TMI Blog2021 (7) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not ipso facto vitiate proceedings. The petitioner must be able to demonstrate clearly the prejudice suffered by the reason of such infraction. Hence even if one accepts the submission of Mr. Saha that there has been some minor infractions of natural justice or procedure, no prejudice appears to have been caused to the petitioners, by such infraction - Although not pressed in course of arguments it has been pleaded in the writ petition that the bank has instituted proceedings under Section 7 of the IBC, 2016. It is submitted that declaring the writ petitioners as Wilful Defaulters would deprive the petitioners of Rights under Section 32 A of the IBC. It is argued that the impugned orders under Master Circular, 2015 would entail penal consequence on the petitioners and are in derogation of the proceedings under and the provisions of the IBC, 2016. The petitioners even otherwise are not entitled to benefit of Section 32A, since no resolution plan has been sanctioned as yet by the NCLT and even if a resolution plan was approved, the petitioners cannot avail the benefits of Section 32A for being promoters and consequently being persons in default under Section 32 A read with Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch, 2018. 3. In reply thereto on 9th July, 2019, Advocates acting for the petitioners and the principal borrower purported to show cause. The petitioners also asked the bank to disclose all evidence before the said Wilful Defaulter Identification Committee (WDIC). The bank by communication dated 16th August, 2019 replied to the cause shown by the petitioners. The petitioners through their Advocates replied to the said reply on 9th September, 2019. By a letter dated 9th December, 2019 the WDIC offered a personal hearing to the petitioners via video conference. The petitioners were required to come to the video conferencing room at Bank's Branch in Kolkata at Middleton Street at 1 p.m. on 30th December, 2019. 4. Prior thereto by a letter dated 26th December, 2019 the petitioners after reiterating their earlier contentions placed further facts showing cause and asked for the same to be placed before the WDIC. 5. The Bank thereafter by communication dated 3rd March, 2020 extended time and deferred the date of personal hearing to 20th March, 2020 at 11 a.m. and once again asked the petitioners to be present for virtual hearing at the Middleton Street office of the bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and/or office. The petitioners were, therefore, never offered any personal hearing. He relied on the decision of the Supreme Court in the case of State Bank of India vs. Jah Developers Private Limited Ors. reported in (2019) 6 SCC 787, Alogoma Steels Ltd. Ors. vs. SBI Ors. (Single Bench) and Gouri Prasad Goenka vs. State Bank of India Anr. in support of this argument. (c) The WDIC could not have found diversion of funds by the petitioners since the entire sale proceeds of the business of the petitioners could not be paid to the lenders without meeting the overheads. There was thus no diversion of funds or nonpayment of dues despite the having capacity to do so. (d) The investment by the principal debtor in a 100% owned subsidiary was to the knowledge of the lenders even at the time of reschedulement of loans. (e) There are in fact no reasons advanced or answers given by the WDIC to any of the contentions of the petitioners in the cause shown by them. The finding and answers in column 4 of the order of WDIC is mechanical and devoid of any reasons. (f) The Review Committee did not give detailed or any reasons or any reason for that matter while confirming the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further supply of the same, therefore, does not and cannot arise. 13. The repeated requests for supply of the documents relied upon by the Identification Committee, therefore, do not appear to be bona fide. Hence the petitioners' argument on that score cannot be sustained. In so far as supply of documents by the Bank under communication of its letter dated 3rd February, 2021, it is apparent and clear that the bank was furnishing for the 2nd time and resubmitting the documents to the petitioners. The arguments of the petitioners that they have been furnished with the documents after the decision having been taken by the WDIC, cannot be sustained. 14. It is indeed true that in terms of the decision of the Supreme Court in the case of State Bank of India vs. Jah Developers (supra), the borrower is entitled under the revised Master Circular to make a representation against the findings of the WDIC/First Committee. Personal hearing of the borrowers has not been mandated by the Supreme Court or required under the Master Circular. What is mandatory is that the borrower should be allowed to represent against the show-cause notice issued by the WDIC. Admittedly the writ petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 3(b) of the Revised Circular dated 1-7-2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full representation on facts and law (if any). The Review Committee must then pass a reasoned order on such representation which must then be served on the borrower. Given the fact that the earlier Master Circular dated 1-7-2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 1-7-2015. The impugned judgment [SBI v. Jah Developers (P) Ltd., LPA No. 113 of 2015 sub nom Punjab National Bank v. Kingfisher Airlines Ltd., (2016) 154 DRJ 164], [Kingfisher Airlines Ltd. v. Union of India, (2016) 2 Mah LJ 838] is, therefore, set aside, and the appeals are allowed in terms of our judgment. We thank the learned Amicus Curiae, Shri Parag Tripathi, for his valuable assistance to this Court. 15. Repeated assertions that the petitioners were prejudiced by absence of personal hearing, therefore, cannot be sustained. The petitioners even otherwise were offered a personal hearing by the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st as a matter of fact, or be based upon a definite inference of likelihood of prejudice flowing from the non-observance of natural justice. 18. Further in the Ram Kumar decision (supra) the Hon'ble Supreme Court has stated at paragraph 7 and 8 as follows: 7. It has been pointed out by the High Court that the punishing authority has passed a lengthy order running into seven pages mentioning therein the contents of the charge-sheet, the detailed deposition of the witnesses, as recorded by the enquiry officer, and the findings of the enquiry officer. The explanation submitted by the appellant has also been reproduced in the impugned order. Thereafter, the punishing authority stated as follows: I have considered the charge-sheet, the reply filed to the charge-sheet, the statements made during enquiry, the report of the enquiry officer, the show cause notice, the reply filed by the delinquent and other papers and that no reason is available to me on the basis of which reliance may not be placed on the report of the enquiry officer. Therefore, keeping these circumstances in view, I terminate his service with effect from the date of issue of this order. 8. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge. 20. The same principles of administrative law are applied in both service law and the law with regard to Wilful Defaulters, as held by a Division Bench of this Court in Union Bank of India vs. Sudhir Kumar Patoria (supra). In fact, the rules and law applied to administrative and quasi judicial proceedings have a common source in administrative law. 21. It is seen in the facts of the above case that reasons have been given by the WDIC in arriving at its findings and that too after specifically referring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Manish Kumar vs. Union Of India (supra) that the benefits of Section 32 A are not available to every other promoter and guarantor of every corporate debtor. The relevant paragraphs of the aforesaid decision are set out hereinbelow: 275. Section 32A has been divided into three parts consisting of sub-Sections (1) to (3). Under sub-Section (1), notwithstanding anything contained, either in the Code or in any other law, liability of a corporate debtor, for an offence committed prior to the commencement of the CIRP, shall cease. Further, the corporate debtor shall not be liable to be prosecuted for such an offence. Both, these immunities are subject to the following conditions: i. A Resolution Plan, in regard to the corporate debtor, must be approved by the Adjudicating Authority under Section 31 of the Code; ii. The Resolution Plan, so approved, must result in the change in the management or control of the corporate debtor; iii. The change in the management or control, under the approved Resolution Plan, must not be in favour of a person, who was a promoter, or in the management and control of the corporate debtor, or in favour of a related party of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the liability partnership or the Officer in default, as defined under Section 2(60) of the Companies Act, 2013, or every person, who was, in any manner, in-charge or responsible to the corporate debtor for the conduct of its business, will continue to be liable to be prosecuted and punished for the offence committed by the corporate debtor. This is despite the extinguishment of the criminal liability of the corporate debtor under sub-Section (1). Still further, every person, who was associated with the corporate debtor in any manner, and, who was directly or indirectly involved in the commission of such offence, in terms of the Report submitted and Report filed by the Investigating Authority, will continue to be liable to be prosecuted and punished for the offence committed by the corporate debtor. Thus, the combined reading of the various limbs of sub-Section (1) would show that while, on the one hand, the corporate debtor is freed from the liability for any offence committed before the commencement of the CIRP, the statutory immunity from the consequences of the commission of the offence by the corporate debtor is not available and the criminal liability will continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt are to be interpreted in the context or subject-matter in which the words are used and not according to its literal meaning. In Principles of Statutory Interpretation, 13th Edn., 2012, Justice G.P. Singh has given this explanation to the rule of literal construction at p. 94: When it is said that words are to be understood first in their natural, ordinary or popular sense, what is meant is that the words must be ascribed that natural, ordinary or popular meaning which they have in relation to the subject-matter with reference to which and the context in which they have been used in the statute. Brett, M.R. called it a 'cardinal rule' that 'Whenever you have to construe a statute or document you do not construe it according to the mere ordinary general meaning of the words, but according to the ordinary meaning of the words as applied to the subject-matter with regard to which they are used'. 'No word', says Professor H.A. Smith 'has an absolute meaning, for no words can be defined in vacuo, or without reference to some context'. According to Sutherland there is a 'basic fallacy' in saying 'that words have meaning in and of themselv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Master Circular, which contemplates criminal action by banks/financial institutions, is extracted hereinbelow: 4.3. Criminal action by banks/financial institutions.--It is essential to recognise that there is scope even under the exiting legislations to initiate criminal action against wilful defaulters depending upon the facts and circumstances of the case under the provisions of Sections 403 and 415 of the Penal Code, 1860 (IPC), 1860. Banks/Fls are, therefore, advised to seriously and promptly consider initiating criminal action against wilful defaulters or wrong certification by borrowers, wherever considered necessary, based on the facts and circumstances of each case under the above provisions of IPC to comply with our instructions and the recommendations of JPC. It should also be ensured that the penal provisions are used effectively and determinedly but after careful consideration and due caution. Towards this end, banks/Fls are advised to put in place a transparent mechanism, with the approval of their Board, for initiating criminal proceedings based on the facts of individual case. All that the aforesaid Clause 4.3 of the Master Circular states is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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