Telangana High Court Issues Interim Order Suspending SBI's Decision Classifying Account Of Ind-Barath Power Gencom Ltd As Fraudulent

The Telangana High Court has issued an interim order suspending the State Bank of India's (SBI) decision to classify the account of Ind-Barath Power Gencom Ltd. (Gencom) as fraudulent. This order comes in response to writ petitions filed by Raghu Rama Krishna Raju and Dr. Indira Priyadarshini, both part-time non-executive directors of Gencom.

Justice C.V. Bhaskar Reddy passed the order in a plea calling for the records of the Fraud Identification Committee of SBI and for suspending its findings.

The case revolves around SBI's attempt to declare Gencom's account as fraudulent under the Reserve Bank of India's Fraud Classification and Reporting Directions of 2016.

On December 30, 2023, SBI issued a show-cause notice to the petitioners regarding this potential classification. The petitioners subsequently requested access to the documents and forensic audit report that SBI intended to use as the basis for their decision.

Despite multiple requests from the petitioners between January and May 2024, SBI provided only selective pages of the forensic audit report. The petitioners argued that this selective disclosure violated the Supreme Court's ruling in State Bank of India v. Rajesh Agarwal & Ors. (2023), which mandates that banks must furnish a complete copy of the underlying forensic report to borrowers and seek their reply.

Ignoring the petitioners' requests for the full report, SBI issued an order on June 11, 2024, declaring Gencom's account as fraudulent. This action prompted the petitioners to file writ petitions before the High Court, seeking to quash both the proceedings of SBI's Fraud Identification Committee and the subsequent order.

The petitioners' counsel argued that SBI's actions violated the principles of natural justice and the Supreme Court's directives. They contended that by not providing the complete forensic audit report, SBI had rendered the hearing process a mere formality, effectively denying the petitioners a fair opportunity to present their case.

An interesting aspect of the case emerged when it was revealed that SBI had already attributed fraud to the petitioners in a counter-affidavit filed before the Madras High Court on February 28, 2024, prior to the conclusion of its own fraud identification proceedings.

This premature attribution of fraud raised questions about the fairness and impartiality of SBI's decision-making process.

After hearing the submissions of the senior counsel representing the petitioners, the Telangana High Court issued an interim order suspending the operation and effect of SBI's order for four weeks.

WP 20588/2024 and W.P No. 20578/ 2024

Counsel for petitioners: Abhinay Reddy M, Shreya Devaki and Senior Advocate Vikram Pooserla

Case title: Raghu Rama Krishna Raju vs. RBI & another.