Opportunity of being heard must be given to petitioner before removing name from Bank’s Panel Advocates list: HC

Case Details: Rajan Shrivallabha Deshpande v. Bank of Baroda - [2022] 143 taxmann.com 367 (HC-Bombay)

Judiciary and Counsel Details

• • A.S. Chandurkar & Urmila Joshi-Phalke JJ.
  • M.M. Sudame, Adv. for the Petitioner.
  • S.N. Kumar, Adv. for the Respondent.

Facts of the Case

In the instant case, the petitioner was a registered legal practitioner on the panel of Advocates of the respondent -Bank. The petitioner at the request of the bank issued a title report (search report) in respect of property belonging to KSL, wherein it was categorically stated that the property had a clear and marketable title.

Relying on the said search report, the Bank sanctioned financial facilities to the borrower. Subsequently, the loan account of the borrower became NPA and Bank took physical possession of the entire mortgage property except 7 shops situated on the ground floor which shop owners said that they had purchased from KSL.

The search report issued by another empanelled Advocate revealed that 7 shops were already sold by KSL prior to mortgaging the entire property in favour of the Bank. Thereafter, the petitioner’s name was removed from the list of the Bank’s Panel Advocates on the allegation that the search report submitted by him was not undertaken with due diligence.

However, the petitioner submitted that there was absolutely no negligence on his part while issuing the search report. Further, the petitioner submitted that the action of de-empanelment was completely stigmatic and arbitrary and against the settled principles of natural justice as the Bank didn’t afford any opportunity of justification to him.

Also, the petitioner had carried out the relevant search from documents available at Sub-Registrar’s Office and admittedly, there were no entries in the Index-II register as well as the record of the Sub-Registrar’s Office regarding any transaction, which had taken place between KSL and shop owners.

Further, he had suggested to the Bank to obtain an affidavit of directors authorized to extent that the company had not secured a loan from any other financial institution and that property had a clear and marketable title. However, the Bank didn’t obtain such an affidavit from any of the directors of the company.

Now, the question that arose for consideration was whether the petitioner who acted professionally and in the discharge of his professional duty renders an opinion by giving a non-encumbrance certificate to the Bank for granting a loan to a borrower certifying that he had a clear marketable title which was subsequently found unacceptable, could the petitioner be held liable for any action?

High Court Held

The High Court observed that the Bank didn’t exercise due care and caution despite the opinion of the petitioner contained in the title search report before advancing the loan to the company.

The High Court held that the petitioner having expressed his desire of not being interested in continuing on the panel of the Bank, observations that the petitioner had not submitted a title search report with due diligence and that it was a wrong title search report were to be expunged since they tend to malign the professional reputation of the petitioner without granting him any opportunity to show-cause.

The High Court, further held that as per Section 35A of the Banking Regulation Act, 1949, prior to reporting the name of a third party for fraud to Indian Banks Association (IBA), a Bank is required to satisfy itself of involvement of such third party in credit sanction/disbursement or has facilitated perpetration of fraud and also provide it with an opportunity of being heard.

List of Cases Referred to

• • Mahabir Auto Stores v. Indian Oil Corpn. [1990] 3 SCC 752 (para 6)
  • Union of India v. Kunisetty Satyanarayana [2006] 12 SCC 28 (para 6)
  • Siemens Ltd. v. State of Maharashtra [2006] 12 SCC 33 (para 6)
  • Kalabharati Advertising v. Hemant Vimalnath Narichania [2010] 9 SCC 437 (para 6)
  • Om Prakash Chautala v. Kanwar Bhan [2014] 5 SCC 417 (para 6)
  • Central Bureau of Investigation v. K. Narayana Rao [2012] 25 taxmann.com 452/115 SCL 803 (SC)/[2012] 9 SCC 512 (para 11)
  • Pandurang Dattatraya Khandekar v. Bar Council of Maharashtra [1984] 2 SCC 556 (para 11).