anita goyal: Naresh Goyal moves court to contest ‘fraud account’ tag by SBI

Naresh Goyal and his wife Anita Goyal, the original promoters of , have moved court, challenging a decision by the country’s largest lender () to club them with the airline they founded in the list of ‘fraud accounts’.

While the Goyals were neither guarantors nor direct borrowers, including them in the ‘fraud’ list could trigger criminal proceedings and put them under the lens of government investigative agencies.

The Goyals have filed separate writ petitions before the Bombay High Court on the grounds that they were neither served show-cause notice nor heard by the bank. The law firm Naik Naik & Co is representing the Goyals.

RBI Master Directions

The Goyals have filed separate writ petitions before the Bombay High Court on the grounds that they were neither served show-cause notice nor heard by the bank. The law firm Naik Naik & Co is representing the Goyals.

The matter is expected to come up for hearing this week.

SBI has the largest exposure to Jet Airways which now has a new set of investors whose resolution plan for the debt-laden airline was approved by the bankruptcy court last year.

The legal tussle with SBI is brewing at a point when some banks, under a separate proceeding, are preparing to take a final call on classifying the Goyals as ‘wilful defaulters’. According to Reserve Bank of India’s master directions on classification and reporting of frauds, “…the penal provisions as applicable to wilful defaulters would apply to the fraudulent borrower including the promoter director(s) and other whole-time directors of the company insofar as raising of funds from the banking system or from the capital markets by companies with which they are associated is concerned, etc.”

Typically, a borrowal account is categorised as a ‘fraud account’ after it is red-flagged on the basis of practices like fund diversion (even if there is no siphoning of money from the company). Interestingly, the legal action by the Goyals came almost a year after SBI had informed them (in July 2021) that following the classification of Jet as a ‘fraud account’, the bank’s appropriate committee has also identified Goyals’ accounts as fraud based on the scrutiny it had undertaken.

What probably drove the Jet founders to file writs was media reports in March 2022 that the Central Bureau of Investigation (CBI) is likely to file a first information report against the Jet promoter. A bank is supposed to report the fraud to RBI within 21 days of its detection as well as report it to the CBI or the economic offences wing of the police depending on the amount involved. Banks are yet to share the forensic report – based on which they probably plan to tag the account and the promoter as a fraud account and wilful defaulter – with the Goyals.

An SBI spokesman did not respond to ET’s queries while Naresh Goyal could not be reached for his comments.

Besides examining the regulatory scope for classifying the earlier promoter under the fraud account list (along with the company), the high court may look into whether the principles of natural justice (in general) or the opportunity to show cause (in particular) must be read into the relevant provision of the RBI circular. The Telangana High Court, in a separate matter, had observed that the petitioner deserves to be granted an opportunity to show cause after being acquainted with the material (such as a forensic report) used against it. The case is pending before the Supreme Court.

Meanwhile, in a recent meeting the industry body Indian Banks’ Association decided to make a representation to the regulator to relook at the sweeping definition of ‘fraud’ as labelling a borrower as ‘fraud account’ can severely hurt the functioning and fortunes of the company. Unlike in the case of naming a wilful defaulter, a bank does not have to follow the process while including a borrower in the ‘fraud account’ list.