HC upholds ‘fraud account’ claims made by bankers

The Telangana High Court upheld the decision of the Union Bank of India and other banks in declaring the accounts of Shree Saraiwwalaa Agrr Refineries Ltd, as fraud as per the master circular of the Reserve Bank of India (RBI).

The consortium led by Andhra Bank (now Union Bank of India), Tamil Nadu Mercantile Bank and others lent `675 crore between 2003 and 2015 to the firm, which was in rice and oil business. It was declared a non-performing asset (NPA) in 2018 by the banks, following which the consortium took steps to recover `617.40 crore owed by the firm.

The firm approached the High Court stating that the decision of consortium to declare it a fraud account was in violation of the principle of natural justice. It contended that the forensic audit report did not make any adverse comments on the business transactions of the firm, and this should be taken into account. The consortium did not do so, the firm said.

Refuting the contentions, the consortium stated that the firm was trying to mislead the court by drawing parallel with declaring a borrower as 'wilful defaulter', which was different from fraud account.

In the case of declaring a borrower a 'wilful defaulter', it is the person/borrower who is declared (not classified) as a wilful defaulter and not the account.

Since such declaration affects the person/borrower, a detailed procedure for the purpose.

However, after finding high level of unusual indications in the forensic audit, which said that the firm had borrowed the loans at a huge level and other issues, the court upheld the decision of the bankers' consortium as it is a fraud account.