Banks Are Backbone Of Indian Economy, 'Easy' Allegations Of Financial Impropriety Should Not Be Entertained By Courts: Delhi High Court

The Delhi High Court on Monday ruled that banks acting in a "bona fide" manner, cannot be "made answerable to the judiciary" regarding the economic expediency of their decisions when no cogent material is shown.

Further, the court said that as the banking sector constitutes the backbone of India's economy, "easy allegations of financial impropriety by banks should not be entertained by Courts".

A division bench comprising Justice C Hari Shankar and Justice Ajay Digpaul said that in such cases, it is the duty of the Court to apprise itself of the actual facts, by calling on the banks and other associated or involved enterprises to answer the allegations, “before setting the inquisitorial ball rolling.”

The Bench made the observations while dismissing a PIL filed by NGO Infrastructure Watchdog seeking Central Bureau of Investigation (CBI) and Central Vigilance Commission (CVC) probe into alleged undervaluation of Hyatt Regency Hotel in one-time settlement (OTS) deals between Asian Hotels (North) Private Limited and two public sector banks—Punjab National Bank (PNB) and Bank of Maharashtra (BoM).

It was alleged that while executing the said OTSs, the valuation of the hotel was unreasonably depressed, resulting in huge haircuts having to be borne by the banks.

The Court said that the PIL was merely in the nature of a shot in the dark, based on surmises, conjectures and assumptions.

“Issuance of notice in a petition seeking investigation, into the affairs or a corporate entity by the CBI is a serious matter. It throws the affairs of the entity itself into disarray, and may seriously impact, not only its reputation, but also its corporate standing, within India and at times globally,” the Court said.

It observed that every aspect of public life, especially where it is subject to judicial scanner, is up for debate in the public domain, while adding that reputations, built over years, crumble in an instant.

“Molehills metamorphose into mountains, in the virtual universe. While these considerations cannot impact the decision of the Court to institute an investigation into corporate affairs, where misconduct or malfeasance in such affairs is brought to the notice of the Court in properly instituted proceedings, the Court should, to our mind, be wary of setting the criminal – or even investigative – ball rolling, against any entity, corporate or otherwise, merely on being petitioned by speculators, howsoever well intentioned they may be,” the Court said.

On merits of the case, the Bench said that the petitioner NGO, merely on the basis of a valuation report submitted in respect of the hotel, presumed that the property was undervalued and that BOM and PNB were complicit in that regard.

“If a high value commercial transaction is sought to be subject matter of a public interest litigation, by persons who are uninformed of all the relevant facts, and the Court is to embark on a roving inquiry, the damage to public interest could be incalculable,” the Court said.

It concluded that requisite degree of financial prudence was exercised before entering into OTSs with AHN and that the amounts earned by the banks, as a consequence, were far in excess of the predicted ledger balance.

The Court observed that the decisions were taken after subjecting the valuation of the hotel to multiple degrees and stages of examination and assessment.

“Every such transaction would become vulnerable to be dragged into Court at the instance of persons who claimed to be public spirited citizens, with fragmentary information, on the basis of which a case for investigation by agencies such as the CVC and CBI is sought to be made out. We are clear in our minds that such attempts must be nipped in the bud. The Court should satisfy itself that a case for taking cognizance is made out, rather than select the easy way out by mechanically issuing notice and calling for responses,” the Court said.

It added that in cases in which the material placed on record by the purported public interest litigant is insufficient to justify the prayer for institution of an investigation by the CBI, CVC or any other such authority, the Court is proscribed even from taking cognizance of the matter.

Title: INFRASTRUCTURE WATCHDOG v. UNION OF INDIA AND ORS

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