on behalf of the respondent submitted that the documents referred to in the show cause notice are principally the accounts of the Company itself to which the petitioners had access. There was no occasion to supply the same documents to the petitioners again. Bank was not undertaking judicial or quasi-judicial proceedings thus adherence to the principles of natural justice would not be required.
The court made reference to the judgment delivered by the division bench of Delhi High court in Aap Infrastructures Ltd. Vs. Bank of Baroda and Anr, wherein it had been observed that “Secondly, it is clear that both the Committees have neither considered nor dealt with the stand taken by the petitioner in its reply to the show-cause notice. The said Committees or at least the Review Committee was required to refer to the reply and dealt with the same while rejecting the reply of the petitioner to the show cause notice. This would have been in compliance of principles of natural justice as reasons would indicate, application of mind, that too what were the relevant considerations for the authorities to reject the reply of the petitioner to the show cause notice”.
The court also relied on the judgment delivered by the Apex court in Natwar Singh vs. Director of Enforcement and observed that “the Court had also reiterated the flexible approach to be adopted while considering claims of violation of natural justice. Upon consideration of the applicable statutory and regulatory scheme, the Court held that the petitioner therein was entitled to the documents relied upon by the authority, but not to other documents in its possession.”
Considering the facts of the petition and the precedents the court held that the at the very least, the transactions based upon which the Bank had arrived at its conclusion must be identifiable from the disclosure. The orders passed by the Committees referred to the representations made by the petitioners but did not record any reasons, as the Committee’s conclusions cannot be a substitute for an expression of reasons and thus are set aside.