,,,
1. Regard being had to the similitude in the controversy involved in the present cases, the writ petitions were analogously heard and by this common",,,
order, they are being disposed of by this Court.",,,
2. The petitioner is common in all the three writ petitions. The facts of W.P.No.22588 of 2019 reveals as follows:-,,,
The petitioner, a company registered under the Companies Act, has filed the present writ petitions being aggrieved by the action of the respondent",,,
No.3/Andhra Bank (now merged with Union Bank of India) in declaring the petitioner’s account as ‘fraud’ and is also aggrieved by the,,,
Master Circular issued by the Reserve Bank of India, dated 01.07.2016 as violative of principles of natural justice and fair play.",,,
3. The petitioner has prayed the following reliefs:,,,
“In these circumstances and for the reasons stated above, it is prayed that this Hon’ble Court may be pleased to pass an order or direction or",,,
any other proceedings one in the nature of Writ of Mandamus declaring the action of 3rd respondent in declaring the petitioner as ‘Fraud’ as,,,
arbitrary, illegal and contrary to ‘Master Directions on Frauds â€" Classification and Reporting by commercial banks and select FIs dated",,,
01.07.2016 issued by the 2nd respondent, and further declaring the ‘Master Directions on Frauds â€" Classification and Reporting by commercial",,,
banks and select FIs dated 01.07.2016 as violative of principles of natural justice and consequently to set aside the decision of the 3rd respondent,,,
Bank and the impugned circular, and pass such other order or orders as this Hon’ble Court may deem fit and proper in the interest of justice.",,,
It is further prayed that pending the disposal of the writ petition, this Hon’ble Court may be pleased to stay all proceedings consequential to the",,,
action of the 3rd respondent in declaring the petitioner as ‘Fraud’ and pass such other order or orders as this Hon’ble Court may deem fit,,,
and proper in the interest of justice.,,,
It is further prayed that pending the disposal of the writ petition, this Hon’ble Court may be pleased to direct the 2nd respondent to produce the",,,
record of proceedings in which the petitioner was declared as ‘Fraud’ and share a copy of the same with the petitioner, and pass such other",,,
order or orders as this Hon’ble Court may deem fit and proper in the interest of justice.â€,,,
4. The facts, as stated in the writ petition, reveal that the petitioner company is involved in the business of manufacture of edible oils and fats, rice and",,,
rava products and is having two manufacturing facilities in the State of Telangana as well as in the State of Andhra Pradesh. The petitioner company,,,
from 2003 to 2015 sought credit facilities from a consortium of banks with Andhra Bank (now merged with Union Bank of India) as a Lead Banker,,,
for a sum of Rs.675 crores. The petitioner company was declared as Non Performing Asset (NPA) on 14.05.2018 with effect from 31.03.2018. The,,,
petitioner company has further stated that after the account of the petitioner company became NPA, the consortium of lenders in the JLF Meeting",,,
dated 10.08.2018 proposed to conduct forensic audit of the petitioner company for the period till 31.03.2019. The petitioner company, as stated, has",,,
submitted all the requisite information as required by the forensic auditor appointed in the matter from time to time and it is the contention of the,,,
petitioner company that no adverse observations or detection of fraud activity by the petitioner company was noticed in the forensic audit. However,",,,
the respondent No.3 Bank kept on pushing the auditor to look deeper into the books so that the petitioner company is declared as ‘fraud’. It has,,,
also been stated that the respondent No.3 Bank also initiated recovery proceedings before the Debt Recovery Tribunal and finally an e-mail dated,,,
23.09.2019 was initiated by Tamilnad Mercantile Bank Limited to the respondent No.3/Union Bank of India with a copy to the petitioner company,,,
declaring the petitioner’s account as ‘fraud’. The petitioner company has further stated that the petitioner company contacted the Officers,,,
of the respondent No.3 Bank and it was informed to the petitioner that the decision was taken by the management of the Bank in line with the,,,
Directives of the Reserve Bank of India.,,,
5. The contention of the petitioner company is that the action taken against the petitioner company by declaring the petitioner’s account as,,,
‘fraud’ is in violation of the principles of natural justice and fair play and therefore, the Circular itself issued by the Reserve Bank of India under",,,
Section 35A of the Banking Regulation Act, 1949 as it excludes the principles of natural justice and fair play deserves to be quashed and the",,,
consequential action taken by the Bank also deserves to be quashed on the ground of violation of principles of natural justice and fair play. The other,,,
ground taken by the petitioner company is that the forensic audit report nowhere holds the petitioner guilty of playing any fraud and in fact, the findings",,,
of the forensic audit are in favour of the petitioner company.,,,
6. The learned counsel for the petitioner has vehemently relied upon the Judgment delivered by the Division Bench of this Court in the case of Rajesh,,,
Agarwal v. Reserve Bank of India 2021 (2) ALD 290 : 2021 (1) ALT 454 and his contention is that this Court while deciding the aforesaid case on,,,
10.12.2020 has held that the action of the Bank therein is bad in law as principle of audi alteram partem was not included in the Master Circular.,,,
Attention of this Court has been drawn to paragraphs 69 and 70 of the aforesaid Judgment and his contention is that in the light of the aforesaid,,,
Judgment, the decision arrived at by the respondent No.3 Bank in declaring the petitioner’s account as ‘fraud’ deserves to be set aside.",,,
7. The Reserve Bank of India has filed a detailed reply in the matter and the contention of the Reserve Bank of India is that Section 35A of the,,,
Banking Regulation Act, 1949 empowers the Reserve Bank of India to issue directions to the Banks and the ‘Master Directions on Frauds’ has",,,
been issued by the Reserve Bank of India in public interest. The Reserve Bank of India being the regulator and supervisor of the Banks in the country,,,
has been issuing many instructions to the Banks to sensitize them against banking frauds. On 22.03.2021, the Reserve Bank of India had issued a",,,
Master Circular on Frauds incorporating the circulars issued on the subject till that date and the Master Circular issued on Frauds are updated every,,,
year. It has been further stated that in 2016, the Reserve Bank of India has started issuing Master Directions on each subject covering all instructions",,,
on that subject and the Master Directions are being updated suitably whenever there is a change in the policy. It has been further stated that,,,
‘Master Directions on Frauds â€" Classification and Reporting by Commercial Banks and select FIs’ (hereinafter called as ‘Master,,,
Directions on Frauds’/‘Master Circular’) was issued on 01.07.2016 and it is nothing but updation of the existing Master Circular on Frauds,,,
â€" Classification and Reporting, dated 01.07.2015. It has been further stated that subsequently Master Directions on Frauds was updated on",,,
03.07.2015.,,,
8. The Reserve Bank of India has also stated that the Master Circular does not violate the principles of natural justice and fair play nor it is arbitrary.,,,
The information in the Central Fraud Registry does not cause injury to the borrower’s reputation or his/her business and the information is shared,,,
with other banks on private and confidential basis, which is in the nature of a Bankers Report on an account. The Reserve Bank of India has further",,,
stated that it is done with an intention to share the information for the purpose of exercising caution while dealing with such parties as indicated in,,,
Caution Advice/Central Fraud Registry. It has been further stated that it is mandatory to file a complaint with the Law Enforcement Agencies who,,,
then independently investigate the matter and present it in Court of Law.,,,
9. The Reserve Bank of India has further stated that the information on frauds is published by the Reserve Bank of India at aggregate level without,,,
revealing the details of individual cases and it does not cause injury to the borrower’s reputation or business. It has been further stated that the,,,
loan fraud is a breach/violation of the terms and conditions of the contract by a borrower as perceived by the Bank who granted the loan to the,,,
borrower. It has been further stated that in case of commission of fraud by the borrower, the Bank is the injured party and has a right to report the",,,
crime to Law Enforcement Agencies. It is not incumbent on the Banks to provide the perpetrator an opportunity to be heard in a similar manner for,,,
lodging an FIR, no opportunity of hearing is to be granted. It has been further stated that in case of classification and reporting of fraud, it is necessary",,,
to file a complaint with Law Enforcement Agencies and the investigation is done independently by the Law Enforcement Agencies and it is not a case,,,
where by mere declaration of fraud, a person/entity is punished.",,,
10. It has been further stated that ‘Master Directions on Frauds’ provides for a comprehensive mechanism and the forensic auditor does the,,,
audit on the basis of the documents supplied by the borrower. It is not a case where the forensic auditor on his own prepared some documents and it,,,
is only based upon the information furnished by the Bank and the borrower and the forensic audit is done in respect of the account of the borrower,",,,
who is very much aware of the same and at no stretch of imagination, it can be presumed that unilateral action is initiated against the borrower.",,,
11. The Reserve Bank of India has further stated that the ‘Master Circular’ provides a comprehensive mechanism. The Committee headed by,,,
an Executive Director or equivalent with two senior officers takes a decision and thereafter the order of the Committee is reviewed by another,,,
Committee headed by the Chairman/CMD or the MD & CEO/CEO and two independent Directors/non-executive directors of the Bank. The order is,,,
final only after it is confirmed by the said Review Committee. Meaning thereby, lot of checks and balances have been provided under the Master",,,
Circular and no case for interference by this Court is made out and therefore, the Reserve Bank of India sought for dismissal of the present writ",,,
petitions.,,,
12. The respondent No.3/Andhra Bank (Union Bank of India), Lead Bank of the consortium, has filed a detailed counter affidavit and it has been",,,
stated that action has been taken in the matter keeping in view the Master Directions on Fraud, dated 01.07.2016. It has been further stated that",,,
clause 1.3 of the Circular clearly establishes that the classification is purely an administrative exercise meant not only as an exercise necessary for,,,
follow up action in accounts classified as ‘Fraud Account’ but also as a preventive exercise. The classification of account is thus necessary and,,,
required to be undertaken in the circumstances. The Master Circular is in the nature of directions to the Banks as regards classification of account, its",,,
reporting to the Reserve Bank of India and follow up action and closure of account classified as ‘Fraud Account’. It has been further stated,,,
that the petitioner has been enjoying credit facilities in consortium with Andhra Bank (Union Bank of India) as the Lead Bank, being State Bank of",,,
India, Indian Bank, Punjab National Bank and Tamilnad Mercantile Bank the other member Banks. The petitioner’s account was declared as",,,
NPA and the Consortium of Bankers has taken steps to realise the securities and also filed an Application before the Debt Recovery Tribunal for,,,
recovery of an amount of Rs.617,40,94,702.61/-. It has been further stated that the petitioner is trying to mislead this Court by drawing parallel with",,,
declaring a borrower as ‘wilful defaulter’. It has been stated that classification of an account as a ‘Fraud Account’ is distinct and,,,
distinguishable from declaring the borrower as a ‘wilful defaulter’. In the case of declaring a borrower as a ‘wilful defaulter’, it is the",,,
person/borrower who is declared (not classified) as a wilful defaulter and not the account. Since such declaration affects the person/borrower, a",,,
detailed procedure is prescribed wherein a right of hearing is provided to such person/borrower in those cases, whereas in respect of classification of",,,
loan account as ‘Fraud Account’, it is done as a preventive measure purely for reporting, controlling, monitoring, follow up action and therefore,",,,
there is no necessity nor any requirement of hearing before classification of account as ‘fraud’.,,,
14. The respondent No.3/Bank has further stated that the petitioner company has filed Forensic Audit Report and the petitioner is reading only one,,,
paragraph, i.e., last paragraph of the Report and based upon the last paragraph of the Report, an attempt is being made before this Court by the",,,
learned counsel for the petitioner that there is nothing against the petitioner company in the forensic audit. Attention of this Court has been drawn to,,,
other paragraphs also, wherein there is a categorical statement against the petitioner company. On the basis of which, the account of the petitioner",,,
company has been declared as ‘fraud’. A prayer has been made for dismissal of the writ petitions.,,,
15. Heard the learned counsel for the parties at length and perused the record. The matter is being disposed of with the consent of the parties at,,,
admission stage itself.,,,
16. The facts of the case reveal that the petitioner company, incorporated in the year 1999, is engaged in the business of manufacture of edible oils",,,
and other products and availed credit facilities from a consortium of banks with Andhra Bank (Union Bank of India) as a Lead Bank for a sum of,,,
Rs.675 Crores. The account of the petitioner company was declared as NPA on 14.05.2018 and the consortium of banks has taken steps to realise,,,
the securities and also filed an Application before the Debt Recovery Tribunal for recovery of a sum of Rs.617,40,94,702.61/-. The petitioner company",,,
is aggrieved by the action of the respondent No.3/Andhra Bank (Union Bank of India) in declaring the petitioner’s account as ‘fraud’. The,,,
Reserve Bank of India is a Statutory Corporation constituted by the provisions of Section 3 of the Reserve Bank of India Act, 1934, for the purpose of",,,
regulating the issue of Bank Notes and keeping the reserves with a view to secure monetary stability in the country and generally to operate currency,,,
and credit system of the country. The Reserve Bank of India has been, inter alia, entrusted with the statutory obligation of administering the provisions",,,
of Banking Regulation Act, 1949. In the Banking Regulation Act, the Reserve Bank of India has been vested with various powers with respect to",,,
banking companies, such as granting licences, conducting inspections, giving directions, advises etc. The Reserve Bank of India has been vested with",,,
the powers to determine the Banking policy in the interest of banking system, in the interest of monetary stability and sound economic growth, having",,,
due regard to the interests of the depositors. The Reserve Bank of India is also concerned with organization of a sound and healthy banking system,",,,
ensuring effective coordination and control over credit through a proper Monetary and Credit Policies. The Reserve Bank of India has the primary,,,
responsibility to ensure stability of the banking system in the country and Directions/Guidelines have been issued by the Reserve Bank of India from,,,
time to time. The Reserve Bank of India being an expert body, its decisions with regard to regulation of banks deserve to be given due weightage.",,,
Section 35A of the Banking Regulation Act empowers the Reserve Bank of India to issue directions to the banks. Section 35 A of the Banking,,,
Regulation Act is reproduced as under:-,,,
“35A. Power of the Reserve Bank to give directions.- (1) Where the Reserve Bank is satisfied that-,,,
(a) in the public interest; or,,,
(aa) in the interest of banking policy; or,,,
(b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial,,,
to the interests of the banking company; or,,,
(c) to secure the proper management of any banking company generally,",,,
it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such",,,
directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.",,,
(2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so",,,
modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect.â€",,,
17. The ‘Master Directions on Frauds’ has been issued by the Reserve Bank of India in public interest under Section 35A of the Banking,,,
Regulation Act. The Reserve Bank of India being the regulator and supervisor of the banks in the country has issued many instructions to the banks to,,,
sensitize them against banking frauds and to have deterrent systems against such frauds. The Reserve Bank of India has issued a ‘Master Circular,,,
on Frauds’ dated 01.07.2016 incorporating the earlier circulars issued on the subject and the Reserve Bank of India updates the Master Circular,,,
on Frauds annually, generally in July incorporating the instructions issued till then. In 2016, the Reserve Bank of India has started issuing Master",,,
Directions of each subject covering all the instructions on that subject and the Master Directions are also updated suitably whenever there is a change,,,
in the policy. All the changes so made are reflected in the Master Directions available on the Reserve Bank website and finally ‘Master Directions,,,
on Frauds â€" Classification and Reporting of Commercial Banks and select FIs’ was issued on 01.07.2016. It is, in fact, more or less an updation",,,
of the existing Master Circular on Frauds â€" Classification and Reporting, dated 01.07.2015. Subsequently, Master Directions on Frauds was updated",,,
on 03.07.2017.,,,
18. Clause 1.3 of the ‘Master Directions on Frauds’ is reproduced as under:-,,,
“1.3 Purpose,,,
These directions are issued with a view to providing a framework to banks enabling them to detect and report frauds early and taking timely,,,
consequent actions like reporting to the investigative agencies so that fraudsters are brought to book early, examining staff accountability and do",,,
effective fraud risk management. These directions also aim to enable faster dissemination of information by the Reserve Bank of India (RBI) to banks,,,
on the details of frauds, unscrupulous borrowers and related parties, based on banks’ reporting so that necessary safeguards/ preventive measures",,,
by way of appropriate procedures and internal checks may be introduced and caution exercised while dealing with such parties by banks.â€,,,
19. The purpose set out in the Master Circular clearly establishes that the classification of account as ‘fraud’ is purely an administrative,,,
exercise, which is necessary to take follow-up actions and is also a preventive exercise to ensure that other banks also share the information which is",,,
in the Central Fraud Registry for the purpose of exercising caution while dealing with such parties. Much has been argued before this Court on the,,,
ground of principles of natural justice and fair play and a prayer has been sought to quash the ‘Master Directions on Frauds’, dated 01.07.2016",,,
to the extent they do not provide for opportunity of hearing.,,,
20. Heavy reliance has been placed upon the Judgment delivered by this Court in the case of Rajesh Agarwal (supra). It is true that a coordinate,,,
Bench of this Court has certainly held that the principle of audi alteram partem, part of the principles of natural justice, is to be read in Clause 8.9.4",,,
and 8.9.5 of the Master Circular. The aforesaid Judgment delivered by the Division Bench has not attained finality. In Special Leave Petition filed by,,,
the State Bank of India, i.e., S.L.P. (C) No.3931 of 2021, the Hon’ble Supreme Court, by order dated 15.04.2021, has granted interim order and",,,
the observation of the High Court to the extent of personal hearing be given, has been stayed. The Order passed by the Hon’ble Supreme Court is",,,
reproduced as under:-,,,
“Applications seeking exemption from filing certified copy of the impugned order are allowed.,,,
Issue notice.,,,
Dasti service, in addition, is permitted.",,,
Learned counsel is permitted to file counter affidavit within a period of four weeks from today. Rejoinder affidavit within two weeks thereafter.,,,
Set down for hearing on Tuesday, the 13th July, 2021 on top of the Board.",,,
Meanwhile, the Minutes/Order dated 15.02.2019 passed by the Joint Lenders Meeting is not to be acted upon. The High Court insofar as it observed",,,
that a personal hearing be given is stayed.â€,,,
21. In the considered opinion of this Court, as the issue of principle of natural justice and fair play is pending before the Hon’ble Supreme Court,",,,
the same is not being dealt with at present. However, the facts of the case reveal that the forensic audit, which was conducted, was not a unilateral",,,
exercise on the part of the auditor. The audit was conducted with full participation of the petitioner company and based upon the audit report, which",,,
was certainly prepared with the participation of the petitioner, the petitioner account has been classified as ‘fraud’.",,,
22. Learned counsel for the petitioner has much argued upon the ‘Conclusion’ part of the Audit Report and the same is reproduced as under:-,,,
“Conclusion:,,,
The Company SARL which is in edible oil and rice business has continuously progressed its turnover and reached to a peak turnover of Rs.2450 Cr in,,,
the last year ending 31.03.2018. To sustain high turnover at ultra low profitability, the request for enhancement of working capital was made but was",,,
rejected. The results of the business at every year end has been very bleak in terms of margins not even being 1% of the turnover as can be seen,,,
from the financial statements, led to vulnerability of business.",,,
It is interesting to analyze what circumstances made company as defaulter and NPA account with bankers during laws few months post closure of,,,
FY 18 though indication could be seen in last 2 years itself when company registered high revenue growth with reduced profitability at cost of Supply,,,
chain risks and lack of control on debtors, which increased substantially. The Company continued to do higher business volumes with insignificant",,,
enhancement in working capital limits in the last 3 years. The company had to face many regulatory hurdles during the current year which were,,,
reported and are known in public domain and it being a business entirely based on imports, the business came to grinding halt with the change in",,,
government policies and tax structure, sources of funds dried, with loss of faith by financial institutions, leading the production to stop, supplies could",,,
not be made, customers started blocking old money, because no new supply being possible and as a result all letter of credits started devolving and",,,
account became irregular with banks, with no possibility for the company to react by shifting fully to indigenous sources or arrange for any funds.",,,
The huge amount of debtors of about Rs.500 Cr and above leaves an important observation about the traditional practices of business control,",,,
extension of credit to customers without concrete agreements, grouping the credits at broker level leading to limited visibility of receivables party wise",,,
from a longer period. Further the lack of unit level financial control and inter dependence of all the businesses with a common supply chain and,,,
distribution proved fuel in fire when management was unable to serve the customers and de-risk any of its business with the change in tax regime and,,,
government policy in the lead business. Further the insistence of Statutory Auditor on creating provision and writing off these debtors as bad debts,,,
Obs
No",Observation,"Unusual Indicators & Conclusion based on
Audit Findings","Level of
Unusual
Indications
4,"Devolvement  of  Letter Â
of Credit:
- The company has aÂ
history of devolvement of LCs with all
the  member  banks Â
of  the consortium sinceÂ
May 2017. However  the Â
Company  had made the payment
against the same in the extended period
of time to the banks.
- As per the minutes ofÂ
t h e consortium   Â
meeting    dated 28.04.2017,
the Company had
informed     t he    Â
consortium banks that the reason for
LCs devolvement initially wasÂ
due to  strike  at Â
Krishnapatnam area impacting the
production. This   further  Â
affected   the
realisability    of   Â
receivables impacting the cash flows.
- The Company has devolved
ILCs of amount aggregating to INRÂ
45.86 Crores that were
issued  in  January Â
2018  to March 2018 andÂ
FLCs issued
since        Â
August         2017
aggregating to BOUT USDÂ
73 million   (equivalent  Â
to   INR
476.80 Crores approx), remain
outstanding as on date.
- Subsequent to account being declared
as NPA, the Company ahs  Â
approached   the   third
party   financiers  Â
who   have opened fresh LCs on
behalf of the   Â
Company    under   Â
the arrangement as explained in
the Key findings section.","- Multiple devolvement of LCsÂ
simultaneously resulted     Â
in      huge shortage of cash
flow in the    Company   Â
and increased the bankers stress Â
to  recover  the loans disbursed.
-  Also,  due  to  such
implications           Â
the Company   has   b een
liable    to    pay   Â
2% additional  interest  on the
amount due to the banks increasingÂ
their liabilities.
-  This  indicates  that
the               Â
Company continued    to   Â
make procurements       Â
and open    LC’s   Â
without having   any   f inancial
arrangement          Â
for repaying the same on
timely   basis.   As   a
result, once the banks stopped Â
opening  new LC    Â
accounts,     the Company  Â
could   not repay the commitments
for     t he    Â
lack     of availability  Â
of   funds. The   Â
Company    had obtainedÂ
,finance from third party financiers,
however    could    not
sustain for long due to
additional         finance
costs.
-   Approaching   third
party   financiers   for
additional  LCs,  when
there      Â
has       b een
devolvement    of    the
existing ones increases the Â
liability  and  risk potentials.
-  The  Company  has repaid
the LCs of third party  NBFCs, Â
outside the Consortium, prior to the
member banks.",HIGH
4,"Misutilisation of funds for purpose other
than sanctioned for:
- The Company has transactions during
December 2016 to September 2018 with
Ekaakshara Refineries Pvt Ltd., its associate
Company having common directors. The
Company during December 2016 to August 2017
made adjustment of INR 0.70 Crores through
vendor account P Ram Mohan Reddy (a water
tank supplier) and payment of INR 1.90 Crores
was made without any business being carried on
in the associate Company. No other transactions
were being carried until September 2018,
resulting in cumulation of interest cost for more
than a year on the funds transferred by the
Company. However, Ekaakshara repaid the
funds in September 2018 for INR
2.60 Crores for settlement of
the account.
- The Company have been sanctioned credit
facilities for Oil and Rice divisions separately
with specified limits by the lead banker as per the
sanction letters, however funds sanctioned for
Rice division in its account were being
transferred and utilised in the Oil division. The
funds carried separate charges as securities on
its stocks and receivable division wise, and were
supposed to be utilised for the specific purpose
they were sanctioned for, which
was violated.","- We are informed that the
funds were utilised for purpose
of purchase of land
unauthorisedly and hence
indicates misutilisation of loan
funds. The Company, however,
realised the principal amount
from Ekaakshara Refineries
Private Limited.
- Credit Limits were sanctioned
to the two divisions in the
Company on the basis of its
stock and trade receivables
valuations on individual basis.
The Company never maintained
division wise accounts of the
customers separately, given the
commonality of customer
accounts led to loss of control
on Risk parameters. However,
funds sanctioned for Rice
division carry less potential risk
than Oil division.",MEDIUM
,RESPONSE TO ABOVE OBSERVATION,,
Management Response: The Company utilized funds of
Rs.2.60 Crores by making payment to Ekaakshara.
Subsequently, the Company has realised the entire amount
from Ekaakshara Refineries Pvt Ltd.",,"Forensic Auditor’s Comment: Funds were
spent by SARL on behalf of Ekaakshara during the
period 07.10.2016 to 29.08.2017 amount to INR
2,60,01,508, The entire amount was repaid by
Ekakshara to SARL during 10.09.2018 to
14.09.2018.",
8,"Qualified opinion and Emphasis of matter
in FY 2017-18 by new Auditors:
- The Company has reported a loss of INR
223.33 Crores due to which net worth of the
Company has been fully eroded from INR
204.72 Crores to negative net worth of INR
25.61 crores. Further devolvement of
LC’s on a large scale followed with
lower scale of production/No production in
certain units gives doubts about the continuity
of business. So the Company’s ability to
continue the business as going concern is
significantly dependent upon the viability of
the restructuring plan to be approved by
Consortium Banks. - The Company’s
rating by Brickwork Ratings India in its report
“Rating Rationale†dated 23 February
2018, wherein it downgraded the ratings of
the Company to “BWR BBB†for the
Fund Based Bank Loan Facilities of INR
106.61 Crores of the Company and to
“BWR A3+†for Non-Fund Based Bank
Loan Facilities of INR 635.11 Crores. - With
respect to the liability on account of post-
retirement medical benefits of employees
including retired employees, a defined benefit
plan, is recognised on actual basis in respect
of bills received by the Company instead of
recognizing the liability for the same as the
present value of the defined benefit obligation
at the balance sheet date calculated on the
basis of actuarial valuation in accordance
with the notified AS â€" 15 on Employee
Benefits. The consequential impact of
adjustment, if any, owing to this non-
compliance on the financial statements is
presently not ascertainable.
- Sundry debtors worth INR 397.57 Crores
are doubtful debts which have been classified
as non-current assets against a total debts of
INR 552.39 Crores as on 31 March 2018, of
which balances under significant accounts
are subject to reconciliations and
confirmation. The Company has made a
provision of INR 132.02 Crores which
appears to be inadequate specially keeping its
view the position of recovery in subsequent
years and therefore reported loss of INR
223.33 Crores remains under reported.","- Substantial losses in the current
year have eroded the net worth of
the Company in single year
completely. - These conditions and
events indicate material uncertainty
which may cast significant doubt
on the entity’s ability to
continue as going concern.
- The proposal for restructuring of
the account was declined by the
bank. - The downgrading of the
rating of Company indicates the
inefficiency of the Company and
the promoters to repay the loan.",MEDIUM
