TMI Blog2018 (7) TMI 1909X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Examining the present matter on the touch stone of the aforesaid provisions, we find that the Respondent Bank has failed to comply with the aforesaid mechanism provided under the Master Circular - the Respondents while declaring the Petitioners as wilful defaulter have violated the provisions contained in the Master Circular and have also acted in violation of the principles of natural justice. The impugned action which is penal in nature has been taken causing serious implication on the Petitioners without following the basis principles of natural justice. The stand of the Bank that they are not obliged to furnish copy of the order passed by the Identification Committee cannot be sustained. Such stand if accepted would given rise to arbitrary exercise of powers as the Identificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal hearing to the Petitioners, the Identification Committee of the Bank vide order dated 9th March, 2018 declared the Petitioners as the Willful Defaulter . The said order was confirmed by the Review Committee of the Bank (Fifth Respondent) vide order dated 20th April, 2018 (Exhibit B ). Feeling aggrieved by both the orders the Petitioners have filed this Petition under Article 226 of the Constitution of India. 7. Mr. Nakul Jain, the learned counsel for the Petitioners has argued that the impugned order dated 9th March, 2018 passed by the Identification Committee as also the order dated 20 th April, 2018 passed by the Review Committee are in contravention to the procedure prescribed by the Reserve Bank of India vide Master Circular dated 1st July, 2015. He submits that before passing impugned order declaring the Petitioners as Wilful Defaulter, a show cause notice was required to have been issued to the Petitioners and after considering the Petitioners' submissions, the order recording the fact of wilful default committed by the Petitioners by giving reasons for the same could have been passed. He also submits that it was also necessary for the Identification Commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Petition, the reply and the impugned order. 10. In order to appreciate the contentions raised by the parties, it would be appropriate to refer few clauses of the Master ....5 19-wpl-2072-2018.doc Circular on Willful Defaulter dated 1 st July, 2018 issued by the Reserve Bank of India. 11. Clause 2.1.3 of the Master Circular in regard to the guidelines on Wilful Default reads thus: Wilful Default: A 'wilful 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 utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should be initiated by the banks and Fls against the wilful defaulters identified as per the definition indicated at paragraph 2.1.3 above. (a) No additional facilities should be granted by any bank/ FI to the listed wilful defaulters. In addition, such companies (including their entrepreneurs/ promoters) where banks/ Fis have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, Financial ....8 19-wpl-2072-2018.doc Institutions, NBFCs, for floating new ventures for a period of 5 years from the date of removal of their name from the list of wilful defaulters as published/ disseminated by RBI/CICs. (b) The legal process, wherever warranted, against the borrowers/ guarantors and foreclosure for recovery of dues should be initiated expeditiously. The leaders may initiate criminal proceedings against wilful defaulters, wherever necessary. (c) Wherever possible, the banks and Fis should adopt a proactive approach for a change of management of the wilfully defaulting borrower unit. (d) A covenant in the loan agreements, with the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is clear from the record that in response to the notice issued by the Bank informing the Petitioners about their ....11 19-wpl-2072-2018.doc intentions to proceed against them for declaring them as willful defaulter and giving last chance to deposit outstanding amounts, the Petitioners have submitted a detailed reply dated 29 th January, 2018 giving reasons as to why such proceeding cannot be initiated. However, it appears that thereafter the Identification Committee has passed an order on 9th March, 2018 recording that the Petitioners have committed wilfull default. It is also an admitted fact that the copy of the order dated 9 th March, 2018 was not supplied to the Petitioners even though a written request for the same was made. Moreover, in the stand of the Bank in reply to the Petition, it is stated that is not necessary to supply the copy of the order of the Identification Committee to the Petitioners. 16. In the circumstances, in our considered view the Respondents while declaring the Petitioners as wilful defaulter have violated the provisions contained in the Master Circular and have also acted in violation of the principles of natural justice. The impugned action whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not even been brought on record by the Bank to deny the Petitioners' contention that their grounds raised through reply dated 29th January, 2018 to show cause notice against proposed ....14 19-wpl-2072-2018.doc declaration of wilful defaulter have not been considered and that as to why the Petitioners were denied the opportunity of being heard. 18. In our considered view the stand of the Bank that they are not obliged to furnish copy of the order passed by the Identification Committee cannot be sustained. Such stand if accepted would given rise to arbitrary exercise of powers as the Identification Committee may give complete go bye to the requirement of assigning reasons for declaring a party as Wilful Defaulter and also requirement of giving reasons as to why opportunity of personal hearing would not be necessary. 19. In the present case, as already observed even the order of Review Committee is bereft of any reasons for arriving at the conclusion that, the Petitioners have defaulted in meeting its payment/ repayment obligation to the lender even when it has capacity to honour the said obligation. 20. Having regard to the aforesaid in our considered view failure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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