WPC 5579/1998 Page 1 of 31 * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) No. 5579/1998 % Reserved on : 7th October, 2013 Pronounced on: 28th October, 2013 MR. ASHOK K. NANDA ......Petitioner Through: Mr. Piyush Sharma and Mr. Vikram Saini Advocates. VERSUS PUNJAB NATIONAL BANK & ORS. ...... Respondents Through: Mr. Rajat Arora, Advocate. CORAM: HON’BLE MR. JUSTICE VALMIKI J.MEHTA To be referred to the Reporter or not? VALMIKI J. MEHTA, J 1. This writ petition under Article 226 of the Constitution of India impugns the orders passed by the departmental authorities; of the disciplinary authority dated 22.9.1997 and the appellate authority dated 18.5.1998; whereby petitioner was visited with the punishment of removal from services. Most of the charges against the petitioner contained in the chargesheet dated 2.6.1992 (and which is accompanied by imputations of misconduct) have been held against the petitioner. With respect to accounts of three customers namely M/s Savik Vijay Engineering Private Limited, WPC 5579/1998 Page 2 of 31 M/s Tajesh Minerals Enterprises and M/s Installation and Allied Services India , petitioner was found guilty in failing to ensure compliance of pre- sanction and post-sanction requirements, granting of financial facilities without having powers to do so and concealing the same from the higher authorities, failing to inform Export Credit Guarantee Corporation (ECGC) in time resulting in loosing of bank’s entitlement with ECGC etc etc. 2. Before adverting to the arguments urged on behalf of the petitioner, the scope of hearing in a petition filed before this Court under Article 226 of the Constitution of India needs to be set out. This Court does not sit as an Appellate Court to re-apprise the findings of facts and law arrived at by the departmental authorities. Orders of the departmental authorities can only be challenged on the ground of perversity in the findings, violation of principles of natural justice, violation of rules/law and violation of doctrine of proportionality. On these principles let us examine the arguments which have been urged on behalf of the petitioner. 3. The departmental authorities have found that faults were committed by the petitioner in accounts of three customers namely M/s Savik Vijay Engineering Private Limited, M/s Tajesh Minerals Enterprises and M/s Installation and Allied Services India. With respect to each account several infractions have been alleged against the petitioner. Most of the WPC 5579/1998 Page 3 of 31 allegations have been held to be proved against the petitioner except allegation nos.2 and 4 with respect to the account of M/s Savik Vijay Engineering Private Limited and allegations no.3 and 6 with respect to the account of M/s Tajesh Minerals Enterprises. The summary of the findings against the petitioner is as under:- SUMMARY OF THE FINDINGS I. M/S SAVIK VIJAY ENGG. PVT. LTD. Allegations relating to lapses & irregularities at pre-Sanction stage:- ALLEGATION NO.1 : PROVED ALLEGATION NO.2 : PROVED ALLEGATION NO.3 : PROVED ALLEGATION NO.4 : PROVED ALLEGATION NO.5 : PROVED ALLEGATION NO.6 : PROVED ALLEGATION NO.7 : PROVED ALLEGATION NO.8. : PROVED Allegations relating to lapses & irregularities at post-sanction stage:- ALLEGATION NO.1 : PROVED ALLEGATION NO.2 : NOT PROVED ALLEGATION NO.3 : PROVED ALLEGATION NO.4 : NOT PROVED ALLEGATION NO.5 : PROVED II. M/S TAJESH MINERALS ENTERPRISES ALLEGATION NO.1 : PROVED ALLEGATION NO.2 : PROVED ALLEGATION NO.3 : NOT PROVED ALLEGATION NO.4 : PROVED ALLEGATION NO.5 : PARTLY PROVED ALLEGATION NO.6 : NOT PROVED WPC 5579/1998 Page 4 of 31 ALLEGATION NO.7 : PROVED ALLEGATION NO.8 : PROVED ALLEGATION NO.9 : PROVED BUT THE FACT OF ADJUSTMENT OF THE ACCOUNT NOTED. ALLEGATION NO.10. : PROVED III. M/S INSTALLATION & ALLIED SERVICES INDIA ALL THE CHARGES ARE PROVED EXCEPT THE ONE RELATING TO OBTAINING OF BLANK DOCUMENTS. 4. The arguments which have been urged before me are basically in terms of the pleadings which are drawn up with respect to grounds I, J, K and L which run from pages 49 to 62 of the writ petition. The aforesaid grounds are with respect to the first two accounts and with respect to the third account of M/s Installation & Allied Services India. What is argued is that since the illegal purchasing of the bills were reported, petitioner stands exonerated. ACCOUNT M/S SAVIK VIJAY ENTERPRISES LIMITED 5. With respect to this account lapses and enquiries are alleged against the petitioner both at the pre-sanction and post-sanction stages. Arguments have been addressed before me only with respect to allegations/charges 1 to 4, 5 and 8. Charges against the petitioner with respect to defaults at the pre-sanction stage are as under:- “A/C M/S Savik Vijay Engineering Private Limited WPC 5579/1998 Page 5 of 31 On the basis of loan proposal forwarded by Shri A.K.Nanda as Manager, B/O K.G.Road, Bangalore and Sh. K.A.Hegde, the then Regional Manager, Regional Office, Madras, the following credit facilities were sanctioned in favour of the company vide Head Office sanction letter No. Cr../87 dates 12.5.88 and Cr/OPC dated 7.6.90. a) CC (Hypothecation) Limit Rs.9.00 lacs b) BP/BD Limit Rs.9.50 lacs c) Term Loan Rs.54.00 lacs d) Bridge Loan Rs.10.00 lacs e) Bank Guarantee Limit Rs.5,92,560.00 The following lapses, irregularities were observed on the part of Sh. A.K.Nanda at the pre-sanction stage which indicate that the loan proposal was not at all appraised and Shri. A.K.Nanda did not act in his best judgment while recommending/forwarding credit proposal of the company for setting up a new unit/project by over-looking the following vital factors/deficiencies: i) The loan proposal was received at B/O K.G.Road, Bangalore on 14.12.87 and the same was forwarded to Regional Office on 16.12.87. This shows that the loan proposal was dealt with in an hurried manner without proper scrutiny. ii) As per Memorandum and Articles of Association of the Company it was set up on 15.12.86 with the following three Directors: a) Shri B. Gopal-Krishnan b) Shri B. Muthukumarson c) Smt. M.Savithri Whereas in the loan application (L-107), the company stated the following five persons as Directors: a) Shri B.Gopal-Krishnan b) Shri B. Muthukumarson c) Shri V.K.Venkatesh d) Shri S.G.Subbaratnam However, no queries were found raised by Shri A.K.Nanda to ascertain the factual number of Directors, dates of joining of new Directors of relevant Board Resolutions in this regard. WPC 5579/1998 Page 6 of 31 iii) In contravention of Head Office guidelines, no pre-sanction inspection was conducted and/or report in respect thereof submitted alongwith the loan iv) The credit reports on the Directors as well as associates/sister concern from their existing bankers were not obtained/scruitinised. v) The Balance Sheet of the companies sister/associate concerns were not obtaining in order to ascertain the financial standing, experience, capability, performance of the Directors/promoters. vi) The credit facilities sought for by the company were for setting up new unit/Project, but no efforts were made to ascertain the viability of the project from a qualified Engineer/Chartered Accountant/Government Body. Also no efforts were made to ascertain the experience of the Directors/promotors in the proposed line of activity. vii) As per proposal, the cost of plant and machinery/project was estimated at Rs.69.37 lacs and as such the company was not covered under SST, yet the proposal was forwarded treating it as that of SSI unit. viii) As against a Paid-up Capital of Rs.3000/- only, credit facilities to the extent of Rs.83,00 lacs were recommended for sanction. No efforts were made to ascertain as to what source the company/promotors would arrange margin money for availing the credit facilities being recommended. 6(i) The first allegation against the petitioner at the pre-sanction stage with respect to M/s Savik Vijay Engineering Private Limited was that the loan proposal was dealt in a hurried manner without proper scrutiny. With respect to this allegation against the petitioner the finding is that the issue really is not of hurried manner of forwarding the loan proposal but actually aspect of hurried manner is to be taken with the aspect of lack of proper scrutiny. Following are the facilities which were proposed in a WPC 5579/1998 Page 7 of 31 hurried manner without proper scrutiny. “a) CC-hypn. Limit - 9.00 lacs b) BP/BD limit - 9.50 lacs c) Term Loan - 54.00 lacs d) Bridge Loan - 10.00 lacs e) Bank Guarantee Limit - 5,92,560.00” (ii) The deficiencies are with respect to the petitioner making recommendations without necessary backing of documents and their evaluations as required at the time of recommending the loan. The report of M/s Pai & Associates which was relied upon by the petitioner was rejected because that report was undated, not addressed to anybody and it did not even bear the signatures of the author of the report, and therefore it was held that this report could not be said to have existed on record of the bank at the time of submission of the loan proposal. If the report was available at the relevant time, then, enquiry officer rightly notes that there was no reason why it was not made part of the loan proposal. The stand of the petitioner of one Sh. L.A.Perumal conveying the message of the Regional Manager, Madras that the higher ups of the bank were interested has been held not to be established by the petitioner because though Mr. L.A.Perumal was produced as a witness by the bank, he was however not cross-examined by the petitioner as to his (Sh. Perumal’s) visit to the branch with recommendation of the Regional Manager. With respect to the notings WPC 5579/1998 Page 8 of 31 appearing on the reverse of calendar slip where certain particulars were mentioned of the account, the findings were that the same had nothing to do with Mr. L.A.Perumal or the Regional office inasmuch as the said slip bore the initials of the petitioner and was not in the handwriting of Sh. L.A.Perumal. 7(i). The argument with respect to this allegation urged on behalf of the petitioner was that there was no haste of the petitioner in dealing with loan proposal because the record showed that the customer was in touch with the regional office even prior to the loan proposal having been formally moved. The account holder was also in touch with the predecessor of the petitioner in the branch and which is argued to be another reason to show that there was no haste by the petitioner and no basis to the article of charges of hurried manner in which the loan proposal was received at the branch on 14.12.1987 and forwarded to the regional office within two days on 16.12.1987. (ii) In my opinion, arguments urged on behalf of the petitioner are really to confuse the real issue and which is not so much of the hurried manner of forwarding the loan proposal but really of forwarding of the loan proposal in a hurried manner without proper scrutiny and which was required at the branch level. Scrutiny required at the branch level has to be WPC 5579/1998 Page 9 of 31 with respect to the need of the financial limits of the customer, how the margin money will be brought in, whether the account holder has sufficient capital with him, financial standing of the Directors of the company, capacity to re-pay and so on. In fact, even the enquiry officer rightly holds that issue is not of hurried manner of forwarding of the loan proposal received on 14.12.1987 and submitted to the regional office on 16.12.1987, but really of there not being proper scrutiny and availability of the documents as required for forwarding of a loan proposal. 8(i) The second allegation against the petitioner was with respect to not taking proper documentation with respect to who were the Directors of the account company at the time of forwarding of the loan proposal. The charge is that no queries were raised by the petitioner to ascertain the actual number of Directors, their dates of joining and the relevant board resolution inducting the two additional persons as Directors. To this allegation, the defence of the petitioner was that he got the position as to the numbers of the Directors confirmed from the minutes book of the company wherein the names of the Directors were appearing. There is also an argument raised that three Directors were found in the Memorandum/Articles when the company was set up on 15.12.1986 and this became 5 Directors in view of the copy of the minute book furnished by the company. WPC 5579/1998 Page 10 of 31 (ii) With regard to this allegation against the petitioner, it has been held that petitioner did not ascertain how the additional two Directors came on to the Board of the Company and by which resolution these two persons were appointed. 9. The findings against the petitioner are justified inasmuch as admittedly, the minute book relied upon by the petitioner does not show that when the two additional Directors came on Board and how the petitioner made the necessary verifications. I therefore, find that this charge has been validly established against the petitioner. This argument is therefore rejected. 10(i) The next allegation against the petitioner is with respect to the petitioner in contravention of the applicable guidelines failing to conduct pre-sanction inspection and no report in respect thereof was submitted alongwith the loan proposal. The petitioner contended that the pre-sanction inspection was conducted and a report in this regard was submitted. Petitioner placed reliance upon the pre-sanction inspection report aspect mentioned at item no. 9 of the forwarding letter dated 16.12.1987 as also the report again having been submitted on 27.4.1988 (but the inspection date was wrongly written as 27.4.1987). (ii) The enquiry officer with respect to this allegation has held that the fact that the inspection report was submitted to the head office on WPC 5579/1998 Page 11 of 31 27.4.1988 cannot mean that the same existed as on 16.12.1987 inasmuch as the record of the bank showed that this pre-inspection report was submitted in April, 1988 after considerable follow up by the regional office. The enquiry officer rightly notes that if really the petitioner had inspected the plan/site on 27.11.1987 then there was no reason why the inspection report was submitted in April, 1988 and not sent alongwith the loan proposal in December, 1987. In my opinion, there is no illegality or perversity in this finding of the departmental authorities because simply mentioning of a pre- inspection report at serial no. 9 in the loan proposal does not mean that inspection report was actually attached to the loan proposal. In fact, therefore, the enquiry officer rightly notes that because this report did not form part of the loan proposal therefore, the regional office pursued the matter with the petitioner and ultimately it was only sent on 27.4.1988. The argument of the petitioner raised qua this issue is therefore rejected. 11(i) The next allegation against the petitioner is that the petitioner failed to obtain the credit reports of the Directors as well as of allied firms from the existing bankers before considering the loan application of a customer. The petitioner is alleged not to have obtained reports of the Directors/Promoters with respect to one allied concern namely M/s Vijay Jacks & Allied. Enquiry officer in this regard has given a finding that WPC 5579/1998 Page 12 of 31 whereas the existing bank M/s Vijaya Bank had given the report with respect to M/s Vijay Hydraulics, however, the document D-7 does not mention anything about the other allied concern M/s Vijay Jacks and Allied. Therefore, it was clear that with respect to M/s Vijay Jacks & Allied no reports were obtained by the petitioner. The enquiry officer in fact notes that petitioner maintained that he considered it not necessary to obtain such report, and which is held against the petitioner because in terms of the relevant guidelines this was a specific requirement which was not complied with. The allegation against the petitioner was therefore held to have been proved. (ii) I do not find any perversity in the findings of the departmental authorities because admittedly M/s Vijay Jacks & Allied was an allied concern and therefore it was necessary to obtain the credit reports with respect to that concern and its Directors, and which requirement was admittedly not complied with by the petitioner. Reliance placed upon by the petitioner on D-7 (14.4.1988) being a letter addressed by the Regional Manager to the AGM at the Head Office does not show that credit report was taken with respect to the allied concern M/s Vijay Jacks & Allied. I may note that the document D-7 is repeatedly relied upon by the petitioner however, this document has to be taken with a pinch of salt because this is a WPC 5579/1998 Page 13 of 31 letter signed by the Regional Manager much later than forwarding of the loan proposal in December 1987 and therefore, subsequent documentation cannot remove the deficiencies which in fact existed at the time of forwarding the loan proposal in December, 1987 and which deficiencies ought not to have existed at the time of forwarding of the loan proposal. It also bears mention that this Regional Manager in fact was charge-sheeted with respect to another account by the bank and punishment was imposed upon him. This argument is therefore rejected. 12. The next allegation against the petitioner is that petitioner did not obtain the balance-sheet of sister/associate concern in order to ascertain the financial standings/experience/capability/performance of the Directors/promoters. The defence of the charge-sheeted officer in the departmental proceedings was that he did not consider this necessary. According to the petitioner the letter D-7 dated 14.4.1988 shows that this aspect was evaluated by the Regional Manager and therefore, this requirement should be held to be complied with. The enquiry officer has in view of the defence of the petitioner noted that since he considered obtaining of the reports as not necessary, it was a clear cut admission that the required reports were not obtained and hence there was violation of the guidelines. The argument of the petitioner that the book of instruction is an incomplete WPC 5579/1998 Page 14 of 31 document relied upon by the bank is a misconceived argument because if the petitioner had relied upon an incomplete instruction book, what prevented the petitioner from filing the complete book of instruction. This obviously the petitioner did not do because it is an elementary aspect in banking circles that whenever a loan proposal is forwarded, surely to determine aspects of financial standing etc, complete reports with respect to the Directors and promoters have to be obtained. The argument of the petitioner under this head is therefore rejected. 13(i) The next allegation against the petitioner pertains to the fact that company had a paid up capital of only ` 3,000/- whereas the credit facilities of an amount of ` 83 lacs were recommended for sanction and the petitioner did not make effort to ascertain what is the source of the company/promoters for arranging the margin money for availing the credit facilities for being recommended. (ii) In my opinion, the findings of the departmental authorities in this regard of holding the charges proved against the petitioner is correct because even if we look at the documents which are relied upon by the petitioner namely D-7, M-2, M-6, M-7 and D-42, the same do not show that petitioner had made enquiry from the Directors/promoters as to how the company proposed to raise the capital and the source which the company WPC 5579/1998 Page 15 of 31 depended upon for increasing the required capital to meet the margin requirements for the facilities to be availed from the bank. In my opinion, merely because the Regional Manager in the letter D-7 in April 1988 mentions that promoters/Directors belong to business community and are doing business for many years and therefore it will not be difficult for them to bring in their contribution which cannot take away the fact that as on the date of forwarding of the proposal the pre-sanction requirement of finding out the basis of how the promoters/Directors will bring in margin money was not complied with. There is nothing inconsistent in the findings of the departmental authorities as is argued before me. This argument of the petitioner is therefore rejected. 14. The next set of allegations against the petitioner pertain to the post sanction stage and they read as under:- “Besides, the following lapses/irregularities were observed on the part of Shri A.K.Nanda at the post-sanction stage:- i) Shri A.K.Nanda failed to monitor the end use of bank’s funds in as much as out of the proceeds of Term Loan, following sums were paid by way of pay Orders drawn in favour of M/s Vijay Jacks and Allied inspite of knowing that the said firm was a sister/associate concern of the company. Date Pay Order No. Amount 24.11.88 640/88 Rs. 4.39 lacs 2.5.89 411/89 Rs. 4.00 lacs 1.3.89 179/89 Rs. 4.00 lacs All the aforesaid Pay Orders were handed over to Shri WPC 5579/1998 Page 16 of 31 B.Gopalakrishnan, a Director of the Company. Further, on 25.11.88, a Current Account was opened with Dena Bank, Jayanagar, Bangalore Branch in the name of the firm M/s Vijay Jacks and Allied under the proprietorship of Smt. M. Savithri (a Director of the company) and aforesaid Pay Orders were deposited therein and subsequently the funds were withdrawn therefrom. The receipts issued by M/s Vijay Jacks and Allied in token of having received the payments, were even signed by Sh. B. Muthukumarson, A director of the Company, but Shri a.K.Nanda did not take any steps to ascertain the genuineness of the said transactions/end use of the said funds. Likewise other pay orders/drafts issued from the loan accounts of the party were found handed over directly to Sh. B. Gopal Krishnan, the Director of the company. (ii) As per one of the sanction stipulation, the IDBI refinance was to be obtained by the Regional Office before the release of the facilities. The Regional Office obtained the requisite sanction on 28.7.88 and informed the branch till 12.10.90 as the company failed to produce the required certificate from DGTD. Incidentally, as per another sanction stipulation the certificate from DGTD was also required before the release of the facilities but Sh. A.K.Nanda, contrary to the said sanction stipulation released the credit facilities without obtaining the certificate from DGTD. Also the IDBI refinance was obtained on the amount of sanction limit of Rs. 54.00 lacs and not on the cost of the project. (iii) Contrary of H.O. instructions for getting the requisite margin deposited in the account before releasing payments to the supplier of machineries, Shri A.K.Nanda relied upon the Cash Receipts produced by the company as advances made to the supplier of the machinery by the company and treated the same as margin. In fact, the company was having no funds to meet the margin requirements and the said aspect was overlooked by Sh. A.K.Nanda at the time of recommending the limits. Even the Balance Sheets of the sister-concern received on a subsequent date but before the release of WPC 5579/1998 Page 17 of 31 facilities were not properly looked into. The said Balance Sheet clearly indicated that there were no funds to meet the required margin. Shri A.K.Nanda, as such, failed to ensure whether proper margin has been constituted by the company at the time of machinery purchased from M/s Avery India Limited, a sum of Rs.2.80 lacs were released against the cost price of Rs. 3.07 lacs. Likewise, in the case of machineries purchased from M/s Pillar Induction (O) Pvt. Ltd. the required margin was not obtained. (iv) No bills/invoices in respect of machineries purchased were obtained/held on record. (v) No post-sanction inspection was conducted to ensure the end use the bank funds. As on 24.3.92, the various account of the company were showing an aggregate outstanding of Rs. 106.55 lacs which were/are proving difficult of recovery. The aforesaid acts on the part of Sh. A.K.Nanda have attributed for putting the aforesaid bank’s funds into jeopardy.” 15. With respect to the post sanction stage allegations the arguments have been addressed before