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2020 (12) TMI 1020 - HC - Insolvency and BankruptcyMaintainability of petition - CIRP proceedings still going on - validity of proposed declaration of the petitioners as wilful defaulters under the RBI Master Circular dated July 1, 2015 - HELD THAT:- CIRP proceedings are going on in respect of the company-in-question vide order dated February 7, 2020 passed by the National Company Law Tribunal, Kolkata, thus, disabling the company itself from preferring the writ petition. That apart, since the show-cause notice was issued to the petitioners themselves and the petitioners were held to be wilful defaulters, the present challenge at the behest of the petitioners, without impleading the company separately, is valid in law. Although the respondents have pleaded public interest in the matter, the mechanism of declaring wilful default was put in place to prevent corrosion of the economy and financial malpractices. However, lack of transparency in the mechanism of declaring wilful defaulters would itself be a major disincentive to commerce, which would adversely affect the economy at large. Even if not a stigma by itself, such declaration has far-reaching effect, since the concerned persons would not get any loans or other financial benefits and incentives in future due to such declaration. Hence, the respondents’ argument, as to the irregularity committed by them being minor and without prejudice to the petitioners, does not hold water - Not only did the respondents arrive at conclusive findings in the show-cause notice itself, thereby hinting at a predetermined and closed mind-set, having pre-decided that the petitioners were wilful defaulters even prior to the orders of the two committees, no copy of the Identification Committee order was handed over to the petitioners at all. The flimsy pretext that the said order was a virtual reiteration of the initial order of the committee defies logic since, after such order, a coordinate bench of this court had specifically directed fresh order to be passed, thereby rendering the previous order infructuous. The admission of the respondents that the subsequent order was a mere reiteration of the previous order itself vitiates the sanctity of the latter order for lack of application of independent judicial mind in the second adjudication. The Identification Committee permitted the petitioners to file their reply directly before the Review Committee, which deprived the petitioners of a hearing before the first committee. The scope of consideration by the Review Committee would only arise once the Identification Committee decides the matter of declaration of wilful defaulter upon considering the stand of the alleged delinquent. Without such opportunity, the order of the Identification Committee would be incomplete, being bereft of the delinquents’ version, leaving no scope for the Review Committee to consider the petitioners’ defence - the argument, that the Review Committee had no option but to confirm the Identification Committee order in its entirety, is based on faulty logic, since the petitioners had, in fact, specifically asked for a copy of forensic report and other relevant documents, which was denied to them. Thus, it was impossible for the petitioners to put their representation on fact and law before either of the Committees. The petitioners had no opportunity to refute the observations of the forensic report, to show its inherent contradictions and/or point out the irrelevance of the report in the context of declaration of willful default, although the report was virtually the sole basis of the show cause notice and the impugned orders. The committees acted contrary to logic befitting a prudent person in relying on the same as sacrosanct to hold the petitioners to be wilful defaulters - the entire effort of the Identification Committee and the Review Committee was to somehow label the petitioners as wilful defaulters, in the process violating all norms of natural justice and the provisions of the RBI Master Circular, 2015. The impugned orders are patently illegal and de hors the RBI guidelines - Petition allowed.
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