Allahabad High Court orders CBI probe against officers of seven banks for sanctioning loans to defaulting company

The Allahabad High Court recently ordered the Central Bureau of Investigation (CBI) to probe how seven banks sanctioned multiple loans to a company despite knowing that it had defaulted in paying back the loans taken earlier [M/S Simbhaoli Sugars Limited v State Bank of India And 7 Others]. .The division bench of Justice Mahesh Chandra Tripathi and Justice Prashant Kumar called it a “shocking case of clear connivance of unscrupulous businessman and banks”.Simbhaoli Sugars, the company based in UP, has been "knowingly allowed" to siphon away almost ₹1,300 crores of the public money, the Court said.“Here the banks had advanced hundreds crores of rupees to the petitioner company knowing the fact that they have already defaulted with the loans taken by other banks previously and been declared N.P.A, still the banks went ahead and approved loans running into several hundred crores and the entire loan was disbursed without following the mandatory steps/procedures, which banks are supposed to take before disbursing the loan,” it observed.The Court added that the company had “adopted the same modus operandi” again and again with seven banks.The banks extended the loan facilities to it “without following the RBI guidelines to advance loans to the companies and also without adequate security and in few of the cases a personal guarantee was given by the promoters to many banks”, the Court found..It went on to state that the banks “shockingly” even after declaring the company’s account NPA or Non-Performing Asset, had not taken any effective steps to recover the amount. The seven banks are State Bank of India (SBI), UCO Bank, ICICI Bank, Oriental Bank of Commerce, Punjab National Bank, Bank of India and Bank of Baroda. .The Court took note of the loans while hearing Simbhaoli Sugars’ petition seeking quashing of SBI’s decision to reject its settlement offer. It was told that a total outstanding of the banks would be around ₹900 crores towards principal and another ₹400 crores towards interest. The banks were ready to take a haircut of an amount, which is 70 to 75% of the total outstanding, and settle with the company somewhere around ₹400 crore, the Court noted.It also found that the company had not paid sugarcane dues to the farmers and even today ₹279 crores remained outstanding for the last crushing season. “The petitioner has just not defrauded the banks but has also taken the cane growers for a ride in not paying them the cane dues and still continue to take sugar cane from them,” the Court observed..Censuring the banks, the Court said some of them had not even sought personal guarantees of the promoters. There was no post disbursement supervision by the banks, it added.The Court also questioned the documents supplied by the company to show its capacity to pay back and suspected that they were either fabricated or forged. “We cannot presume the bank to be naive enough to fall for the documents given by the petitioner and without scrutinizing the same, sanctioned a huge amount, unless they themselves are involved and are part of the bigger fraud of defrauding public money,” it reasoned.Though the banks were also required to mandatorily report fraud cases of more than ₹5 crores to the “Banking Security and Fraud Cell” of CBI, the Court noted there was no “recital or whisper in this regard in any of the affidavits filed by the Banks.”.Accordingly, the Court directed the CBI to investigate each and every bank as to how the loans were sanctioned in contravention of the RBI guidelines and circulars. It particularly said the officers of the banks, who accorded the approval and those who did not take effective steps to recover the amount, be probed. “In case, the CBI finds that there is a case of money laundering as per the provisions of Prevention of Money Laundering Act, 2002 they may also refer the matter to the Enforcement Directorate and take help to recover the said amount,” the Court ordered.It also directed the Simbhaoli Sugars to join the investigation and cooperate with the probe. The authorities should endeavor to find out the money trail, where it has been siphoned off and parked, the top court ordered.Advocate Rohan Gupta represented the petitioner Advocates Satish Chaturvedi, Anadi Krishna Narayana, Ashok Shankar Bhatnagar, Manish Trivedi, Nishant Mehrotra, RV Pandey, Ramesh Kumar Shukla, Yashwant Singh appeared for the respondents. [Read Judgment]