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2019 (1) TMI 2045 - HC - Indian LawsWilful defaulters - diversion of funds - challenge to decision of the Review Committee of Axis Bank Ltd. constituted under Clause 3(c) of the Master Circular on wilful defaulters issued by the Reserve Bank of India on 1st July, 2015 - HELD THAT:- It will appear from Clause 2.5 (a) wherein the company and their entrepreneurs/promoters have been included, clearly demonstrate that the entrepreneurs and promoters of the company were intended to be brought within the ambit of wilful defaulters for the defaults of the company so that an entrepreneur or a promoter of a company engaged in acts which constitute wilful default are punished for the acts of the company. This is simply because the company does not function of itself but functions through a Board of Directors. The decision of the said company to divert funds was taken by its Board. The diversion of funds took place when the appellants were in the Board of the said company. The act of such diversion binds the appellants being entrepreneur/promoter who has a role in the decision making process of the company. In the instant case, the appellants were the directors of the company at the relevant point of time when the diversion of fund took place. In fact, they were also directors when the company committed default and was declared NPA. Measures under SARFAESI Act were also taken against the company when they were in control and management. The company has failed to establish that it did not have the capacity to honour the obligations. The appellants have also not been able to discharge by adducing documentary evidence or otherwise that they were not even remotely connected with the acts of default and diversion of funds made by the company - Pre-loan negotiations were made through the appellants. The banks definitely relied upon the credibility of the appellants at the time of sanctioning the loan. The acts of the appellants while in the decision making process of the company has shattered the confidence of the banks which they had at the time of disbursing the loan. The appellants were personally heard and their submissions were duly recorded. The diversion is admitted and the default of the said company is an admitted fact. The appellants being in control and management of the said company, therefore, cannot shirk their responsibility as to the default on the part of the said company. There are no reasons to interfere with the orders impugned in the two appeals - appeal dismissed.
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