Bank of India Vs. Anurodh Mittal - The Hon’ble High Court has categorically held that in view of Section 96(1)(b)(i) of the IBC, the Bank cannot proceed with the impugned action without obtaining prior leave of the NCLT, thereby expressly recognizing the jurisdiction of this Adjudicating Authority to consider and grant such leave.

 NCLT Indore (2026.02.25) in Bank of India Vs. Anurodh Mittal  [IA/369(MP)2023 in CP(IB)/74 (MP) 2022] held that;

• The Hon’ble High Court has categorically held that in view of Section 96(1)(b)(i) of the IBC, the Bank cannot proceed with the impugned action without obtaining prior leave of the NCLT, thereby expressly recognizing the jurisdiction of this Adjudicating Authority to consider and grant such leave.

Excerpts of the Order;

# 1. The Present Interlocutory application has been filed by Applicant/Financial Creditor - Bank of India with a prayer to file a First Information Report with the Law Enforcement Agency against the directors, promoters and guarantors of the Corporate Debtor, Shree Geeta Textile Mills Pvt. Ltd., whose loan account has been classified as fraud in accordance with the RBI Master Circular on Fraud Classification and Reporting by Commercial Banks and Select FIs, 2016.

# 2. The brief facts are that the Corporate Debtor, Shree Geeta Textile Mills Pvt. Ltd., had availed various credit facilities from a consortium consisting of Bank of India as Lead Bank and Bank of Baroda as member bank. The total sanctioned limits aggregated to ₹56.96 crores along with a Bank Guarantee limit of ₹1.75 crores on 25.05.2015. The Applicant Bank holds 85.59% of the total consortium exposure. Due to defaults in repayment, the account was classified as NPA on 31.03.2019. A notice under Section 13(2) of the SARFAESI Act was issued by the Applicant on 09.04.2019, and thereafter on 11.09.2020 which was issued jointly by Bank of India and Bank of Baroda for the outstanding dues.

Pleadings of Applicant:

# 1) The Applicant submits that as required under the applicable directions of the RBI Master Circular on Fraud Classification and Reporting, the borrowing account of the Corporate Debtor (A/c Nos. 950665410000003 and 950630110000185) was subjected to a forensic audit which was duly conducted by appointed Forensic Auditor. On 22.06.2023, the Applicant forwarded a copy of the Forensic Audit Report to the Corporate Debtor and its directors/promoters, calling upon them to furnish their comments within seven days. After considering the said reply, the Forensic Auditor furnished its final remarks on 31.07.2023. 

# 2) Thereafter, the Applicant Bank, vide letter dated 07.10.2023, informed the Corporate Debtor that the competent authority, namely the Fraud Monitoring Group (Head Office), in its meeting held on 16.09.2023, had decided to classify the said borrowing account as “Fraud.”

# 3) Pursuant to the said classification, the Corporate Debtor and its directors/promoters approached the Hon’ble High Court of Madhya Pradesh, Jabalpur in WP No. 26872/2023, wherein the court has held:

• However, a reading of provisions contained in Section 96 (1)(b)(i), I am of the opinion that for the present, without leave of the NCLT, bank is not authorized to carry those proceedings. Hence, it is  directed that without the leave of NCLT, no proceedings shall be initiated.

4) It is further submitted by the applicant that the Present Application further relies upon the object and purpose of the RBI Master Circular on Fraud Classification, namely:

• (i) early detection and reporting of fraud;

• (ii) timely reporting to investigating agencies and law enforcement authorities;

• (iii) quick dissemination of information regarding fraudsters; and 

• (iv) preventive measures for banks.

# 5) That Ld. Counsel for the applicant had relied on the judgement of the Hon’ble Calcutta High Court in Adarsh Jhunjhunwala vs. State Bank of India & Anr., after considering the Supreme Court judgment in State Bank of India vs. V. Ramakrishnan, (2018) 17 SCC 394, held that the object of the Master Circular on Wilful Defaulters is to prevent fraud and protect public money, and proceedings of this nature are not for recovery of debt.

# 6) Ld. Counsel for the Appellant has also relied on the Hon’ble Gujarat High Court in Jagdish Prasad Saboo vs. IDBI Bank Ltd., which, after considering P. Mohanraj & Ors. vs. Shah Brothers Ispat Pvt. Ltd., (2021) 6 SCC 258, held:

(Para 11, 11.1 of the Judgment)

• The Apex Court in the aforementioned case of P Mohanraj (supra) has not dealt with the aspect of Wilful Defaulter and has only confined its observations with regard to the proceedings under Section 138 of the N.I. Act and with regard to recovery proceedings of debt, as envisaged under Section 96 of the IBC. The proceedings of declaring the borrower, as per the master circular as a Wilful Defaulter, are in absolutely different realm than the recovery proceedings of debt and hence, the provision of Section 96 of the IBC cannot be extended to the petitioner, which has been declared as Wilful Defaulter.

Pleadings of respondents:

# 7) Ld. Counsel on behalf of the Respondent/Personal Guarantor had submitted that, the alleged prayer of the Applicant to seek leave to file FIR against the director, Promoter and guarantors pursuant to classification of account as Fraudulent is under challenge before the high court of Madhya Pradesh in WP 26872/2023 and therefore the remedy demanded is explicitly lies outside the preview of IBC, 2016 and beyond the scope and power of this Hon’ble Adjudicating Authority. Thereby, the present IA is not maintainable and applicant has no right to seek leave nor any cause of action whatsoever against the respondent until the writ petition has duly adjudicated by the Hon’ble High Court therefore the IA deserves to dismissed in limine.

Observations:

# 8) Having heard the Learned Counsel for the Applicant/Financial Creditor and the Learned Counsel for the Respondent/Personal Guarantor, and upon perusal of the material placed on record, this Adjudicating Authority proceeds to examine the issue whether leave ought to be granted to the Applicant to lodge a First Information Report against the directors, promoters and guarantors of the Corporate Debtor pursuant to classification of the borrowing account as fraud in terms of the RBI Master Circular on Fraud Classification and Reporting, 2016.

# 9) At the outset, it is not in dispute that the Corporate Debtor had availed substantial credit facilities from the consortium of banks led by the Applicant, and on account of persistent default, the account was declared NPA on 31.03.2019 followed by issuance of statutory notices under the SARFAESI Act. Subsequently, a forensic audit was conducted in accordance with the RBI Master Circular, the report of which—after granting opportunity of representation to the borrowers and promoters—culminated in the competent authority classifying the account as fraud on 16.09.2023, duly communicated on 07.10.2023.

# 10) The objection of the Respondent is primarily based on the pendency of Writ Petition No. 26872/2023 before the Hon’ble High Court of  Madhya Pradesh. However, the Hon’ble High Court itself has observed that:

• “However, a reading of provisions contained in Section 96(1)(b)(i), I am of the opinion that for the present, without leave of the NCLT, even bank is not authorized to carry those proceedings. In view of such statutory provisions contained in IBC, it is directed that without leave of NCLT, no proceedings shall be initiated.”

# 11) The Hon’ble High Court has categorically held that in view of Section 96(1)(b)(i) of the IBC, the Bank cannot proceed with the impugned action without obtaining prior leave of the NCLT, thereby expressly recognizing the jurisdiction of this Adjudicating Authority to consider and grant such leave.

# 12) Further, judicial precedents relied upon by the Applicant clarify the legal position that proceedings arising out of fraud or wilful default classification are distinct from debt recovery mechanisms.

# 13) In this regard, further guidance is drawn from the judgment of the Hon’ble High Court at Calcutta in Atibir Industries Company Limited vs. Indian Bank vide order dated 20.03.2024 in WPO No. 204 of 2024 had duly held as follows:

• Para 37: Coming to the arguments on Section 96 of the IBC,

• `Para 38: Thus, a wilful defaulter proceeding does not come within the contemplation of Section 14 or Section 96 of the IBC, which primarily pertains to legal actions to foreclose, recover or enforce security interest, or recovery of any property of the debt-in-question.

• Para 39: Again, the Supreme Court as clarified in P. Mohanraj (supra) that the language of Section 14 of the IBC is wider than Section 96. Since the judgment of this Court excludes wilful defaulter proceedings from the Section 14 moratorium, the same principle is applicable all the more it was clearly observed in Gouri Prasad Goenka (supra) that the moratorium envisaged in Section 14 of the IBC creates no hindrance to a wilful defaulter declaration proceeding, which, as held by the Supreme Court in several judgments, is “to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them” and not for recovery of debts or assets of the corporate debtor, which could hamper the corporate insolvency resolution process.e with regard to Section 96. 

• Para 40: In P. Mohanraj (supra), the Supreme Court has repeatedly highlighted, particularly in paragraph nos. 35.2 and 35.3, that the moratorium concerns not merely recovery of debt but any legal proceeding even indirectly relatable to recovery of any debt. Hence, the moratorium applies to recovery proceedings and proceedings which directly or indirectly “relatable” to such recovery. A wilful defaulter proceeding cannot, by any stretch of imagination, be said to be even remotely relatable to recovery of debt but is merely an off-shoot of the debt. The corpus of debt is not the subject-matter of a wilful defaulter proceeding, unlike a recovery proceeding, but is a mere stimulus to spur the wilful defaulter proceeding into motion.

• Para 41: The yardsticks of declaration of wilful defaulter under the Master Circular are different from a recovery proceeding or a relatable proceeding; such declaration is merely to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them. Thus, the argument of the petitioners that the pendency of a proceeding under Section 95, IBC automatically entails a moratorium under Section 96 on a wilful defaulter proceeding is also not tenable in the eye of law.

# 14) The above mentioned judgment it has been categorically held that proceedings relating to declaration of a borrower as a wilful defaulter do not fall within the ambit of the moratorium contemplated under Sections 14 or 96 of the Insolvency and Bankruptcy Code, 2016, since such proceedings are not for recovery of debt but are intended “to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them.” and therefore the statutory moratorium under the IBC does not operate as a bar to such action.

# 15) In light of the foregoing, and considering that the regulatory framework governing fraud classification mandates early detection, reporting to investigating agencies, dissemination of information, and preventive banking measures, thereby underscoring that such actions are in the realm of public law enforcement and regulatory compliance, and not merely recovery of debt.

# 16) Further, the directions of the Hon’ble High Court of Madhya Pradesh mandating prior leave of this Tribunal, this Adjudicating Authority is fully empowered to consider the present application and grant appropriate permission for initiation of proceedings before the law enforcement authorities.

# 17) In view of the foregoing, the present application deserves to be allowed in the interest of justice. Accordingly, the prayer sought is allowed only insofar as it pertains to the present Applicant, and IA/369 (MP)/2023 stands allowed and disposed of.

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