Netherland India Communication v. State Bank of India – Delay and the Limits of Fraud Claims

The Delhi High Court recently decided a writ petition filed by Netherland India Communication challenging an order of the Debt Recovery Appellate Tribunal (DRAT), which had refused to condone a delay of over thirteen years in filing an appeal against a 2010 judgment of the Debt Recovery Tribunal (DRT). The DRAT’s refusal effectively dismissed the appeal as time-barred. The petitioners argued that the 2010 judgment was a nullity because it was obtained by fraud, and therefore, limitation should not apply.

The petitioners contended that the loan granted by the State Bank of India (SBI) was fraudulent from inception, alleging collusion between one of their own directors, G.S. Saluja, and the bank. They claimed the Board Resolution authorising the loan in 2004 was limited to domestic working capital, but the loan was extended for export credit—a facility they were ineligible for as they were not manufacturers. They alleged this transaction was void ab initio and relied heavily on Supreme Court precedents stating that “fraud vitiates everything,” particularly A.V. Papayya Sastry v. Government of A.P. and S.P. Chengalvaraya Naidu v. Jagannath.

SBI, in response, argued that the petition was infructuous as the DRT’s decree had already been executed and amounts recovered. They asserted that the petition lacked bona fides because the petitioners had participated in the original DRT proceedings, were aware of the 2010 judgment, and had even joined recovery proceedings on multiple occasions over the years. The bank emphasised that the petitioners had acknowledged the debt in their 2004 balance sheet and benefitted from substantial funds in unrelated arbitration proceedings, showing both awareness and capacity to pay. The respondents argued that long-standing inaction, despite knowledge of the alleged fraud, barred any claim for relief.

The Court held that while the principle “fraud vitiates everything” is well recognised, it cannot override the law of limitation without reasonable diligence being shown. Section 20 of the Recovery of Debts and Bankruptcy Act provides only 30 days to appeal a DRT order, and the petitioners’ 13-year delay was wholly unexplained. Citing recent Supreme Court rulings, including Pathapati Subba Reddy v. Special Deputy Collector (LA), the Court reiterated that condonation of delay is a discretionary relief that cannot be granted where negligence, inaction, or lack of bona fides is apparent.

The Court further observed that the petitioners’ allegations of fraud were vague, unsupported by specific particulars as required under Order VI Rule 4 of the Code of Civil Procedure, and had not been substantiated before the DRT. The reply filed before the DRT in 2007 indicated that the petitioners knew of the alleged fraud as early as 2004, yet no steps were taken to pursue the matter, produce evidence, or lodge a complaint until 2023. Even the key allegation regarding misuse of the Board Resolution was being raised for the first time in the present petition.

Finding the petition to be a gross abuse of process and devoid of merit, the Court dismissed it without costs. The ruling underscores that while fraud is a serious allegation, it does not grant an indefinite right to litigate, and parties must act with diligence to protect their legal rights.