TMI Blog2021 (12) TMI 1485X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in public interest, must be construed reasonably. The respondent bank has failed to comply with the aforesaid mechanism provided under the Revised Master Circular as petitioners were never informed by the Identification Committee by issuing show cause notice and the notice was issued by the respondent bank to which the petitioners filed detailed reply but the order passed by the Identification Committee recording that the petitioners have committed willful default was never provided to the petitioners. The petitioners came to know about declaring them as willful defaulter only from the website of CIBIL - the respondent bank while declaring the petitioners as willful defaulter has violated the provisions contained in the Revised Master Circular and has also acted in violation of principles of natural justice. As the impugned action which is penal in nature has been taken causing serious implication to the petitioners without following the basis of principles of natural justice, the impugned action of the respondent bank identifying the account of the petitioners as willful default and subsequent reporting of name of the petitioners to the RBI/CIBIL as willful defaulters are li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice was issued on 27th March, 2019 to the petitioners by respondent no.2 to show cause as to why the names of the petitioners should not be reported as Willful Defaulters to Reserve Bank of India to which the petitioners gave a detailed reply on 22nd April, 2019. 4.4) It is the case of the petitioners that respondent no.2 vide letter dated 3rd May, 2019 had mechanically rejected the detailed contentions raised by the petitioners. 4.5) Respondent no.2 thereafter issued an intimation of personal hearing to the petitioners on 15th May, 2019 vide communication dated 7th May, 2019. 4.6) The petitioners vide letter dated 11th May, 2019 informed the respondent-bank that they have a pre-planned travel arraignment and requested to postpone the hearing at a later date and also requested to allow two professionals from Finance and Accounts background along with them to attend the hearing. 4.7) Respondent no.2 vide communication dated 2nd November, 2019 turned down the request of the petitioners for permitting two professionals as above requested and the date of personal hearing was fixed on 13th November, 2019. 4.8) By letter dated 7th November, 2019 the respondent no.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defined under Clause 2.1.3 of the RBI Circular and as such the petitioners cannot be classified as willful defaulter. 5.2) The learned advocate Mr. Majmudar further submitted that the Identification Committee has not issued any notice as required under Clause 3(b) of the RBI Circular and the notice given by the respondent bank is against the prescribed procedure provided under Clause-3 of the RBI Circular. 5.3) It was submitted by the learned advocate Mr. Majmudar that as per the Clause 2.5 of the Master Circular dated 1st July, 2015 the persons, who are declared as willful defaulters can be met with penal measures and such person can be debarred from the institutional finance from scheduled commercial banks, financial institutions etc. and as per Clause-4 of the Circular, criminal action can also be taken against the willful defaulter. It was therefore, submitted that for the action of declaring the petitioners as willful defaulters is in gross violation of principles of natural justice as it has resulted into immense hardships to the petitioners. It was therefore, submitted that the orders passed by the Identification Committee, as well as, Review Committee are in contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Identification Committee as also the Review Committee and submitted that there was no necessity to supply the copy of the order of the Identification Committee. 7. Having heard the learned advocates for the respective parties and having gone through the materials on record, in order to appreciate the contentions raised by the respective parties, it would be germane to refer to few Clauses of Master Circular on willful defaulter dated 1st July, 2015 issued by the RBI. Clause 2.1.3 : Wilful Default : A 'willful default' would be deemed to have occurred if any of the following events is noted: (a) The unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations. (b) The unit has defaulted in meeting its payment/ repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes. (c) The unit has defaulted in meeting its payment/ repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should also be ensured that a solitary or isolated instance is not made the basis for imposing the penal action. Clause no.3 : Mechanism for identification of willful defaulters. The mechanism referred to in paragraph 2.5 above should generally include the following : (a) The evidence of willful default on the part of the borrowing company and its promoter/whole-time director at the relevant time should be examined by a Committee headed by an Executive Director or equivalent and consisting of two other senior officers of the rank of GM/DGM. (b) If the Committee concludes that an event of willful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter/ whole-time director and call for their submissions and after considering their submissions issue an order recording the fact of willful default and the reasons for the same. An opportunity should be given to the borrower and the promoter/ whole-time director for a personal hearing if the Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also clear that for declaring a lender to be wilful defaulter specific finding is required to have been recorded in terms of Clasue 2.1.3(a) to (d) as the case may be. The Master Circular also provides a mechanism to be adopted for identifying the wilful defaulter. It includes, availability of evidence of wilful default on the part of borrowing company and its promoter/whole-time director which needs to be examined by the Identification Committee. If the Committee concludes that an event of wilful default has occurred, it is obligatory on the part of Identification Committee to issue a show cause notice to the concerned borrower and the promoter/whole-time director calling from their submissions and after considering their submissions as may be received, an order recording the fact of wilful default has to be passed after giving reasons for the same. It is also incumbent upon the Identification Committee to give an opportunity of personal hearing to borrower promoter/ whole-time director if it feels that such opportunity is necessary. The said order of the Committee needs to be reviewed by another Committee (Review Committee) as per Clause 3(c) of the Master Circular . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to say that it is not necessary for them to supply copy of the order passed by the Identification Committee. As would be clear from Clause 3(b) of the Master Circular the Identification Committee has to record reasons while passing the order of recording the fact of commission of wilful default as also to assign valid reasons as to whether it is necessary to give the borrower and the the promoter/whole time director the opportunity of personal hearing. This requirement whether has been complied with or not could have been examined only if the said order was brought on record. But strangely in reply the Bank has taken a stand that the order dated 9th March, 2018 passed by the Identification Committee is the internal order and it is not supposed to be served upon the Petitioners. It is also stated by the Respondents in the reply that no question arises of serving the order dated 9th March, 2018 on the Petitioners and that the order dated 9th March, 2018 is the preliminary internal order and after its finalization by Review Committee, it is conveyed to the Petitioners. Thus from the stand taken by the Respondents, it is clear that they have neither supplied copy of the order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fundamentals of good administration. 10. The Apex Court in case of State Bank Of India Vs. Jah Developers Private Limited and Others (Supra) while denying the right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 01.07.2015, has held that Revised Circular, being in public interest, must be construed reasonably as under: 15. The next question that arises is whether an oral hearing is required under the Revised Circular dated 1-7- 2015. We have already seen that the said circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. It is even more difficult to state that in all cases oral hearings must be given, or else the principles of natural justice are breached. A number of judgments have held that natural justice is a flexible tool that is used in order that a person or authority arrive at a just result. Such result can be arrived at in many cases without oral hearing but on written representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unfairness (Lord Denning, M.R., in Howard v. Borneman (2) [Howard v. Borneman (2), 1975 Ch 201 : (1974) 3 WLR 660 (CA)] summarised the observations of the Law Lords in this form). No doctrinaire approach is desirable but the court must be anxious to salvage the cardinal rule to the extent permissible in a given case. After all, it is not obligatory that counsel should be allowed to appear nor is it compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgent meeting with the parties concerned summoned at an hour's notice, or in a crisis, even a telephone call, may suffice. (emphasis in original) 17. In Kavita v. State of Maharashtra (1) [Kavita v. State of Maharashtra (1), (1981) 3 SCC 558 : 1981 SCC (Cri) 743] (Kavita), this Court held, in the context of preventive detention, that even when a detenu makes a request for legal assistance before the Advisory Board, the Advisory Board is vested with a discretion whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the English Courts it seems clear to us that the right to be represented by a counsel or agent of one's own choice is not an absolute right and can be controlled, restricted or regulated by law, rules or regulations. However, if the charge is of a serious and complex nature, the delinquent's request to be represented through a counsel or agent could be conceded. 13. The law in India also does not concede an absolute right of representation as an aspect of the right to be heard, one of the elements of principle of natural justice. It has been ruled by this Court in (I) N. Kalindi v. Tata Locomotive Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914] , (ii) Brooke Bond (India) (P) Ltd. v. S. Subba Raman [Brooke Bond (India) (P) Ltd. v. S. Subba Raman, (1961) 2 LLJ 417 (SC)] and (iii) Dunlop Rubber Co. (India) Ltd. v. Workmen [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 : AIR 1965 SC 1392] that there is no right to representation as such unless the company by its Standing Orders recognises such a right. *** 17. It is, therefore, clear from the above case-law that the right to be represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Similarly, in Cipla Ltd. v. Ripu Daman Bhanot [Cipla Ltd. v. Ripu Daman Bhanot, (1999) 4 SCC 188 : 1999 SCC (L S) 847] it was held by this Court that representation could not be claimed as of right. This decision followed the earlier decision Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union [Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union, (1999) 1 SCC 626 : 1999 SCC (L S) 361] in which the whole case law has been reviewed by this Court. 11. Following the above decision it has to be held that there is no vested or absolute right in any charge-sheeted employee to representation either through a counsel or through any other person unless the statute or rules/standing orders provide for such a right. Moreover, the right to representation through someone, even if granted by the rules, can be granted as a restricted or controlled right. Refusal to grant representation through an agent does not violate the principles of natural justice. Ultimately, the Court upheld the validity of Rule 153.8 of the Railway Protection Force Rules, 1987, which permitted a friend to accompany a delinquent, who will not, however, be allowed to address the inquiry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an employee in domestic enquiries as part of his right to be heard and that there is no right to representation by somebody else unless the rules or regulation and standing orders, if any, regulating the conduct of disciplinary proceedings specifically recognise such a right and provide for such representation: see N. Kalindi v. Tata Locomotive Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914], Dunlop Rubber Co. (India) Ltd. v. Workmen [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 : AIR 1965 SC 1392],Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi [Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 : 1993 SCC (L S) 360] and Indian Overseas Bank v. Officers' Assn. [Indian Overseas Bank v. Officers' Assn., (2001) 9 SCC 540 : 2002 SCC (L S) 1043] 23. The Court then held: (National Seeds Corpn. Ltd. case [National Seeds Corpn. Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 : (2007) 1 SCC (L S) 512] , SCC pp. 650-51, para 10) 10. Learned counsel for the appellant Corporation has brought to our notice office memorandum dated 21-11-2003 by which the prayer to engage a legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are diverted for other purposes, or siphoned off funds so that the funds have not been utilised for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show-cause notice to elicit the borrower's submissions on the same. However, we are of the view that Article 19(1)(g) is attracted in the facts of the present case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate. This is for the reason that no additional facilities can be granted by any bank/financial institutions, and entrepreneurs/promoters would be barred from institutional finance for five years. Banks/financial institutions can even change the management of the wilful defaulter, and a promoter/director of a wilful defaulter cannot be made promoter or director of any other borrower company. Equally, under Section 29-A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot even apply to be a resolution applicant. Given these drastic consequences, it is clear that the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances, the respondent bank while declaring the petitioners as willful defaulter has violated the provisions contained in the Revised Master Circular and has also acted in violation of principles of natural justice. As the impugned action which is penal in nature has been taken causing serious implication to the petitioners without following the basis of principles of natural justice, the impugned action of the respondent bank identifying the account of the petitioners as willful default and subsequent reporting of name of the petitioners to the RBI/CIBIL as willful defaulters are liable to be quashed and set aside. 13. In view of the foregoing reasons, the petitions succeed and are accordingly allowed. The impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the names of the petitioners to RBI/CIBIL as willful defaulters is hereby quashed and set aside and the matter is remanded back to the Identification Committee of the respondent bank to follow the procedure as prescribed in Master Circular dated 1st July, 2015 by issuing a show cause notice to the petitioners and providing opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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