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TMI Blog2019 (8) TMI 1593X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the year 1989 and thereafter, he was in the Board of several Companies, Educational Institution and Non-Profit Philanthropic Institutions. 3. The petitioner would further state that the fourth respondent is a Public Limited Company, incorporated under the provisions of the Companies Act, 1956 on 10.09.1973. The Company was engaged in the business of leasing, hire purchase and financing. The concept of establishing a leasing Company was the brain child of one Mr.Farouk Irani, who was the Founder Member and Managing Director of the fourth respondent. He was in absolute control of the entire affairs and working of Company right from its inception. The day-to-day operations of the Company are looked after by the said Mr.Farouk Irani and he also acted as a heads of all the Departments, viz., financial, accounting and etc., and no other Officer of the Company interfered in the over all control of the company by the Managing Director. The petitioner states that he was invited to join the Board of the fourth respondent-Company in the year 2012 and he joined as a Non-Executive Independent Director on 14.08.2012. 4. The petitioner further states that the Reserve Bank of India during a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the said bank issued a letter dated 30.09.2014 to the Company and its Directors, stating that an appropriate committee of the Bank had examined the violations of the terms and conditions and had approved the proposal for inclusion of the name(s) of the Company and it is Directors / Guarantors in the Reserve Bank of India / Credit Information Bureau of India Limited [CIBIL] list of Wilful Defaulters and in case of any grievance, they can send a representation within a period of 15 days to the Grievance Redressal Committee of the Bank at their Headquarters. In response to the letter, the petitioner submitted a detailed reply dated 11.10.2014, stating that the petitioner's name is not to be included in the list of wilful defaulters. He also sent another representation dated 14.01.2015, categorically stating that since he neither a Whole Team Director nor a Promoter of the Company, he cannot be declared as a wilful defaulter. 8. The petitioner would claim that the third respondent sent another letter dated 26.11.2015 to include the name of the Directors in the list of wilful defaulters, for which, the petitioner submitted a representation on 09.12.2015 and also participated in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner gave a representation as per the order of this Court, but so far no final decision could be taken due to the non convening of the Committee. 13. Heard both sides and perused the materials available on record. 14. The relevant provisions of the Act and Circular are extracted hereunder for ready reference:- Sections 149 (6) of the Companies Act:- 6) An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director,- (a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience; (b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company; (ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company; (c) who has or had no pecuniary relationshipwith the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year; (d) none of whose relatives has or had pecuniary relationship or transactions with the company, its holding, subsidiary or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 publisshed / disseminated by RBI/CICs. b) The legal process, wherever warranted, against the borrowers / guarantors and foreclosure of recovery of dues should be initiated expeditiously. The lenders 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 companies to which the banks / FIs have given funded / nonfunded credit facility, should be incorporated by the banks / FIs to the effect that the borrowing company should not induct on its board a person whose name appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; (iii) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings and who has not objected to the same, or where such contravention had taken place with his consent or connivance. Therefore, except in very rare cases, a non-whole time director should not be considered as a wilful defaulter unless it is conclusively established that I. he was aware of the fact of wilful default by the borrower by virtue of any proceedings recorded in the Minutes of the Board or a Committee of the Board and has not recorded his objection to the same in the Minutes, or, II. the wilful default had taken place with his consent or connivance. The above exception will however not apply to a promoter director even if not a whole time director. (iv) As a one-time measure, Banks / FIs, while reporting details of wilful defaulters to the Credit Information Companies may thus remove the names of non- whole time directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany or in the Board Meeting and the commissions and omissions alleged against the Company had taken place with the knowledge, consent or connivance of the petitioner to satisfy the ingredients of Section 149(12) of the Act. The learned Senior Counsel pointed out that the investigation report of Dr.R.K.Raghavan, Former Director, CBI, supports the case of the petitioner. 18. It is to be seen that the persons identified as wilful defaulter have to meet the consequence of the subsequent proceedings to be initiated by the Banks and Financial Institutions in tune with the Master Circular 2.5, referred supra. Therefore, unless the allegations are supported by material documents, no one can be declared as a 'wilful defaulter'. It is settled position of law that the penal provisions requires strict proof and it cannot be permitted to be exercised in a casual manner. 19. It is to be further seen that the Wilful Defaulter Identification Committee of the State Bank of India, after perusing the entire records came to the conclusion that they are not sufficient to declare the petitioner as a 'wilful defaulter'. In the case on hand, as observed above, there is absolutely no evi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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