Neutral Citation No.

- 2023:AHC:234816-DB
Reserved on 21.11.2023
Delivered on 12.12.2023
Court No. - 40

Case :- WRIT - C No. - 26869 of 2023

Petitioner :- M/S Simbhaoli Sugars Limited
Respondent :- State Bank Of India And 7 Others
Counsel for Petitioner :- Rohan Gupta
Counsel for Respondent :- Satish Chaturvedi,Anadi Krishna
Narayana,Ashok Shankar Bhatnagar,Manish Trivedi,Nishant Mehrotra,R.V.
Pandey,Ramesh Kumar Shukla,Yashwant Singh

Hon'ble Mahesh Chandra Tripathi,J.

Hon'ble Prashant Kumar,J.
1. Heard Shri Rohan Gupta, learned counsel for the petitioner, Shri
Anurag Khanna, learned Senior Advocate assisted by Shri Sandeep Arora,
learned counsel for the State Bank of India, Shri Ashok Shankar Bhatnagar,
learned counsel for Punjab National Bank and Oriental Bank of Commerce,
Shri R.V. Pandey, learned counsel for the Bank of India, Shri Yashwant
Singh, learned counsel for the UCO Bank, Sri Manish Trivedi, learned
counsel for the ICICI Bank, Sri Abhinav Mehrotra, learned counsel for
Bank of Baroda and Shri Nishant Mehrotra, learned counsel appearing for
one of the Directors and Shri Ravindra Singh, learned counsel for
Intervening Applicants (Cane Co-operative Societies).

2. This is a shocking case of clear connivance of unscrupulous

businessman and banks, wherein the bank officials have knowingly allowed
the petitioner to syphon away almost Rs.1300/- crores of the public money.
Here the banks had advanced hundreds crores of rupees to the petitioner
company knowing the fact that they have already defaulted with the loans
taken by other banks previously and been declared N.P.A., still the banks
went ahead and approved loans running into several hundred crores and the
entire loan was disbursed without following the mandatory steps/procedures,
which banks are supposed to take before disbursing the loan.

3. After the default of the petitioner in paying back the loan of the first
bank, the bank instead of proceeding to recover this amount, gave a long
rope to the petitioner to take loan from the second bank. This second bank
also very easily without following the mandatory steps grants a loan without
any adequate security, which was never paid back by the petitioner.
Thereafter, the petitioner moves on to the third bank for another loan and
this bank also grants a loan without any due diligence, and without
following the norms and guidelines of Reserve Bank of India for loans to
the company, and without even adequate security or additional security and
without doing any regulatory compliances this bank again disburses a huge
loan and further, do not carry out the post disbursement supervision and lets
the petitioner to syphon away the entire amount.

4. The petitioner adopted the same modus operandi again and again with
7 banks and surprisingly, rather shockingly, all the seven banks had extended
loan facilities to the petitioner without any due diligence, credit approval,
risk report appraisal and without following the RBI guidelines to advance
loans to the companies and also without adequate security and in few of the
cases a personal guarantee was given by the promoters to many banks.

5. Shockingly, the banks, even after declaring the petitioner’s account as

NPA has not taken any effective steps to recover the amount. In fact it will
not be wrong to say that no sincere effort had been taken by the banks and
all the efforts shown to have been taken was nothing but just an eyewash.

6. The facts of the instant petition are that the petitioner company has a
Sugar Mill in Simbhaoli, District Ghaziabad. This Mill has two other units.
The petitioner herein, in the course of the business, had been taking loans
from the banks. The issue started sometimes in the year 2003 where the
company started defaulting in payment of the loan taken by the banks. In
fact, the company had entered into an agreement for debt restructuring way
back in the year 2007 with State Bank of India. It seems that they have not
honoured the terms of restructuring and, hence, the bank again in the year
2012 had to carry out another debt restructuring.

7. The petitioner company had been borrowing money from various

banks and chose not to pay them back. As per the affidavits filed by the
banks, the Company was declared NPA as on 31.03.2013. Once a Company

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is declared NPA as per the “Prudential Norms of Income Recognition”
issued by the RBI no other bank would grant any kind of loan to such
companies. Inspite of this, shockingly, the petitioners had been getting
hundreds of crores of loans from various banks without even giving
adequate security. Later, the banks came in as a consortium and wanted to
settle the same through a Joint Lenders Meeting as a huge hair cut. The bank
also started proceeding against the petitioner company in NCLT, Allahabad.

8. Before this Court, the instant petition has been filed by the petitioner-
Company seeking quashing of communication dated 26.07.2023 issued by
the State Bank of India, wherein, the settlement offer of the petitioner was
rejected and the bank had communicated that they will proceed to take legal
action against the company.

9. The reliefs sought in the instant writ petition is extracted below:-

“(a) Issue an appropriate writ, order or direction in the nature of certiorari

quashing the impugned communication dated 26.07.2023 sent by the
respondent no.1, State Bank of India.
(b) Issue an appropriate writ, order or direction in the nature of mandamus
directing the respondent no.1, State Bank of India to convene a meeting of
the Joint Lenders’ Forum forthwith, in order to finalize the Settlement
Proceedings, in accordance with the provisions of the RBI Circular dated
07.06.2019.
(c) Issue a writ, order or direction in the nature of certiorari quashing the
impugned proceedings registered as CP (IB) No.66/ALD/2022, State Bank
of India v. M/S Simbhaoli Sugars Ltd., under Section 7 of the Insolvency
and Bankruptcy Code, 2016, pending before the National Company Law
Tribunal, Allahabad.”
10. The matter was taken up on 10.08.2023 on which this Court has
passed the following order:-
“1. The counsel for the petitioner mentioned the matter to be taken up on
the ground of urgency as the matter was listed today before the National
Company Lat Tribunal, Allahabad (in short "NCLT') and the petitioner
apprehended that IRP might be appointed.
2. Heard Sri Manish Goyal, learned Senior Advocate along with Sri Rohan
Gupta, learned counsel for the petitioner, Sri Anurag Khanna, learned
Senior Advocate along with Sri Sandeep Arora, learned counsel for
respondent no.1, Sri Ashok Shankar Bhatnagar, learned counsel for
respondent no.2, Sri Anil Kumar Pandey, learned counsel for respondent
no.5 and Sri Manish Trivedi, learned counsel for respondent no.6.

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 3. In this writ petition the petitioner has prayed for a direction in the nature
of mandamus directing the respondent no.1, State Bank of India to convene
a meeting of the Joint Lender's Forum in order to finalize the settlement
proceedings.
4. Learned Counsel appearing on behalf of the respondent-Banks stated
that the proposal given by the petitioner had already been rejected. The
petitioner does not seem to be serious and no concrete proposal has been
given by them. They are only trying to buy time to avoid insolvency
proceedings. It is further submitted that if the petitioners are serious they
should give a firm offer along with some upfront money to prove their
bonafide. Unless the petitioner shows its bonafide there is no question of
holding the meeting of Joint Lender's Forum.
5. Mr. Goyal, Senior Advocate submitted that the petitioner is ready to
deposit a sum of Rs.10 crores by 17th of August, 2023 and another Rs.10
crores by 24th of August, 2023 and will also give a concrete proposal by
17th of August, 2023 to the banks. He submits that once he deposits the
amount, the bank should simultaneously proceed for holding the meeting of
Joint Lender's Forum for which the counsel appearing for the banks have
no objection. He submitted that the amount so deposited may be kept in No
Lien Account.
6. Mr. Khanna, Senior Advocate appearing on behalf of the lead Bank i.e.
State Bank of India suggested that the proposal of the petitioner should be
better than the earlier proposal given to the bank.
7. He further submits that after depositing the money, the meeting of Joint
Lender's Forum would be convened immediately.
8. Learned counsel for the State Bank of India, however, apprised the
Court that the matter listed before NCLT, Allahabad has been adjourned to
4th September, 2023.
9. On this counsel for the petitioner requested that this matter may be listed
before the next date fixed in the NCLT, Allahabad.
10. Accordingly, on the request of counsel for the parties the matter is
directed to be listed on 29.08.2023 as fresh.”

11. Thereafter, the matter was again taken up on 19.09.2023 where this
Court has passed the following order:-
“1. The instant writ petition has been filed by the petitioner-Company
seeking quashing of the communication dated 26.07.2003 sent by the State
Bank of India, wherein, the State Bank of India had rejected the offers of
the settlement of the petitioner-Company and communicated that they will
proceed to take legal action against the Company.
2. Following the communication, the State Bank of India had filed for
Insolvency under Section 7 of the Insolvency and Banking Code before the
National Company Law Tribunal, Allahabad (hereinafter referred to as ‘NCLT’).
It was at that point of time the petitioner had filed the instant writ petition praying
for quashing of the communication dated 26.07.2023 sent by State Bank of India
and sought a mandamus directing the State Bank of India to convene a Joint
Lender’s Forum to finalize the settlement proceedings given by the Company, and
further sought direction to quash the abovementioned Insolvency Proceedings.

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3. The matter was listed before the NCLT, Allahabad on 10.08.2023 and on the
same day, Mr. Manish Goyal, learned Senior Advocate mentioned, and the matter
was taken up before this Court on 10.08.2023. After hearing both the parties a
detailed order was passed. The relevant paragraphs of the order dated 10.08.2023
are quoted hereunder:-
“4. Learned Counsel appearing on behalf of the respondent-Banks stated
that the proposal given by the petitioner had already been rejected. The
petitioner does not seem to be serious and no concrete proposal has been
given by them. They are only trying to buy time to avoid insolvency
proceedings. It is further submitted that if the petitioners are serious they
should give a firm offer along with some upfront money to prove their
bonafide. Unless the petitioner shows its bonafide there is no question of
holding the meeting of Joint Lender's Forum.
5. Mr. Goyal, Senior Advocate submitted that the petitioner is ready to
deposit a sum of Rs.10 crores by 17th of August, 2023 and another Rs.10
crores by 24th of August, 2023 and will also give a concrete proposal by
17th of August, 2023 to the banks. He submits that once he deposits the
amount, the bank should simultaneously proceed for holding the meeting
of Joint Lender's Forum for which the counsel appearing for the banks
have no objection. He submitted that the amount so deposited may be kept
in No Lien Account.
6. Mr. Khanna, Senior Advocate appearing on behalf of the lead Bank i.e.
State Bank of India suggested that the proposal of the petitioner should be
better than the earlier proposal given to the bank.
7. He further submits that after depositing the money, the meeting of Joint
Lender's Forum would be convened immediately.
8. Learned counsel for the State Bank of India, however, apprised the
Court that the matter listed before NCLT, Allahabad has been adjourned to
4th September, 2023.
9. On this counsel for the petitioner requested that this matter may be
listed before the next date fixed in the NCLT, Allahabad.”
4. On the basis of the order dated 10.08.2023 proceedings before the NCLT,
Allahabad were adjourned. The Bank had objected saying that the petitioner is not
serious and had not given a concrete offer, they were only trying to buy time to
avoid Insolvency Proceedings. On this Senior Advocate, Mr. Goyal appearing for
the petitioner agreed to pay Rs.20 crores (Rs.10 crores by 17.08.2023 and another
10 crores by 24.08.2023).
5. Mr. Khanna has very fairly stated that if the petitioner-Company pays the
money and given the concrete proposal better then the earlier propsal, they will
call for the Joint Lender's Forum and convene a meeting. He also apprised that the
matter pending before the NCLT, Allahabad had been adjourned.
6. On the next date of hearing, the matter stood adjourned but the petitioner chose
not to honour the commitment given in the Court.
7. The matter is taken up today and the counsel for the respondent-Bank, Mr.
Anurag Khanna, Senior Advocate pointed out that the petitioner has flouted the
terms of the order dated 10.08.2023 and chose not to deposit second tranche of
Rs.10 crores, which was to be deposited by 24.08.2023. If the petitioner had any
difficulty they ought to have moved an application for modification immediately.
8. On being confronted, the counsel for the petitioner filed an application for
exemption to pay Rs.10 crores. Having availed the benefits of the order for more
than a month, and keeping the Insolvency Proceedings at bay. It was not open for
the petitioner to move an application for exemption to pay Rs.10 crores.

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9. During the course of argument, the counsel for the Bank pointed out that as per
the petitioner-Company, the total outstanding towards all the banks are around
Rs.1436 crores. They have misused the orders of this Court by giving an
undertaking to pay the amount and postponing the Insolvency Proceedings before
the NCLT, Allahabad and at the same time chose not to honour the undertaking
given in the Court. The petitioner has committed a wilful default and the act of
the petitioner is contemptuous in nature.
10. The Hon’ble Supreme Court in the matter of Balwantbhai Somabhai Bhandari
Vs. Hiralal Somabhai Contractor (Deceased) Rep. by Lrs. & Ors. (Civil Appeal
No.4955 of 2022) has held that wilful breach of an assurance in the form of
undertaking given by a counsel/ advocate on behalf of his client to the court
would amount to “civil contempt” as defined under Section 2(b) of the Act 1971.
11. In view of directions issued by Hon’ble Supreme Court, we find that the
conduct of the petitioner is contemptuous in nature and is prejudicial and has
harmed the banks, who had abided by the orders, and has kept the Insolvency
Proceedings in abeyance.
12. The Court requested the counsel for the petitioner, Mr. Rohan Gupta to
give the names of the Directors of the Company during the course of the hearing.
Mr. Rohan Gupta had given the following names and addresses of the Directors of
the company:-
S. Name Designation Present/Permanent
No
Address
1. Mr. Gurmit Singh Mann s/ Chairman C-176, Defence
o Late Sardar Gurprit Colony,New Delhi-
Singh Mann 110024
2. Ms. Gursimran Kaur Mann Managing Director C-176, Defence Colony,
w/o Mr. Anirudh Suri New Delhi-110024
3. Mr. Gurpal Singh s/o Late Director 12, Tilak Marg, New
Sardar Pritam Singh Delhi-110001
Sandhu
4. Mr. S.N. Mishra s/o Late Director, Chief WZ-401, HRC
Kedar Nath Misra Operating Officer Professional Hub, ½
Vaibhav Khan,
Indirapuram, Ghaziabad,
UP-14

13. Hence, we have no other option except to issue notice to the Chairman,
Managing Director, Director, Director (Chief Operating Officer), who are
incharge of the affairs of the company and on whose behalf an undertaking was
given in the Court. Before formally impleading the Chairman, Managing Director,
Director & Director (Chief Operating Officer) of the company as necessary
parties in the present proceeding and before referring the matter to the competent
contempt court for initiation of the contempt proceeding against them, the
response is necessary from the aforesaid Directors of the company.
14. We direct the Director Nos.1 to 4, who are Chairman, Managing Director,
Chief Operating Officer to file the response as to why the contempt proceedings
may not be initiated against them.
15. Respondent Nos.1 to 7 are represented by their Counsel so no formal notice
is necessary. However, issue notice to respondent no.8 returnable at an early date
for which steps may be taken within three days.
16. The respondent-Banks are also directed to file detailed affidavits.

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 17. List the matter on 27.09.2023 as fresh.”

12. Mr. Anurag Khanna, learned Senior Advocate, appearing on behalf of

the State Bank, of India submitted that the total outstanding of the bank as
on date would be around Rs.900 crores towards principal and another Rs.400
crores towards interest. The total outstanding against the company is around
Rs.1300 crores. However, the banks are ready to take a hair cut of an
amount, which is 70 to 75% of the total outstanding, and are ready to settle
with the petitioner somewhere around Rs.400 crores and as per the bank the
current valuation of the assets of the company is far less than the loan given
by the bank.

13. Astoundingly, the petitioner company had not only syphoned the
money from the banks but have also not paid the cane dues to the farmers,
who had supplied the sugar cane to the petitioner-Company. It was brought
to the notice of this Court that even today almost Rs.279 crores are
outstanding, which is for the last crushing season i.e. 2022-23, which has not
been paid and surprisingly the petitioner is allowed by the Cane
Commissioner, U.P., to continue to take more cane from the farmers, without
making the last years payment for the cane dues.

14. Mr. Anurag Khanna, learned Senior Counsel appearing on behalf of

the State Bank of India submitted that the writ petition has almost become
infructuous as during the pendency of this petition the consortium of the
banks had a Joint Lenders Meeting and the proposal given by the petitioner
company has been rejected. Moreover, the other prayer for quashing the
proceeding before the NCLT cannot be granted and, hence, the instant
petition may be dismissed as nothing survives in the petition.

15. The petitioner has just not defrauded the banks but has also taken the
cane growers for a ride in not paying them the cane dues and still continue to
take sugar cane from them. The petitioner has also mislead this Court by
giving an undertaking to pay Rs.20 crores and did not pay the same and
enjoyed the interim protection for three months. The entire endeavour of the

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petitioner company was just to buy time and not to pay back the loan
amount.

16. This Court had an opportunity to peruse the affidavits filed by the
banks and realized that there is a clear connivance whereby 1300 crores
principal plus interest of the public money has been given away by the banks
to the petitioner company. Normally, this Court would not venture to
enhance the scope of the writ petition but in this case since fraud has been
played by the petitioner in connivance with the banks, which is writ large
and contrary to the interest of general public and also the gullible farmers, in
case, we just dismiss the petition as infructuous then we will be failing in
our duty by letting the petitioners (in connivance of the respondents) palm
off 1300 crores of the public money. There is a larger public interest
involved, and apparently an unfair advantage was given to the petitioner.

17. The Hon’ble Supreme Court in the matter of Shangrila Food Products
Limited and another Vs. Life Insurance Corporation of India and another 1
has held that the High Court in exercise of its jurisdiction under Article 226
of the Constitution can take cognizance of the entire facts and circumstances
of the case and pass appropriate orders to give the parties complete and
substantial justice. This jurisdiction of the High Court, being extraordinary,
is normally exercisable keeping in mind the principles of equity. One of the
ends of the equity is to promote honesty and fair play. If there be any unfair
advantage gained by a party priorily, before invoking the jurisdiction of the
High Court, the court can take into account the unfair advantage gained and
can require the party to shed the unfair gain before granting relief.

18. Further, the Hon’ble Supreme Court in the matter if City Industrial
Development Corporation Vs. Dosu Aardeshir Bhiwandiwala and others2 has
held that the Court in appropriate cases in its discretion may direct the State
or its instrumentalities as the case may be to file proper affidavits placing all
the relevant facts truly and accurately for the consideration of the Court and

1(1996) 5 SCC 54

2 (2009) 1 SCC 168

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particularly in cases where public revenue and public interest are involved.
Such directions are always required to be complied with by the State.

19. In the light of the aforesaid judgements, this Court is duty bound to
take into account the apparent unfair advantage gained by the petitioner with
the connivance of respondent banks and would not allow such a fraud to
perpetuate on the people.

20. Apparently, the loan disbursement method adopted by the bank looked
quite unnatural and what was more shocking was the conduct of the bank in
recovering the money. On the last date of hearing we had asked the banks to
give details as to what method had they adopted for valuing the company
before the loans were approved. Who were the members of the
credit/management committee of the banks, who had approved the loan.
How could the bank advance loans when the company had already
defaulted/defaulting with the payment of loans with other banks. After the
disbursement of loan when was the first default, and what action was
undertaken by the bank to recover the said amount. What were the collateral
security/personal guarantees taken by the bank and why no action was taken
in time to recover the said amount. Were the loans approved and disbursed
as per the RBI circulars.

21. In response to the quarries, of this court, shockingly all the banks have
chosen not to divulge most of the information sought by the Court, only a
part of the information was put in the affidavit. The contents of the affidavits
are absolutely surprising.

22. Now we will deal with the contentions of the affidavits filed by the
individual banks.

First Bank - State Bank of India

23. As per the affidavit of State Bank of India, the petitioner-company has
been banking with it since 1933. Sometime in the year 2002 the petitioner-
company had defaulted in making the payment, hence:-
(i) The bank had for the first time restructured the loan in the year 2003.

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(ii) After the restructuring, the petitioner-company once again defaulted in
servicing the loan. The bank for the second time had to again restructure the
loan in the year 2007. After 2007, when the credit account of the petitioner
had again become irregular and the interest as required was not being
serviced, the account was referred to “Corporate Debt Restructuring Forum”
a non-statutory voluntary mechanism set up by the Reserve Bank of India (in
short “RBI”) for efficient restructuring of debt.
(iii) A meeting of the CDR group was held on 26.02.2012 and again the
debt was restructured for the third time in 2012.

(iv) This restructuring was not followed, so the fourth restructuring was
carried out in the month of July, 2015. As per the State Bank of India the
valuation of the company in 2016 was Rs.930.83 crores (fixed asset 901.63
plus current asset 29.20). As per the State Bank of India the debt service
coverage ratio of the company in the year 2011-12 was 1.26 and the
collateral given by the company was only Rs.7.44 crores, against the total
outstanding dues (as on 16.05.2016) of Rs.150 crores.

The bank further states that they had personal guarantee of two of the
guarantors, whose total net-worth was Rs.57.24 crores (Rs.41.32 crores plus
15.92 crores).

24. As per the bank, the account of the petitioner was declared Non
Performing Assets (in short “NPA”) on 24.12.2012.

25. It was after a lapse of more than three years from the last
restructuring, an Original Application was filed before the DRT, Delhi only
on 15.12.2018 and the order sheet reveals that no serious action was taken
by the bank before the DRT.

26. Eventually, it was in the year 2022 a petition had been filed before
NCLT, Allahabad. However, the bank is silent as to whether the financial
condition of the petitioner company (who continuously defaulted in making
the payments) been informed to the Reserve Bank of India, as per the RBI
Circular. It therefore, seems that like the petitioner company, the SBI chose
not to follow the RBI guidelines as well.

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 Second Bank - UCO Bank

27. The counsel for the UCO Bank had filed an affidavit on 24.09.2023
stating that first time a loan was granted to the petitioner company in the
year 2009 to the tune of Rs.45 crores, which was paid by the company,
hence, the loan was enhanced to Rs.75 crores in the year 2010, which was
also repaid. Subsequently, in the year 2012 a loan of Rs.120 crores was
sanctioned by the respondent-Bank repayable within a period of 12 months.
Subsequently, the petitioner gave a proposal of a loan of Rs.150 crores,
which was sanctioned by the competent authority on 27.11.2012 through
multiple banking for Agri loan for various farmers Kisan Credit Card
financed tie-up (4064 accounts) arrangement of UCO Bank with Simbhaoli
Hapur Branch. It seems that the petitioner had started defaulting
immediately after disbursal of the loan, with the result the loan was
classified as NPA on 31.03.2013. A loan can only become NPA if the
borrower had default for a few consecutive times. Since the account was
classified as NPA on 31.03.2013 so it seems that the first default happened in
December, 2012, January and February, 2013 and then the loan was
classified as NPA in the month of March, 2013.

28. As per the affidavit of UCO Bank the petitioner had given a cheque of
outstanding amount of Rs.150 crores (Rs.128 crores and second cheque of
Rs.32 crores) and both the cheques got dishonoured. The bank filed an
application under Section 138 of Negotiable Instruments Act on which
summons were issued on 27.08.2015, on his non-appearance bailable
warrants were issued. Against the issuance of bailable warrants, the
petitioner had preferred Criminal Revision No.03 of 2015, which was
dismissed on 21.10.2022. Thereafter, since the petitioner chose not to
appear, non-bailable warrants were issued. This order of issuance of non-
bailable warrants was again challenged by the petitioner in Criminal
Revision No.164 & 165 of 2022 before the District & Sessions Judge,
Hapur, which is still pending there.

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29. The UCO bank states that they are not the members of the
consortium. Apart from the proceeding taken under Section 138 of N.I. Act,
the bank has not taken any steps to recover the said amount neither had
taken adequate securities while granting the loan. One wonders, how could a
bank grant and disburse such a huge amount without any proper security and
without knowing the facts that the petitioners have been defaulting to pay
the other banks since 2003. How was the loan given without any adequate
securities. In the affidavit, the bank is silent as to who were the officers, who
authorized for the disbursal of the loan. The company had defaulted in
payment from March, 2013 but no serious efforts were made by the bank in
the last ten years to recover the said amount.

Third Bank - ICICI Bank

30. As per the affidavit filed by the ICICI Bank the total outstanding of
the ICICI Bank was Rs.23.84 crores. The loan of the ICICI Bank became
NPA on 30.6.2015 and they claim that they had recalled the loan on
20.09.2016. In the affidavit they have also not divulged the name of the
people, who were responsible for sanctioning of loan knowing the fact that
the petitioner had already been defaulting with the various other banks.
Evasively, the bank is trying to hide behind the mask that they have a
personal guarantees of Mr. Gurmit Singh Mann and Ms. Gursimran Kaur
Mann. These two people, whose assets put together would not be sufficient
enough to pay back one of the loans, have given personal guarantee to
various banks and taken loans, which was far more than their assets. The
ICICI bank claims that they had moved to Debt Recovery Tribunal, Delhi in
2016 and thereafter, the bank and the petitioner company made a settlement
on 16.05.2017 but as usual the petitioner had no intention of paying the bank
and was only doing things to buy time. The petitioner did not fulfil their part
of obligation of the settlement, with the result the settlement failed.
Subsequently, the bank requested the DRT to issue a recovery certificate on
22.12.2017. Surprisingly this application also does not get listed till
13.01.2020. The order sheet shows the number of adjournments taken by the
bank itself. The entire settlement story set up by the bank was nothing but a

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fraud played being hand in gloves with the petitioner. The steps taken by the
bank to recover the money is again astounding. Apparently, the proceeding
before the DRT is nothing but an eyewash.

Fourth Bank - Oriental Bank of Commerce

31. After taking loan and not paying to State Bank of India, UCO Bank
and ICICI bank, the petitioner turned towards Oriental Bank of Commerce.
Again surprisingly the credit/management committee of the Oriental Bank of
Commerce happily proceeded to sanction a loan of Rs.110 crores and more
surprisingly the State Bank of India, who themselves were to recover money
from the petitioner had gone ahead and given a No Objection Certificate on
28.06.2016 for ceding first sub-servient charge on the entire fixed assets of
the borrower company in favour of Oriental Bank of Commerce. Why would
State Bank of India give away its own security to the other banks to get a
loan. The Oriental Bank of Commerce had granted this loan on the personal
guarantee of Mr. Gurmit Singh Mann & Ms. Gursimrat Kaur Mann. Not to
the surprise of this Court, the Bank had concealed the names of the
members of the credit committee/management committee, who had
sanctioned the loan. Within ten months of sanctioning of loan the loan of the
petitioner became NPA on 29.11.2016. However, the loans were recalled
even after one year of the loans being NPA. The bank claims to have filed an
Original Application before Debt Recovery Tribunal-II, Delhi on
23.11.2017, they also claim that they moved before National Company Law
Tribunal, Allahabad in the year 2017 but surprisingly both the matters in
DRT, Delhi and NCLT, Allahabad are pending for last six years. It seems
that the bank is not interested in recovering the money and they have not
been following the cases diligently. There is nothing brought on record by
the Oriental Bank of Commerce to show as to whether they have done a
background check/due diligence before sanctioning such a huge amount.
Obviously, they were aware that there were other bank loans on the
petitioner, which they have defaulted because they asked for NOC from the
State Bank of India that was the bank in which the petitioner had already
defaulted in making payments.

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32. It was brought to the notice that the Oriental Bank of Commerce had
filed a case of Money Laundering with the Enforcement Directorate and the
Enforcement Directorate is said to have attached the assets of Simbhaoli
Sugar Mills for default and defrauding of Rs.148 crores. It was also brought
to the notice that a First Information Report has been lodged against the
directors of Simbhaoli for cheating and defrauding the Oriental Bank of
Commerce.

Fifth Bank - Punjab National Bank

33. The petitioner after defaulting State Bank of India, UCO Bank, ICICI
Bank and Oriental Bank of Commerce now moves to Punjab National Bank
and very shockingly the credit committee/management committee of the
Punjab National Bank again sanctions a loan of Rs.156.09 crores on
16.06.2016 and again the personal guarantees of Mr. Gurmit Singh Mann
and Ms. Gursimran Kaur Mann was taken. These two people had already
given personal guarantees to various banks. The security of the loan was
stock of Sugar and first Pari-pasu charge over the Plant & Machinery. Here,
as per the Punjab National Bank, the debt service coverage ratio of the
petitioner was 0.65 on 31.03.2015, which was projected as 1.98 on
31.03.2016. This projection by the petitioner is nothing but a manipulation
of the accounts to play fraud on the banks.

34. After getting this loan, the petitioner once again siphoned away the
entire money. The stock of the sugar was mortgaged and according to the
petitioner when the stock are mortgaged, it can only be released when the
sale price is deposited in the Escrow account with the bank. Shockingly, the
sugar stocks were sold, and the Punjab National Bank allowed it to be sold
off, without asking for the money. Within five months from taking this loan
the account was declared NPA on 31.03.2017. However, the first legal notice
was sent on 29.10.2017, but it took more than half year for the bank to issue
notice under Section 13 (2) of Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act. After issuing the notice
under Section 13 (2) of SARFAESI Act nothing has happened till date. The

14
banks seems to have filed an Original Application before Debt Recovery
Tribunal, Delhi in November, 2019 that is almost two and half years after the
account was declared NPA. There is nothing on record to show why the bank
was sitting quite for two and a half years and took no action to recover the
money.

35. The bank has also approached the National Company Law Tribunal,
Allahabad in 2019 and filed a case but for last four years nothing has
proceeded. It is apparent that no substantial steps were taken by the bank to
recover the amount.

36. The Punjab National Bank, very well knowing the fact that the
petitioner was a habitual defaulter and had been defaulting in paying money
of the banks still went ahead and sanctioned the loan and took no serious
steps to recover the same.

Sixth Bank - Bank of India

37. After the default from State Bank of India, UCO Bank, ICICI Bank,
Oriental Bank of Commerce and Punjab National Bank the petitioner
proceeds to Bank of India and the credit/management committee of the Bank
of India went ahead and sanctioned a loan on 28.09.2017 for an amount of
Rs.366.90 crores. Against this loan, the security was the fixed asset of
borrowing company on the written down value and the company was given
first sub-servient charge on the fixed asset. As per the bank, even for the
financial year 2017-18 the debt coverage ratio was 1.28. They took the
personal guarantees of Sri Gurumeet Singh Mann and Smt. Gurusimran
Kaur Mann.

38. We failed to understand, how could Bank of India advance Rs.366.90

crores to a company, which has already been defaulted in servicing the
interest and instalments of other banks, where the other banks had been
declared the petitioner to be as NPA. The bank claims to have checked the
CIBIL score at the time of sanctioning of its loan. When the company was
already declared NPA by various banks way back in 2012-13, then how

15
could CIBIL score would be such inviting which entails sanctioning of loan.
Surprisingly, the loan was sanctioned on 28.09.2017 and within three months
on 31.12.2017 the account was declared NPA, however, the bank claims that
they had moved for recovery of money to Debt Recovery Tribunal, Delhi on
14.10.2019. When a query was put, as to why did the bank waited for good
two years to initiate the recovery proceedings, no credible answer was given
by the bank. The bank has also not annexed the order sheet which could
show the alacrity in recovering the said account.

Seventh Bank - Bank of Baroda

39. Inspite of Counsel entering appearance in the proceedings but reason

best known to the bank, it has chosen not to file any response in the matter.

Farmers Outstanding

40. During the course of argument an intervention application was filed

by the Cooperative Cane Development Union, who informed the Court that
the petitioners have taken cane from the cane growers/farmers and they have
not even paid the cane dues, a whopping sum of Rs.279 crores for the last
crushing year 2022 is still outstanding towards the farmers.

41. From the above facts and record, it is evident that the instant case is a
clear case of fraud being played by the petitioner in connivance with the
bank officers as the banks one after the other had gone to sanction loans to
the petitioner knowing the fact that the petitioner has defaulted in paying
money to the other banks and shown no intention of paying back the loan.
The loans given by the banks as working capital was well secured with the
sugar stocks, even if the petitioner want to sell a bag of the sugar, the sale
consideration, would necessarily has to come in the Escrow account.
Surprisingly, every time when the loan is given, on the security of sugar
stocks how come the amount was not recovered by the banks and how the
stocks were allowed to be sold without the bank getting its dues

42. The banks while disbursing the loans have miserably failed or
purposely did not carry out proper due diligence, credit appraisal, following

16
the prudential norms, consider the risk report, did not take appropriate
collateral security, failed to carry out regulatory compliances. Few of the
banks even did not ask for personal guarantees of the promoters and the
others got a personal guarantees of the promoters, who had given personal
guarantees to various other banks. There was no post disbursement
supervision by the banks, which is mandatory. The banks chose not to ask
for additional security, no proper steps to recover the amount was taken by
the banks even after the account were declared NPA. There is RBI guideline
to advance the loans to the companies, which is an essential condition and
surprisingly the same has not been followed by the banks.

43. The petitioner while applying for the loan must have given some
documents showing the capacity to pay back. Obviously, the said documents
were either fabricated or forged as the petitioner never had the capacity to
pay back the loans. We cannot presume the bank to be naive enough to fall
for the documents given by the petitioner and without scrutinizing the same,
sanctioned a huge amount, unless they themselves are involved and are part
of the bigger fraud of defrauding public money.

44. It is also apparent that the banks had been sanctioning the loan without
following the guidelines of the Reserve Bank of India and its own banking
procedure. A huge amount of loans are sanctioned and disbursed to the
petitioner without even taking appropriate security/collateral. It is quite
shocking that the petitioner was defaulting to pay a bank and the account
was classified as NPA, even after that, the other banks goes ahead sanctions
and disburses the huge amount of loan without proper collateral. More
shocking is the way all the banks have proceeded to recover the money. All
action taken by the banks is nothing but an eyewash. They seem to have just
filed the petitions before DRT and NCLT and thereafter, failed to pursue the
same. Apparently, its a clear case of connivance and fraud played by the
petitioner on the banks.

45. The Reserve Bank of India had issued a circular on 1 st July, 2009,
wherein, it had made mandatory on all the banks for classification and
reporting of frauds, and sought for streamline the reporting system so the

17
fraud is reported by a bank without any delay. The RBI went to the extent of
stating that the banks must fix staff accountability in respect of delay in
reporting frauds. Clause 2 of the circular lays down classification of frauds.
Clause 2.1 (c) lays down that in case of unauthorized credit facilities
extended for reward or for illegal gratification, it comes within the ambit of
fraud. Clause 3.2 of the circular of RBI is as follows:-

“3.2 Frauds committed by unscrupulous borrowers

3.2.1 It is observed that a large number of frauds are committed by

unscrupulous borrowers including companies, partnership firms/proprietary
concerns and/or their directors/partners by various methods including
following:
(i) Fraudulent discount of instruments or kite flying in clearing
effects.
(ii) Fraudulent removal of pledged stocks/disposing of hypothecated
stocks without the bank’s knowledge/inflating the value of stocks in
the stock statements and drawing excess bank finance.
(iii) Diversion of funds outside the borrowing units, lack of interest
or criminal neglect on the part of borrowers, their partners, etc. and
also due to managerial failure leading to the unit becoming sick and
due to laxity in effective supervision over the operations in borrowal
accounts on the part of the bank functionaries rendering the advance
difficult to recover.
3.2.2 In respect of frauds in borrowal accounts, additional information as
prescribed under Part B of FMR -1 should also be furnished.
3.2.3. Banks should exercise due diligence while appraising the credit
needs of unscrupulous borrowers, borrower companies,
partnership/proprietorship concerns and their directors, partners and
proprietors, etc. as also their associates who have defrauded the banks.
In addition to above borrower- fraudsters, third parties such as builders,
warehouse/cold storage owners, motor vehicle/tractor dealers, travel agnts,
etc. and professionals such as architects, valures, chartered accountants,
advocates, etc. are also to be held accountable if they have played a vital
role in credit sanction/disbursement or facilitated the perpetration frauds.
Banks are advised report to Indian Banks Association (IBA) the details of
such third parties involved in frauds.

Before reporting to IBA, banks have to satisfy themselves of the

involvement of third parties concerned and also provide them with an
opportunity of being heard. In this regard the banks should follow formal
procedures and the processes followed should be suitably recorded. On the
basis of such information, IBA would, in turn, prepare caution lists of such
third parties for circulation among the banks.

46. Clause 3.3 is as follows:-

18
 3.3 Frauds involving Rs.100.00 lakh and above
In respect of frauds involving Rs.100 lakh and above, in additional to the
requirement given at paragraphs 3.1 and 3.2 above, banks may report the
fraud by means of a D.O. letter addressed to the Chief General Manager in
charge of the Department of Banking Supervision , RBI, Central Office,
within a week of such frauds coming to the notice of the bank’s Head
Office. The letter may contain brief particulars of the fraud such as amount
involved, nature of fraud, modus operandi in brief, name of the
branch/office, names of parties involved (if they are
proprietorship/partnership concerns or private limited companies, the
names of proprietors, partners and directors), names of official involved,
and whether the complaint has been lodged with the Police/CBI. A copy of
the D.O. letter should also be endorsed to the Regional Office of RBI under
whose jurisdiction the bank’s branch, where the fraud has been perpetrated,
is functioning.

47. Clause 6.1 and 6.2 are as follows:-

6.1 Private sector banks (including foreign banks operating in India)

should follow the following guidelines for reporting of frauds such as
unauthorized credit facilities extended by the bank for illegal gratifiction,
negligence and cash shortages, cheating, forgery, etc. to the State Police
authorities:

(a) In dealing with cases of fraud/embezzlement, banks should not

merely be actuated by the necessity of recovering expeditiously the
amount involved, but should also be motivated by public interest and
the need for ensuring that the guilty persons do not go unpunished.
(b)Therefore, as a general rule, the following cases should invariably
be referred to the State Police:
i) Cases of fraud involving an amount of Rs.1.00 lakh and
above, committed by outsiders on their own and/or with the
connivance of bank staff/officers.
ii) Cases of fraud committed by bank employees, when it
involves bank funds exceeding Rs.10,000/-.
(C) Fraud cases involving amounts of Rs.1.00 crore and above
should also be reported to the Director, Serious Fraud Investigation
Office (SFIO), Ministry of Company Affairs, Government of India,
Second Floor, Paryavaran Bhavan, CGO Complex, Lodhi Road,
New Delhi 110003. Details of the fraud are to be reported to SFIO in
FMR-1 Format.
6.2 Public sector banks should report fraud cases involving amount of Rs.1
crore and above to CBI and those below Rs.1 crore to local police, as
detailed below:
Case to be referred to CBI
(a) Cases of Rs.1.00 crore and above upto Rs.5.00 crore
* Where staff involvement is prima facie evident – CBI (Anti
Corruption Branch)

19
 * Where staff involvement is prima facie not evident – CBI
(Economic Offences Wing)
(b) All cases involving more than Rs.5.00 crore – Banking Security
and Fraud Cell of the respective centres, which is specialised cell of
the Economic Offences Wing of the CBI for major bank fraud cases.
Cases to be referred to Local Police
Cases below Rs.1 crore – Local Police.
i) Cases of financial frauds of the value of Rs.1.00 lakh and
above, which involve outsiders (private parties) and bank
staff, should be reported by the Regional Head of the bank
concerned to a senior officer of the State CID/Economic
Offences Wing of the State concerned.
ii) For cases of financial frauds below the value of Rs.1.00
lakh but above Rs.10,000/- the cases should be reported to the
local police station by the bank branch concerned.
iii) All fraud cases of value below Rs.10,000 involving bank
officials, should be referred to the Regional Head of the bank,
who would scrutinize each case and direct the bank branch
concerned on whether it should be reported to the local police
station for further legal action.

48. The RBI guidelines are absolutely clear that, if a fraud is committed
by the unscrupulous borrower by removal of stocks/hypothecating and
disposing of the stocks, inflating the value in the stock statement and
drawing excess bank finance, diversion of funds outside the borrowing unit
and also due to managerial failure leading to the unit becoming sick and due
to laxity in effective supervision, the banks have to report to the CBI. The
instant case clearly falls under the ambit of Clause 3.2.1 and 3.2.4 where the
unscrupulous borrower enjoy credit facilities under valuable banking
arrangement after defrauding one of the financial banks continue to enjoy
facilities of other financial banks and in some cases availed even higher limit
at those banks. Clause 3.2.4. of the circular is as follows:-

3.2.4. Frauds in borrowal accounts having multiple banking

arrangements
Certain unscrupulous borrowers enjoying credit facilities under
“multiple banking arrangement” after defrauding one of the financing
banks, continue to enjoy the facilities with other financing banks and
in some cases avail even higher limits at those banks. In certain cases
the borrowers use the accounts maintained at other financing banks to
siphon off funds by diverting from the bank on which the fraud is
being perpetrated. This is due to lack of a formal arrangement for
exchange of information among various lending banks/Fis. In some of

20
 the fraud cases, the securities offered by the borrowers to different
banks are the same.
49. Further, the RBI in Clause 6.2 of the circular makes it mandatory on
public sector banks to report to the economic offence wings of the Central
Bureau of Investigation (in short “CBI”) in all cases involving more than
Rs.5.00 crores to the banking security and fraud cell of the CBI.

50. As per the RBI Guidelines it is mandatory for the banks before
approval of the loan to carry out a proper due diligence, credit appraisal, to
consider the risk report and follow all the norms laid down. It is clearly
apparent from the way the loans were sanctioned and disbursed that the
banks have failed to carry out regulatory compliances. Even adequate
security was not taken before disbursing the loans. A number of loans were
given on the personal guarantee of two promoters, whose net-worth was far
less than the loans taken by them from the banks.

51. There is a guideline as to how the banks will supervise and monitor
the loaned amount post disbursement. Clearly in most of the cases there was
no supervision on the disbursed amount. Further, all the loans have been
sanctioned and disbursed without taking proper security. Even after the loans
sanctioned and disbursed, the banks have not taken any serious steps to
recover the said amount even after the accounts were declared NPA.

52. It is surprising that none of the banks while sanctioning or disbursing

the funds have ever checked the background of the petitioner-company. The
petitioner-company was already defaulting and was NPA in the other banks
but still the other banks went ahead with sanctioning huge amount of loan to
the petitioner without any proper collateral security or documentation.

53. There is RBI guideline to advance the loans to the companies, which
is an essential condition and the same has openly been flouted by the banks.
It is more shocking that even after the accounts were declared NPA, none of
the banks had actually proceeded seriously to recover the money.

54. What is more shocking is that as per the RBI circular of 1 st July, 2009
every bank, who had been defrauded for an amount more than Rs.5 crores

21
has to mandatorily report to the “Banking Security and Fraud Cell” of CBI
but surprisingly none of the bank seems to have done that as there is no
recital or whisper in this regard in any of the affidavits filed by the Banks.

55. During the course of argument, Mr. Ashok Bhatnagar appearing on

behalf of the Punjab National Bank and Oriental Bank of Commerce states
that at one point of time the farmers cane dues by all the sugar mills put
together in the State of U.P. had crossed more than Rs.17,000/- crores, it was
at that point of time action was taken against the sugar mill owners and
almost 150 First Information Reports were filed by the farmers and cane
societies across the State of Uttar Pradesh. At this stage counsel for the
petitioner mentioned that after F.I.R. was lodged they had paid their dues.
The other mill owners preferred a writ petition before this Hon’ble Court for
quashing of the F.I.Rs. and the same was dismissed, shockingly, even then
no action was taken against similarly situated Sugar Mill owners against
whom F.I.R. was lodged, we are not going into this fact as it is not a subject
matter in this lis.

56. Mr. Ravindra Singh, who has filed an impleadment application on

behalf of the Cane Union has also mentioined that as of now Rs.379 crores
of cane dues and interest of the farmers of the last year is outstanding (by all
the three units of Simbhaoli). He further submits that as per the judgement of
Hon’ble Supreme Court in the matter of S.K.G. Sugar Limited vs. State of
Bihar and others3 outstanding dues of the farmers has the first charge on the
sugar and assets of the factory over any contractual liabilities. He further
submits that a similar view has been taken in Augusta Sugar and Chemicals
vs. State of U.P. & Others4 and Rashtriya Kisan Mazdoor Sangathan vs.
State of U.P.5 wherein the Hon’ble Supreme Court has once again held that
outstanding cane price of the farmers shall have priority over the assets
mortgaged by the bank.

3 (1997) INSC 41

4 (1997) 10 SCC 99

5 2014 (8) ADJ 671

22
57. It is just not the petitioner and the bank officers, who are responsible
for allowing the petitioner to syphon away the fund but also the Cane
Commissioner, who had not taken any action against the promoters and
identically situated people and had failed to carry out his duties and the
obligation, which was towards the farmers but had allowed the petitioner to
sell the Sugar without paying the farmers.

58. The petitioner has filed the instant petition with the sole intention of
holding back the NCLT proceedings. On the first date of hearing, the counsel
for the petitioner gave an undertaking that they are ready to deposit Rs.20
crores in the “No Lien Account”. They only deposited Rs.10 crores and the
balance was not paid, it was nothing but a ploy to buy time and take the
Court for a ride.

59. This Court following the judgement of Hon’ble Supreme Court in

Balwantbhai Somabhai Bhandari vs Hiralal Somabhai Contractor 6 had
inclined to issue notice for contempt on 19.11.2023. Thereafter, Mr. Rohan
Gupta appearing for the petitioner submitted that they need a month’s time
to pay the balance amount. Now almost two months have passed but still
they have not deposited the money. It is apparent that the petitioners have
just not defrauded the banks but has also tried to mislead this Court by not
paying the amount, which they had agreed to pay. It seems the petitioner is
only interested in buying time.

60. During course of argument, it has been revealed that it is only the
Oriental Bank of Commerce, who had reported the issue to the Enforcement
Directorate, who after investigation have attached some of the properties of
the petitioner-company.

61. This is a case, which shocks conscience of the Court as to how few of
the bank officers in connivance of the petitioner had advanced almost
Rs.900 crores, of public money and had allowed the petitioner to syphon
away the funds and did nothing but were the mute spectators when the entire
fund was syphoned off. Even after the entire amount was syphoned off, the
banks did not take any effective steps to recover the said amount.

6 AIR 2023 (SC) 4390

23
62. The RBI Circular dated 01.07.2009 mandates all the banks for
classification and reporting of fraud. The said Circular does not provide any
exemption or relaxation to the banks not to report regarding fraud committed
by unscrupulous borrowers. Even, Clause-6 of the Circular also mandates all
the Public Sector Banks to report to the Fraud Cell of CBI in cases of fraud
involving more than Rs.5 crores.

63. In the present matter, we do not find any recital in the affidavits filed
by the banks, which may indicate that any point of time they had
communicated to the RBI in the matter. In case, there is any fraud then in
every eventuality the matter is to be referred to the CBI for investigation.
Even otherwise, there is complicity as indicated above.

64. We also find that the bank officials had given a complete go bye to the
Circular. In such situation, we direct to the CBI to investigate against each
and every bank as to how the loans were sanctioned in contravention of the
RBI Guidelines and Circulars and also enquire the officers of the banks, who
had accorded approval while sanctioning the loan being Member of the
Board/Credit Committee and also the officers, who had not taken any
effective steps to recover the amount and also against the officers of the
banks who failed to take any prompt action to realise the amount from the
borrower and allowed the petitioner to siphon off the money.

65. As the CBI is not a party before us, we request the Registrar General
of this Court to communicate the present order to the Director, Central
Bureau of Investigation, New Delhi.

66. In case, the CBI finds that there is a case of money laundering as per the
provisions of Prevention of Money Laundering Act, 2002 they may also
refer the matter to the Enforcement Directorate and take help to recover the
said amount.

67. It is further directed that the petitioner will join the investigation and
cooperate with the investigation team and if they do not do so, it is open for
the investigation agency to proceed against the petitioner in accordance with
law. The authorities should endeavour to find out the money trail, where it
has been syphoned off and parked.

24
 68. It is further clarified that the above observation given in this order
would not come in the way of the investigating agency and they would
investigate the matter de novo.

69. The writ petition is accordingly disposed of.

Order Date:- 12.12.2023

S.P.

25

Digitally signed by :-
SANJAY PURI
High Court of Judicature at Allahabad