Delhi HC Overturns Ratul Puri Wilful Defaulter Tag
By Rediff Money Desk, NEWDELHI Mar 02, 2024 16:46
Delhi High Court sets aside Bank of Baroda's decision declaring businessman Ratul Puri as a wilful defaulter, ruling that the bank lacked evidence of funds diversion.
New Delhi, Mar 2 (PTI) The Delhi High Court has set aside Bank of Baroda's decision declaring businessman Ratul Puri as a wilful defaulter under Reserve Bank of India (RBI) guidelines.
The court said the forensic audit report did not verify the source of funds invested in the subsidiaries of Moser Baer India Ltd (MBIL), with which Puri was earlier associated, and the bank could not have issued show cause notice to the petitioner for wilful default without verifying the source of funds.
"Unless the funds that were invested were found to be borrowed funds, the respondent- bank did not have jurisdiction to invoke the Master Circular. The very genesis of 'diversion' or 'siphoning of' funds is dependent on the funds being borrowed funds," Justice Purushaindra Kumar Kaurav said in a 92-page judgement passed on February 29.
The court said the reliance placed by the bank on the forensic audit report is clearly misconceived as the report does not record any conclusion regarding diversion or siphoning of funds qua Puri.
The reliance placed by the bank on the forensic audit report to issue show cause notice of wilful default to the petitioner is clearly misplaced, it added.
It further said that the finding of the bank's identification committee, which was also confirmed by the review committee, on the allegation that MBIL has made substantial investment in subsidiaries and related entities amounting to Rs 1586.75 crore as on December 31, 2013, to the extent that it holds that the investments by MBIL in its subsidiaries amounted to 'diversion' and 'siphoning of' funds within the meaning of the RBI's Master Circular on Wilful Defaulters, 2015 is unsustainable.
The high court's order came while allowing a petition by Puri challenging the validity of an order of March 23, 2023 passed by the review committee of the Bank of Baroda by which the decision declaring the petitioner as wilful defaulter under the master circular was confirmed.
The plea said that the petitioner was the chairman of Hindustan Power Projects Pvt Ltd and the company has availed loan facilities amounting to thousands of crores and that there has never been any default in servicing the debt since inception.
However, it is alleged that the bank sought to declare him as a wilful defaulter with respect to his association in MBIL, depriving him from availing credit facilities for his present and prospective business enterprises.
In separate judgments, the court also set aside Punjab National Bank's decision to declare Ratul Puri and his mother Nita Puri as wilful defaulters.
The high court said it was incumbent upon banks which are dealing with public funds and discharging a public duty to make appropriate enquiries as to whether a borrower is in genuine financial difficulty or whether there exists any event of fraud and malfeasance.
"If the lender banks find fraud or malfeasance, the CDR-EG (Corporate Debt Restructuring-Empowered Group) must either refuse CDR completely or impose such additional onerous conditions as provided in the CDR scheme itself," it said.
The court said in this case, the lender banks were aware of the investments made by MBIL in its subsidiaries and this fact was part of the documents leading to finalisation of the CDR scheme.
"The investments were treated as strategic with growth potential and expected profits. The investments were found to have been made from the cash surpluses of MBIL. The lender banks did not find these investments as diversion or siphoning of borrowed funds. The lender banks placed MBIL in Class-B of CDR Master Circular which cannot be assigned if there is diversion of funds.
"The lender banks, therefore, never treated the investments in subsidiaries as an act of diversion or siphoning either during finalisation of the CDR scheme or after its failure," the court said.
It said, "the reasons assigned in the impugned order dated March 23, 2023 passed by the review committee confirming the petitioner as wilful defaulter under the Master Circular are unsustainable and therefore, the impugned order is accordingly quashed and set aside. The petition is allowed".
The court said the forensic audit report did not verify the source of funds invested in the subsidiaries of Moser Baer India Ltd (MBIL), with which Puri was earlier associated, and the bank could not have issued show cause notice to the petitioner for wilful default without verifying the source of funds.
"Unless the funds that were invested were found to be borrowed funds, the respondent- bank did not have jurisdiction to invoke the Master Circular. The very genesis of 'diversion' or 'siphoning of' funds is dependent on the funds being borrowed funds," Justice Purushaindra Kumar Kaurav said in a 92-page judgement passed on February 29.
The court said the reliance placed by the bank on the forensic audit report is clearly misconceived as the report does not record any conclusion regarding diversion or siphoning of funds qua Puri.
The reliance placed by the bank on the forensic audit report to issue show cause notice of wilful default to the petitioner is clearly misplaced, it added.
It further said that the finding of the bank's identification committee, which was also confirmed by the review committee, on the allegation that MBIL has made substantial investment in subsidiaries and related entities amounting to Rs 1586.75 crore as on December 31, 2013, to the extent that it holds that the investments by MBIL in its subsidiaries amounted to 'diversion' and 'siphoning of' funds within the meaning of the RBI's Master Circular on Wilful Defaulters, 2015 is unsustainable.
The high court's order came while allowing a petition by Puri challenging the validity of an order of March 23, 2023 passed by the review committee of the Bank of Baroda by which the decision declaring the petitioner as wilful defaulter under the master circular was confirmed.
The plea said that the petitioner was the chairman of Hindustan Power Projects Pvt Ltd and the company has availed loan facilities amounting to thousands of crores and that there has never been any default in servicing the debt since inception.
However, it is alleged that the bank sought to declare him as a wilful defaulter with respect to his association in MBIL, depriving him from availing credit facilities for his present and prospective business enterprises.
In separate judgments, the court also set aside Punjab National Bank's decision to declare Ratul Puri and his mother Nita Puri as wilful defaulters.
The high court said it was incumbent upon banks which are dealing with public funds and discharging a public duty to make appropriate enquiries as to whether a borrower is in genuine financial difficulty or whether there exists any event of fraud and malfeasance.
"If the lender banks find fraud or malfeasance, the CDR-EG (Corporate Debt Restructuring-Empowered Group) must either refuse CDR completely or impose such additional onerous conditions as provided in the CDR scheme itself," it said.
The court said in this case, the lender banks were aware of the investments made by MBIL in its subsidiaries and this fact was part of the documents leading to finalisation of the CDR scheme.
"The investments were treated as strategic with growth potential and expected profits. The investments were found to have been made from the cash surpluses of MBIL. The lender banks did not find these investments as diversion or siphoning of borrowed funds. The lender banks placed MBIL in Class-B of CDR Master Circular which cannot be assigned if there is diversion of funds.
"The lender banks, therefore, never treated the investments in subsidiaries as an act of diversion or siphoning either during finalisation of the CDR scheme or after its failure," the court said.
It said, "the reasons assigned in the impugned order dated March 23, 2023 passed by the review committee confirming the petitioner as wilful defaulter under the Master Circular are unsustainable and therefore, the impugned order is accordingly quashed and set aside. The petition is allowed".
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