TMI Blog2019 (5) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... Revised Circular dated 01.07.2015? - HELD 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. There is no right to be represented by a lawyer in the in-house proceedings contained in paragraph 3 of the Revised Circular dated 01.07.2015, as it is clear that the events of wilful default as mentioned in paragraph 2.1.3 would only relate to the individual facts of each case. What has typically to be discovered is whether a unit has defaulted in making its payment obligations even when it has the capacity to honour the said obligations; or that it has borrowed funds which 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. Article 19(1)(g) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The RBI Circular dated 01.07.2013 is described as a Master Circular on Wilful Defaulters [ Master Circular ] and is addressed to all scheduled commercial banks (excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs)), and to All India Notified Financial Institutions. The purpose of the said Master Circular is stated as follows: Purpose: To put in place a system to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them. Under this Master Circular, wilful default has been defined as follows: 2.1. Definition of wilful default The term wilful default has been redefined in supersession of the earlier definition as under: 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 meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Committee on the representation and the borrower should be suitably advised. 4. On 01.07.2015, the RBI issued another Master Circular consolidating instructions on how all scheduled commercial banks and notified financial institutions are to deal with wilful defaulters [ Revised Circular ]. The definition of wilful default is substantially the same as in the earlier Master Circular. However, the mechanism for identification of wilful defaulters has been substituted as follows: 3. Mechanism for identification of Wilful Defaulters The mechanism referred to in paragraph 2.5 above should generally include the following: (a) The evidence of wilful 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 wilful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter/whole-time director and call for their submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pointed out that the Bombay High Court, in Kingfisher Airlines Ltd. v. Union of India and Ors., WP (L) No. 1684 of 2015, and the Calcutta High Court, in Kingfisher Airlines Ltd. v. Union of India and Ors., AST No. 320 of 2014, have taken a different view which was not in consonance with the Delhi High Court s view and the Delhi High Court s view ought to prevail. Shri Tripathi s submission was supported by Shri Rakesh Kumar, learned Advocate appearing on behalf of the respondent in Civil Appeal arising out of SLP (C) No. 10008 of 2017. 6. On the other hand, Shri Neeraj Kishan Kaul and Shri B.B. Sawhney, learned Senior Advocates appearing on behalf of the appellants in Civil Appeals arising out of SLP (C.) No. 8591 of 2016 and SLP (C.) No. 10008 of 2017 respectively, and Shri Preetesh Kapur, learned Senior Advocate appearing on behalf of the intervenor in Civil Appeal arising out of SLP (C.) No. 26329 of 2017, cited a number of judgments to show that the right to legal representation is no part of the right of natural justice. They also assailed the judgment of the Delhi High Court, stating that by no stretch of imagination could the in-house committees referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Committee, this situation does not now obtain. Under paragraph 3 of the Revised Circular dated 01.07.2015, it is only at the first stage that the First Committee is to issue a show cause notice and to consider the submissions of the borrower, a discretion being left with the aforesaid Committee to give or not to give a personal hearing. It may be noticed that the Review Committee consisting of the higher officials and independent directors is completely in-house. Neither does the order of the First Committee have to be given to the borrower, nor is any representation required against the aforesaid order, nor is there any personal hearing before the Review Committee, which goes through the First Committee s order by itself and then comes to a conclusion without involving the borrower at all. 8. At this stage, it is necessary to mention that serious consequences follow after a person has been classified as a wilful defaulter. These consequences are as follows: (a) No additional facilities to be granted by any bank/financial institution [paragraph 2.5(a)]. (b) Entrepreneurs/Promoters would be barred from institutional finance for a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Jaswant Sugar Mills Ltd., Meerut v. Lakshmi Chand and Ors., [1963] Supp (1) SCR 242, held that a Conciliation Officer under clause 29 of an Order promulgated under the U.P. Industrial Disputes Act, 1947, has to act judicially. However, he cannot be regarded as a tribunal within the meaning of Article 136 of the Constitution of India as such tribunal must be a body invested with the judicial power of the State, which a Conciliation Officer was not so invested with. Similarly, in Engineering Mazdoor Sabha and Anr. v. Hind Cycles Ltd., [1963] Supp (1) SCR 625, this Court held that an arbitrator appointed under Section 10-A of the Industrial Disputes Act, 1947 could not be said to be a tribunal because the State has not invested him with judicial power. His position may be stated to be higher than that of a private arbitrator, but lower than that of a tribunal. 12. Similarly, in Associated Cement Companies Ltd. v. P.N. Sharma and Anr., [1965] 2 SCR 366, this Court held that the State of Punjab is a tribunal when it exercises its authority under Rule 6(6) of the Punjab Welfare Officers Recruitment and Conditions of Service Rules, 1952. Hence, an order passed by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and yet, such bodies and authorities are not tribunals. Applying the aforesaid tests to the facts of the present case, it cannot be possibly said that either in-house committee appointed under the Revised Circular dated 01.07.2015 is vested with the judicial power of the State. The impugned judgment s conclusion that such Circulars have statutory force, as a result of which the State s judicial power has been vested in the two committees, is wholly incorrect. First and foremost, the State s judicial power, as understood by several judgments of this Court, is the power to decide a lis between the parties after gathering evidence and applying the law, as a result of which, a binding decision is then reached. This is far from the present case as the in-house committees are not vested with any judicial power at all, their powers being administrative powers given to inhouse committees to gather facts and then arrive at a result. Secondly, it cannot be said that the Circulars in any manner vests the State s judicial power in such in-house committees. On this ground, therefore, the view of Delhi High Court is not correct, and no lawyer has any right under Section 30 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for expedition and the need to give full opportunity to the defendant to see material against him (emphasis added). We agree that the elaborate and sophisticated methodology of a formalised hearing may be injurious to promptitude so essential in an election under way. Even so, natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances. To burke it altogether may not be a stroke of fairness except in very exceptional circumstances. Even in Wiseman where all that was sought to be done was to see if there was a prima facie case to proceed with a tax case where, inevitably, a fuller hearing would be extended at a later stage of the proceedings, Lord Reid, Lord Morris of Borth-y-Gest and Lord Wilberforce suggested that there might be exceptional cases where to decide upon it ex parte would be unfair, and it would be the duty of the tribunal to take appropriate steps to eliminate unfairness (Lord Denning, M.R., in Howard v. Borneman [(1974) 3 WLR 660] 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of natural justice. No general principle valid in all cases can be enunciated. In the last analysis, a decision has to be reached on a case to case basis on situational particularities and the special requirements of justice of the case [see paragraph 8]. 17. In Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115, this Court held that a workman under the Industrial Disputes Act, 1947 has no right, under principles of natural justice, that he must be represented by counsel. After discussing several judgments, this Court concluded: 12. From the above decisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1960 SC 914]. Such an inquiry is not a suit or criminal trial where a party has a right to be represented by a lawyer. It is only if there is some rule which permits the accused to be represented by someone else, that he can claim to be so represented in an inquiry vide Brooke Bond India (P) Ltd. v. Subba Raman [(1961) 2 LLJ 417 (SC)]. 10. Similarly, in 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 [(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 chargesheeted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eddy, (2006) 11 SCC 645, this Court laid down: 7. The law in this country does not concede an absolute right of representation to 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 Kalindi v. Tata Locomotive Engg. Co. Ltd. [(1960) 3 SCR 407 : AIR 1960 SC 914], Dunlop Rubber Co. v. Workmen [(1965) 2 SCR 139 : AIR 1965 SC 1392], 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. [(2001) 9 SCC 540 : 2002 SCC (L S) 1043]. The Court then held: 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 practitioner to act as a defence assistant was rejected. Reference was made to the Rules, though no specific reference has been made to the discretion available to be exercised in particular circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion 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 29A 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 Revised Circular, being in public interest, must be construed reasonably. This being so, and given the fact that paragraph 3 of the Master Circular dated 01.07.2013 permitted the borrower to make a representation within 15 days of the preliminary dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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