TMI Blog2022 (7) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... ciples of Natural Justice, it was proposed to provide a final opportunity to submit their further representation, if any on the classification as Willful Defaulter and asked them to send their further submission/representation in writing, if any, for consideration by the Review Committee on Willful Defaulters within the 15 days from the date of the letter. Thus it was a notice of information that the matter was sent to the Review Committee but not an opportunity for personal hearing before the Identification Committee. The Hon ble Apex Court in State Bank of India Vs. M/s Jah Developers Private Limited and others [2019 (5) TMI 862 - SUPREME COURT] stated the necessity to follow the procedure mandatorily as per the Master Circular dated 1-7-2013 which was revised by the Circular dated 1-7-2015 and that the order of the first Committee after para 3(b) of the revised circular 1-7-2015 must be given to the borrower as soon as it was made so that the borrower could then represent against such order within a period of 15 days to the Review Committee and the Review Committee must then pass a reasoned order on such representation and it should be served on the borrower. The above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The petitioners were erstwhile Directors of M/s. Totem Infrastructure Limited, which was an unlisted Public Company registered under the Companies Act, 1956 having its registered office at H.No.8-2-334/B/2, Road No.5, Banjara Hills, Hyderabad, Telangana 500 082. The said Company availed certain credit facilities from respondent No.2 vide sanction letter No.IDBI(H)No.955/ICG(TIL) dt.25.09.2009. The said credit facilities were revised by the respondent No.2 vide its renewal-cum-enhancement of working capital limits vide its letter IDBI(H) No.1798/ICG(TIL) dated 23.10.2010. 3.1 The Company failed to maintain its account with respondent No.2 as per the terms and conditions on which the said credit facilities were granted and ultimately their account was classified as Non-Performing Asset (N.P.A.) as on 30.06.2012. The Consortium of Banks, led by the Union Bank of India had filed an application vide O.A.No.154 of 2014 (old), O.A.No.1653 of 2017 (new) before the Debt Recovery Tribunal- II, Hyderabad, for recovering a total sum of Rs.864,36,71,855/- from the Company. The Tribunal passed ex parte orders in the matter on 30.06.2017 directing the petitioners to pay a sum of Rs.89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re called upon to pay the entire outstanding amount of Rs.314,27,13,211.88 ps., as on 01.07.2021 together with interest accrued thereon within a period of 15 days from the date of receipt of the notice, failing which, their names and photographs would be published in newspapers and magazines. 5.1 The learned counsel for the petitioners further submitted that the petitioners, after receiving notice dt.13.08.2021, verified the CIBIL website of respondent No.2 Bank and came to know that they were classified as Willful Defaulters. The Aadhar cards and Passports of the petitioners would disclose that they were residing in the address given in the cause title since 2015. The Deputy Superintendent of Police, CBI, Bangalore, in the application for judicial custody of the petitioners in RC.No.06(E)/2017 of CBI, BS FC, Bangalore, clearly stated that petitioners were not residing in Flat No.205, Hanging Gardens, Road No.10, near Bombay Stores, Banjara Hills, Hyderabad, since 5 years and they were residing in Villa No.86, Lumbini S.L.M. Springs near Botanical Gardens, Gachibowli, Hyderabad. In the notice dt.13.08.2021 issued by respondent No.2 Bank itself it was clearly stated that show c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lters. The respondent No.2 bank had not complied with the directions of the Hon ble Apex Court in the case of State Bank of India Vs. M/s Jah Developers Private Limited and others 2019(6) SCC 787. The declaration of the petitioners as Willful Defaulters was having serious consequences as they were prevented from getting any financial assistance from any Bank or financial institutions and could not be made as Directors in any other Company. Moreover, the declaration of Willful Default was a disqualification under Section 29-A of the Insolvency and Bankruptcy Code, 2016 to apply to be a Resolution Applicant in CIRP process of any Company. In case the operation of the classification of petitioners as Willful Defaulters as published in CIBIL dt.30.09.2020 was not suspended, petitioners would be put to huge hardship and unable to do business. If the respondent No.2 published the names of the petitioners and their photographs in newspapers/magazines, it would cause immense and irreparable loss and damage to their reputation, and prayed to allow the petition. 6. The Interim suspension of the classification of the petitioners as Willful Defaulters was ordered by this Court on 01.09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2 would classify their accounts as Willful Defaulters as per the R.B.I. circular. The petitioners again failed to submit their representation/defence to the requisite authorities of respondent No.2 on Willful Defaulters and therefore being left with no alternative, respondent No.2 was compelled to issue another notice bearing Ref:IDBI/NMG/HYD/TIL/108/2020-21 dated 30.07.2020 informing the petitioners about the final decision of the Willful Defaulters Review Committee dated 26.06.2020 regarding classifying the petitioners as Willful Defaulters. It was evident that respondent No.2 had time and again issued multiple notices to the petitioners at the address provided by them as per Clause 3(b) of the RBI Circular and had also published the show cause notice in newspapers, when the same was returned undelivered. The fact that they had not received any of the notices issued by the respondent No.2 would show their own negligence and failure to inform the respondent No.2 of their renewed address or even diligently track the paper publication of the issued show cause notice dt.31.05.2019. Further, the notice so issued to the Company and petitioner No.1 dt.07.02.2020 was delivered in pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HDB/2019, which proves their mala fide intention in raising the contention at such later stage. The Willful Defaulters final intimation letters dated 30.07.2021 so issued to the petitioners through speed post, were delivered and acknowledged. Neither the Company nor the petitioners submitted the updated copy of their Aadhar Card and Passport to respondent No.2 till date. The respondent No.2 issued all the show cause notices and other notices as per the information / documents that were available with them and as per the address of the Company which was available on the website of Ministry of Corporate Affairs. As per the RBI guidelines, the borrowers/account holders need to submit KYC documents for periodic updates and since no such documents had been submitted by the petitioners for required updates in respondent No.2 s records, it would show their own negligence, and prayed to dismiss the petition. 8. Perused the record. In the light of the contentions of the learned counsel for both parties, it is considered necessary to extract the mechanism for identification of Willful Defaulters as laid down in para 3 of the Master Circular issued by RBI vide Circular No. DBR.No.CIB.GC.22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime director should not be considered as a willful defaulter unless it is conclusively established that: I. he was aware of the fact of willful default by the borrower by virtue of any proceedings recorded in the minutes of meeting of the Board or a Committee of the Board and has not recorded his objection to the same in the Minutes; or, II. the willful 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 willful defaulters to the Credit Information Companies may thus remove the names of non-whole time directors (nominee directors / independent directors) in respect of whom they already do not have information about their complicity in the default / willful default of the borrowing company. However, the names of promoter directors, even if not whole time directors, on the board of the willful defaulting companies cannot be removed from the existing list of willful defaulters. (e) A similar process as detailed in sub-paragraphs (a) to (c) above should be followed when identifying a non-promoter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copies of any notice of personal hearing before the Identification Committee for Willful Defaulters were also not enclosed by the respondents. They filed the letter dated 18-01-2020 alleged to be sent to the petitioners address at Banjara Hills, Hyderabad which would state that the Branch had sent the show cause notices by registered post on 2-1-2019 and when the SCN s were returned undelivered, they were published in newspaper on 31-5-2019 and even after 15 days from the publication of the referred SCN s, they had not received any representation or response from the petitioners, as such they decided to declare the company and its director/promoters as Willful Defaulters on the grounds mentioned in the SCN. In order to comply principles of Natural Justice, it was proposed to provide a final opportunity to submit their further representation, if any on the classification as Willful Defaulter and asked them to send their further submission/representation in writing, if any, for consideration by the Review Committee on Willful Defaulters within the 15 days from the date of the letter. Thus it was a notice of information that the matter was sent to the Review Committee but not an oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly be done but manifestly seem to be done. If the assessee is put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the assessing officer considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the Revenue. 12. The Hon ble Apex Court in State Bank of India Vs. M/s Jah Developers Private Limited and others 2019 (6) SCC 787 stated the necessity to follow the procedure mandatorily as per the Master Circular dated 1-7-2013 which was revised by the Circular dated 1-7-2015 and that the order of the first Committee after para 3(b) of the revised circular 1-7-2015 must be given to the borrower as soon as it was made so that the borrower could then represent against such order within a period of 15 days to the Review Committee and the Review Committee must then pass a reasoned order on such representation and it should be served on the borrower. The relevant para is extracted as under. 21. Given the above conspectus of case law, we are of the view that there is no right to be represented by a lawyer in the in-hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass a reasoned order on such representation which must then be served on the borrower. Given the fact that the earlier Master Circular dated 01.07.2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 01.07.2015. The impugned judgment is, therefore, set aside. 13. Thus, the above procedure as mandated under the RBI guidelines as well as the Hon ble Apex Court in Jah Developers case was not followed by the respondent No.2. 14. As per the respondent No.2, the petitioners shared their updated communication address during the lenders meeting held on 7-2-2020. But subsequent to that day also, the previous communications were not shared with the petitioners and the respondent No.2 had not sought any reply/action on the previous actions. Instead of choosing to do so, the respondent No.2 directly jumped on to declare the petitioners as Willful Defaulters without there being any reply from the petitioners. Hence it is considered fit to set aside the action of respondent No. 2 in classifying the petitioners as Willful Defaulters and publishing their names in CIBIL dated 30-9-2020 as violative of Section 2(60) of Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X
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