Calcutta High Court Quashes PNB Fraud Classification Against Visa Power Ltd For Breach Of Natural Justice

On 7 May, the Calcutta High Court quashed Punjab National Bank's decision classifying the loan account of Visa Power Ltd and its promoters, including Vikas Agarwal and Vishambhar Saran, as “fraud” for reporting to the Reserve Bank of India.

Justice Krishna Rao set aside the show cause notice dated 25 October 2023 and the fraud classification order dated 9 August 2024, under which the account had been reported as fraud on 16 July 2024, noting that the bank failed to independently examine the matter before taking such a serious adverse step, though it allowed the bank to proceed afresh in accordance with law and RBI guidelines. He held:

“Considering the above, the impugned show cause notice dated 25th October, 2023 and the impugned order dated 9th August, 2024 are set aside and quashed. However, this will not prevent the respondent bank from taking appropriate steps against the petitioners in accordance with law and RBI Master Circulars, and in compliance with the Supreme Court rulings in Rajesh Agarwal and Amit Iron Private Limited.”

Visa Power, part of the Visa Group engaged in power and infrastructure projects, had taken consortium loans led by Punjab National Bank in March 2010 for a thermal power project in Raigarh, Chhattisgarh. After cancellation of its coal block allocation following the Supreme Court's September 2014 coal block judgments, the company's account was declared a non-performing asset on 31 March 2016.

During the Corporate Insolvency Resolution Process, Deloitte Touche Tohmatsu India LLP submitted a transaction audit report alleging preferential and fraudulent dealings. However, the National Company Law Tribunal rejected reliance on the report by order dated 25 July 2019, and the National Company Law Appellate Tribunal upheld that view on 30 September 2019. The bank also withdrew earlier wilful defaulter proceedings based on the same material.

Despite this, Punjab National Bank reinitiated fraud classification proceedings in 2023 relying again on the same audit report and alleged decisions of Joint Lenders Meetings. The petitioners argued that they were never supplied the relevant JLM material and were denied an opportunity to respond.

Accepting this contention, the High Court held that the bank's decision lacked independent reasoning and was vitiated as it relied on unserved and untested material. It observed:

“The Transaction Audit Report on which the show cause notice was issued was already held by the NCLT not to establish undervaluation, preferential or fraudulent transactions, a view affirmed by the NCLAT. The bank earlier accepted these findings and withdrew proceedings. In the impugned order, reliance was also placed on Joint Lenders Meeting records, which were neither disclosed in the show cause notice nor served on the petitioners.”

Accordingly, the Court quashed the fraud classification while permitting the bank to initiate fresh proceedings in accordance with law.