Read Time: 09 minutes

Synopsis

The Delhi High Court, on October 25, directed the Bank of Baroda to take appropriate measures to remove Ratul Puri’s name from the Central Fraud Registry within 15 days. The bench of Justice Dharmesh Sharma held, “none of the tenets of the principles of natural justice were adhered to in the present matter before passing the impugned order dated 20.06.2019 classifying the petitioner as ‘fraud’.”  

Ratul Puri approached the court challenging the order passed by the Bank of Baroda to classify him as a ‘fraud’ under the Central Fraud Registry. Ratul Puri represented through Advocate Vaibhav Mishra, argued that the actions of the bank were arbitrary and based on unfair practices. 

Puri argued that he was chairman of Hindustan Power Group, and discovered in February 2023 that his name was listed as ‘fraud’ related to Moser Baer Solar Limited (MBSL), a company connected to his father's business. His father founded the business of manufacturing digital storage products but later diversified into solar energy. The company faced financial difficulties due to market changes and the 2008 financial crisis. In 2012, MBSL sought debt restructuring with banks, including a CDR agreement. 

Advocate Mishra argued that Puri resigned from his executive position in April 2012, with formal recognition of his resignation in November 2012, and informed the bank about his resignation. Bank of Baroda, alongside other lenders, still demanded Puri's personal guarantee for loans. Later audits and a forensic investigation revealed financial irregularities, leading to MBSL and Moser Baer India Limited being classified as "fraud" in 2019. 

 The banks filed complaints of fraud, which led to criminal proceedings. Puri contested this classification, arguing that no fund diversion was found during the restructuring process. He also challenged the categorization of "wilful defaulter" by multiple banks, winning favorable court judgments in 2024. Ultimately, Puri's petition sought to quash the fraud classification and actions taken against him, claiming he was no longer involved with MBSL when the alleged issues occurred.

The court noted that the counter-affidavit filed by the bank did not indicate that any Show Cause Notice (SCN) had been issued to Puri regarding his classification as "fraud." Furthermore, Puri was not informed about his name being added to the Central Fraud Registry maintained by the Reserve Bank of India (RBI). There was no assertion that any relevant documents, such as the forensic audit report, were provided to him.

“There is no iota of an averment that any relevant documents, including the copy of the forensic audit report, were ever supplied to him. Evidently, no hearing was afforded to the petitioner, nor was he ever communicated of the decision of the respondent bank dated 20.06.2019”, the court added. 

Citing the case of State Bank of India v Rajesh Aggarwal (2023 6 SCC 1), the court reiterated that the principles of natural justice must be considered when interpreting and enforcing the RBI's guidelines on fraud. The court emphasized that penal measures against borrowers under Clause 8.12 of the Master Directions, including restrictions similar to those imposed on wilful defaulters, had severe consequences. These included barring entrepreneurs from accessing institutional finance and freezing credit, which could significantly impact a borrower’s business.

Applying this precedent to the case, the court outlined that the principles of natural justice were not followed before issuing the impugned order classifying Puri as "fraud" on June 20, 2019. 

Thus, the court allowed the writ petition and set aside the impugned order. The court also held that no grounds existed for classifying the petitioner as "fraud" due to non-payment of loans by MBSL. Consequently, the bank was directed to ensure the removal of Puri’s name from the Central Fraud Registry within 15 days.

Other Updates in connected cases:

Nitin Bhatnagar, a Maltese citizen and banker, was also arrested in connection with the Moser Baer money laundering scam. Per ED’s case, Bhatnagar under the direction of Ratul Puri, established Pristine River Investment Limited, a Dubai-based company that allegedly received proceeds of crime amounting to around USD 14.18 million. The ED further alleged that Nitin Bhatnagar was actively involved in layering the proceeds of crime for the main accused, Ratul Puri.

Bhatnagar recently filed an application seeking permission to travel abroad. The ED strongly opposed this application, remarking "He is a Maltese citizen, my lordship, and there is a serious apprehension that he will not come back". 

For Petitioner: Advocates Vaibhav Mishra, Ekansh Mishra and Jayant Chawla
For Respondent: Standing Counsel Kush Sharma with Advocates Asiya Khan, Nishchaya Nigam and Vagmi Singh
Case Title: Ratul Puri v Bank Of Baroda (2024:DHC:8297)