Rajbhushan Omprakash Dixit v. Punjab National Bank

14. It is urged that this Court has the requisite territorial jurisdiction to entertain the writ and the forum conveniens for all intents and purposes. Further, it is pointed out that the petitioner was initially arrested by ED and later by SFIO[5] in criminal proceedings pending at Delhi and in both of which he has been released on bail.

15. On the objection raised by the learned counsel for the respondents/banks that initially a writ petition was instituted before the High Court Judicature at Bombay seeking similar relief, it is submitted that the said petition never came up for hearing and its listing was never pressed and eventually, the said writ petition has been withdrawn with liberty to prefer appropriate legal proceedings in any other competent forum. It is urged that the mere filing of the writ petition would not denude the jurisdiction of this Court to entertain the present petition in case a cause of action, so arises, and this Court feels justified to invoke such jurisdiction.

16. Evidently, the broad factual chronology is not in dispute. The directors and promoters of SBLG, including the petitioner, have been facing criminal proceedings related to the non-payment of credit facilities by the company at the hands of various agencies, including the ED, CBI, SFIO, and income tax authorities. There is also some merit to the plea advanced by the learned senior counsel for the petitioner that the principal seat of initiation of all actions and proceedings against the petitioner and all other former directors and promoters of the company are based in Delhi.

17. There is no gainsaying that even the act of classifying the petitioner as a 'wilful defaulter' or declaring 'fraud' has pan-India implications, and various disabilities are suffered by the petitioner. As discussed hereinabove, the Supreme Court is seized of the entire matter and has passed several orders from time to time regarding the subject matter of the case, thereby keeping all criminal proceedings in abeyance.

18. At this juncture, it would be apposite to refer to certain case laws touching upon the aspect of territorial jurisdiction. The Supreme Serious Fraud Investigation Office Court in the case of Navinchandra N. Majithia v. State of Maharashtra[6] had an occasion to observe as under:- “17. From the provision in clause (2) of Article 226 it is clear that the maintainability or otherwise of the writ petition in the High Court depends on whether the cause of action for filing the same arose, wholly or in part, within the territorial jurisdiction of that Court.

18. In legal parlance the expression “cause of action” is generally understood to mean a situation or state of facts that entitles a party to maintain an action in a court or a tribunal; a group of operative facts giving rise to one or more bases for suing; a factual situation that entitles one person to obtain a remedy in court from another person. (Black's Law Dictionary).

19. In Stroud's Judicial Dictionary a “cause of action” is stated to be the entire set of facts that gives rise to an enforceable claim; the phrase comprises every fact, which, if traversed, the plaintiff must prove in order to obtain judgment.

20. In “Words and Phrases” (4th Edn.) the meaning attributed to the phrase “cause of action” in common legal parlance is existence of those facts which give a party a right to judicial interference on his behalf. xxx xxx xxx

22. So far as the question of territorial jurisdiction with reference to a criminal offence is concerned the main factor to be considered is the place where the alleged offence was committed. xxx xxx xxx

27. Tested in the light of the principles laid down in the cases noted above the judgment of the High Court under challenge is unsustainable. The High Court failed to consider all the relevant facts necessary to arrive at a proper decision on the question of maintainability of the writ petition, on the ground of lack of territorial jurisdiction. The Court based its decision on the sole consideration that the complainant had filed the complaint at Shillong in the State of Meghalaya and the petitioner had prayed for quashing the said complaint. The High Court did not also consider the alternative prayer made in the writ petition that a writ of mandamus be issued to the State of Meghalaya to transfer the investigation to Mumbai Police. The High Court also did not take note of the averments in the writ 2000 (7) SCC 640 petition that filing of the complaint at Shillong was a mala fide move on the part of the complainant to harass and pressurise the petitioners to reverse the transaction for transfer of shares. The relief sought in the writ petition may be one of the relevant criteria for consideration of the question but cannot be the sole consideration in the matter. On the averments made in the writ petition gist of which has been noted earlier it cannot be said that no part of the cause of action for filing the writ petition arose within the territorial jurisdiction of the Bombay High Court.” Bold portions emphasized}

19. Even in the case of Kusum Ingots & Alloys Ltd. v. Union of India[7], it was held that when a part of cause of action arises within one or the other High Court, it would be for the petitioner to choose its forum. It would also be pertinent to refer to the decision by a Five Judge Bench of this Court in the case of M/s Sterling Agro Industries Ltd. v. Union of India[8], whereby it was held as under:- “(b) Even if a miniscule part of cause of action arises within the jurisdiction of this court, a writ petition would be maintainable before this Court, however, the cause of action has to be understood as per the ratio laid down in the case of Alchemist Ltd. v. State Bank of Sikkim (2007) 136 C-C 665; (2007) 11 SCC 335.

(c) An order of the appellate authority constitutes a part of cause of action to make the writ petition maintainable in the High Court within whose jurisdiction the appellate authority is situated. Yet, the same may not be the singular factor to compel the High Court to decide the matter on merits. The High Court may refuse to exercise its discretionary jurisdiction by invoking the doctrine of forum conveniens. (e) The finding that the court may refuse to exercise jurisdiction under Article 226 if only the jurisdiction is invoked in a malafide manner is too restricted /constricted as the exercise of power under Article 226 being discretionary cannot be limited or restricted to the ground of malafide alone” {Bold portions emphasized}

(2011) 181 DLP 658

20. In summary, it has been a consistent proposition of law that the question of territorial jurisdiction has to be decided on the basis of pleadings in the writ petition and further, whether or not the cause of action wholly or in part for filing a writ petition has arisen within the territorial limits of the High Court, has to be decided in the light of the nature and character of the proceedings under Article 226 of the Constitution of India, 1950. It is well settled that in order to maintain the writ petition, the petitioner has to establish that a legal right claimed by him has prima facie either been infringed or is threatened to be infringed by the respondent within the territorial limits of the jurisdiction of the Court.

21. To sum up a cumulative reading of the facts and circumstances placed on the record and the settled proposition of law, this Court would have no hesitation in holding that in terms of Article 226 of the Constitution of India, 1950, this Court has ample jurisdiction to entertain the present petition. Once the instant writ petition is found to be maintainable, it may be noted that the Supreme Court in the case of Radha Raman Samanta v. Bank of India[9] had an occasion to hold that that it is not improper for the High Court to look into undisputed documents and raise an inference as to the status of the parties concerned. In the light of the aforesaid, a careful perusal of the order and the directions passed by the Supreme Court on the subject matter referred to hereinabove would show that initially the SBLG had arrived at a ‘One Time Settlement’ with as many as fifteen banks out of twenty. The entire history of the matter raises an inference about the bona fide intent of the promoters and directors to settle the entire dispute and also to pay all the corporate debts.

22. Evidently, the promoters have already deposited a sum of ₹2996.5/- crores which is much more than the undertaking which has been tendered before the Supreme Court. It is also evident that throughout the length and breadth of this long ordeal for the SBLG and its promoters and directors including the petitioner, the accounts of the company have remained operational and have been duly serviced for number of years and an amount of ₹1332/- crores has already been paid and has been paid over and above the disbursed amount.

23. The plea by the petitioner is that the valuation of the equitable mortgaged assets with the banks, as assessed by the consortium banks and ED are more than ₹27,000/- crores, which is far more than the alleged outstanding corporate debt. In summary, having regard to the conduct of the promoters and directors of the group coupled with the value of the mortgaged assets, the repayments have been made before or after the onslaught of the cases, which belies the action taken by the respondent consortium banks that there was any element of ‘wilful default’ or ‘fraud’ on the part of the promoters or directors from the very inception.

24. All said and done, withing delving into the merits of the matter, it would be apposite to refer to now the causa celebre, State Bank of India v. Rajesh, Agarwal10, wherein the Supreme Court conducted an exhaustive analysis of the relevant RBI Master Guidelines prescribing the procedure leading to the declaration of account of any entity or person as ‘willful defaulter’ or fraud’ and it was held that: “We need to bear in mind that the principles of natural justice are not mere legal formalities. They constitute substantive obligations that need to be followed by decision-making and adjudicating authorities. The principles of natural justice act as a guarantee against arbitrary action, both in terms of procedure and substance, by judicial, quasi judicial, and administrative authorities. Two fundamental principles of natural justice are entrenched in Indian jurisprudence:

(i) nemo judex in causa sua, which means that no person should be a Judge in their own cause; and

(ii) audi alteram partem, which means that a person affected by administrative, judicial or quasi-judicial action must be heard before a decision is taken. The courts generally favour interpretation of a statutory provision consistent with the principles of natural justice because it is presumed that the statutory authorities do not intend to contravene fundamental rights. Application of the said principles depends on the facts and circumstances of the case, express language and basic scheme of the statute under which the administrative power is exercised, the nature and purpose for which the power is conferred, and the final effect of the exercise of that power. “Conclusion

98. The conclusions are summarised below:

98.1. No opportunity of being heard is required before an FIR is lodged and registered.

98.2. Classification of an account as fraud not only results in reporting the crime to the investigating agencies, but also has other penal and civil consequences against the borrowers.

98.3. Debarring the borrowers from accessing institutional finance under Clause 8.12.[1] of the Master Directions on Frauds results in serious civil consequences for the borrower.

98.4. Such a debarment under Clause 8.12.[1] of the Master Directions on Frauds is akin to blacklisting the borrowers for being untrustworthy and unworthy of credit by banks. This Court has consistently held that an opportunity of hearing ought to be provided before a person is blacklisted.

98.[5] The application of audi alteram partem cannot be impliedly 98.[6] The principles of natural justice demand that the borrowers must be served a notice, given an opportunity to explain the conclusions of the forensic audit report, and be allowed to represent by the banks/JLF before their account is classified as fraud under the Master Directions on Frauds. In addition, the decision classifying the borrower's account as fraudulent must be made by a reasoned order.”

98.7. Since the Master Directions on Frauds do not expressly provide an opportunity of hearing to the borrowers before classifying their account as fraud, audi alteram partem has to be read into the provisions of the directions to save them from the vice of arbitrariness.” {Bold emphasis supplied}

25. This Court had the occasion to consider the of the ratio laid in Rajesh Agarwal (supra.), in the matter of Rajkumar Sukhdevsinhji v. IDBI Bank11, wherein it was held as under:-

26. In view of the above, there is no gain saying that the decision given by the Supreme Court in the case of Rajesh Aggarwal (supra) is 2024 SCC OnLine Del 4863 binding upon this Court in terms of Article 141 of the Constitution of India, 1950. It may be stated that during the course of hearing, extensive arguments were advanced by the learned senior counsel for the petitioner, apart from addressing the issue regarding maintainability. None of the counsel for the respondents were able to controvert the submissions of the learned Senior Counsel for the petitioner on merits except on the ground of maintainability. The sum and substance of the matter is that the present matter is a stark case where the petitioner and the group of companies were never afforded the opportunity of being heard.

27. Resultantly, while following the dictum of law laid down in the case of Rajkumar Sukhdevsinhji (supra), this Court observes that the instant case is a unique one where the promoters and directors of SBLG have demonstrated their bona fide conduct and have been adhering to all regulatory norms. However, at present, there is a blanket order passed by the Supreme Court, keeping in abeyance and staying all proceedings pending at the instance of law enforcement agencies. The whole situation so far, marked by a complete reluctance on the part of the respondents to take a stand, commensurate with financial prudence and disciplinary prudence, makes it not out of context to hold that the respondents’ act of classifying the petitioner as a ‘wilful defaulter’, which by all means and measure is also flawed under the RBI Master Guidelines, has resulted in a grave miscarriage of justice for the same being contrary to the settled proposition of law as laid down in the case of Rajesh Aggarwal (supra).

28. The principle of stare decisis, which translates to “to stand by decided cases” has been a cornerstone of the judiciary since its inception. This doctrine is rooted in the Latin maxim "stare decisis et non quieta movere," meaning it is best to adhere to decided cases and not disturb settled issues. Once a point of law has been established, it forms a precedent that should generally be followed in subsequent cases. This ensures consistency and predictability in the application of the law. When similar cases arise, the scales of justice must remain balanced and steady, with legal principles applied uniformly, rather than being swayed by individual judges’ opinions or personal biases.

29. In the judicial hierarchy, the rulings of higher courts on matters of law are binding on lower courts. As enshrined in Article 141 of the Constitution of India, the law declared by the Supreme Court is binding on all Courts within the territory of India. Under this doctrine of precedent, the High Courts are not at liberty to adopt a different view or rely on conflicting decisions when the Supreme Court has clearly laid down the law on a subject. It is imperative for High Courts to align with the Supreme Court’s declarations of law, avoiding contradictions and ensuring a cohesive application of legal principles.

30. At this juncture, it would be apposite to take note of the observations made by the Supreme Court in the case of Biswajit Das v. CBI12, which read as under: “Nonetheless, if in a given case, notice is issued which is limited on terms but the party approaching the Court is otherwise persuasive in pointing out that the case does involve a substantial question of law deserving consideration and the Bench is so 2025 SCC OnLine SC 124 satisfied, we see no reason why the case may not be heard on such or other points. In such a case, the jurisdiction to decide all legal and valid points, as raised, does always exist and would not get diminished or curtailed by a limited notice issuing order. However, whether or not to exercise the power of enlarging the scope of the petition/appeal is essentially a matter in the realm of discretion of the Bench and the discretion is available to be exercised when a satisfaction is reached that the justice of the case so demands.”

31. Apart from the aforesaid proposition of law, this Court must also consider the ongoing proceedings before the Supreme Court, where the issue of payments made by the Promoters of the group and their bona fides is already being examined. It is crucial to note that the declaration of ‘wilful defaulter’ and ‘fraud’ in contravention of the well settled parameters entails a cascading effect on the group, triggering both civil and criminal actions against them.

32. In the present case, neither respondent disputes that the petitioner or its companies were given an opportunity to be heard before being declared “wilful defaulters” or “fraudulent accounts”. Given this, the law as previously discussed shall apply, and accordingly, the declaration of the bank accounts of the Sterling Group of Companies as “wilful defaulters” or “fraud” is hereby set aside.

33. The instant petition along with pending application is disposed of accordingly.

DHARMESH SHARMA, J. MAY 26, 2025 Ch/Es