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TMI Blog2024 (3) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... cts Pvt. Ltd., which runs a 1200 mega-watt power plant and supplies electricity to three States namely U.P., M.P. and Haryana. The Petitioner's company has availed loan facilities amounting to thousands of crores from banks and it is stated that there has never been any default in servicing the debt since inception. 3. However, the Respondent Bank sought to declare the Petitioner as a Wilful defaulter with respect to his association in another company known as Moser Baer Solar Ltd. ("MBSL") under the Master Circular, thereby, depriving the Petitioner from availing credit facilities for his present and prospective business enterprises. 4. It is stated that another company namely Moser Baer India Limited ("MBIL") was a company incorporated in 1983 by the father of the Petitioner to manufacture storage discs. MBIL exported discs to large multinational companies like Sony, Hitachi, TDK, Fuji, Mitsubishi etc. 5. As per the case of the Petitioner, around the year 2005, it was realized that the business of storage discs began to slow down due to technological advancement and emergence of new mediums of storage like Cloud. Hence, it was decided to diversify the business into more upcomi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred his entire shareholding in MBSL to his father and completely dissociated himself with the day to day working of MBSL. 14. It is also stated that on 30.04.2012, the Petitioner resigned as the Executive Director of MBSL and Form-32 to that effect was filed with the Registrar of Companies ("RoC"). The Petitioner, on 16.11.2022, completely exited MBSL, when he resigned as a whole time Director of MBSL and Form-32 to that effect was filed with the RoC. 15. It is submitted by the Petitioner that as MBSL faced financial decline and there was a looming threat of loan repayment default, the lenders, including the Respondent Bank, considered MBSL's case for Corporate Debt Restructuring ("CDR") in accordance with the CDR Master Circular ("CDR Master Circular") issued by the RBI. To ascertain the sustainability of CDR, the lenders required MBSL to submit a Flash Report, which would present the reasons for its decline, its viability and plan for revival. The said Flash Report would then be forwarded by the lenders to an independent agency for obtaining a Techno Economic Viability ("TEV") Report. The TEV Report would indicate whether the restructuring plan proposed by MBSL was financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 29.08.2012 from M/s Mehrotra and Mehrotra, Chartered Accountants of MBSL. The representative of Feedback Infra, which conducted the Technical Viability Study of MBSL stated that the demand for solar panels was increasing substantially, both nationally as well as internationally. With the anticipated anti-dumping duties on Chinese companies, the viability of MBSL would improve. It was suggested that the core strategy and operating plans of MBSL are technically feasible. 22. The lender banks, thereafter, issued a Final Restructuring Scheme ("FRS") of MBSL. On 21.01.2013, the lender banks further issued a modified FRS in respect of MBSL. 23. On 18.03.2013, the CDR-Cell issued a letter stating that on 21.01.2013, the CDR-EG had approved the proposed restructuring package of MBSL. The Respondent Bank was appointed as the Monitoring Institution, leading the CDR process along with other consortium banks. The details of approved package was outlined in Annexure-1. MBSL was classified as Class-B borrower under the CDR Scheme, which has Classes from A to D. In the Class-B category, MBIL was classified as "Corporate/promoters affected by external factors and also having weak resources, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan repayment obligations. It was alleged that MBSL had diverted the funds for other purposes. 33. On 01.05.2019, the Petitioner submitted a reply stating that he was neither the Director nor the shareholder of MBSL. It was stated that earlier also, the Respondent Bank attempted to declare the Petitioner as Wilful Defaulter, for which, W.P. (C) No. 7797 of 2017 was filed before this Court. However, the Respondent Bank stated before this Court that it was not taking any action against the Petitioner. Hence, the Writ Petition was disposed of vide order dated 14.11.2017. It was contended that after the Petitioner exited from MBSL, the lender banks admitted MBSL for CDR as per the CDR Master Circular. It is stated that if any act of Wilful Default was noted at that stage, then MBSL would not have been admitted to CDR. The Petitioner contended that during the CDR process, the lender banks were informed that the personal guarantee of the Petitioner was not available, which was accepted by them. Hence, the Show Cause Notice deserved to be withdrawn. 34. On 07.02.2020, the Wilful Defaulter Identification Committee of the Respondent Bank declared the Petitioner as Wilful Defaulter for fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Karan Batura, Mr. Ekansh Mishra and Mr. Jayant Chawla, Advocates and Mr. Sanjay Bajaj, learned counsel appearing for the Respondent Bank alongwith Mr. Shivam Takkar and Mr. Sarthak Sehgal, Advocates, at length, and perused the record. Relevant discussion in W.P. (C) No. 4181/2023 45. This Court in W.P. (C) No. 4181/2023 titled as Ratul Puri v. Bank of Baroda, has extensively dealt with the scheme of RBI's Master Circular for declaring a person as "Wilful Defaulter", "standard of proof" to decide the validity of event of Wilful Default under the Master Circular, scope of judicial review in administrative action and scheme of CDR issued by RBI. 46. The scheme of the RBI's Master Circular for declaring a person as "Wilful Defaulter", as discussed in terms of paragraph nos. 48 to 59 is reproduced as under:- 48. Before going into the facts of the case, it is essential to examine the scheme of the Master Circular. In order 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, the RBI, in exercise of power under Sections 21 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank /lender. The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorised as wilful must be intentional, deliberate and calculated." 52. A bare reading of Clauses 2.1.3(b) and (c) clearly reveals that an event of wilful default can only take place when the "loan amount" lent by the bank is diverted or siphoned off by the borrower, for any use, other than for which the loan was granted. 53. Clause 2.2 of the Master Circular defines "diversion of funds" and "siphoning of funds" as under: "2.2 Diversion and siphoning of funds: The terms "diversion of funds" and "siphoning of funds" should construe to mean the following: - 2.2.1 Diversion of funds, referred to at para 2.1(b) above, would be construed to include any one of the undernoted occurrences: (a) utilisation of short-term working capital funds for long-term purposes not in conformity w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minimum. Solitary or isolated incidents are not to be used for the use of penal action under the said clause. Clause 2.5 reads as under: "2.5 Penal measures In order to prevent the access to the capital markets by the wilful defaulters, a copy of the list of wilful defaulters (non-suit filed accounts) and list of wilful defaulters (suit filed accounts) are forwarded to SEBI by RBI and Credit Information Bureau (India) Ltd. (CIBIL) respectively. The following measures should be initiated by the banks and FIs against the wilful defaulters identified as per the definition indicated at paragraph 2.1 above: a) No additional facilities should be granted by any bank / FI to the listed wilful defaulters. In addition, the entrepreneurs / promoters of companies 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, Development Financial Institutions, Government owned NBFCs, investment institutions etc. for floating new ventures for a period of 5 years from the date the name of the wilful defaulter is published in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (iii) CRIF High Mark Credit Information Services Private Limited and (iv) Credit Information Bureau (India) Limited (CIBIL) to commence/carry on the business of credit information. Credit Information Companies (CICs) have also been advised to disseminate the information pertaining to suit filed accounts of Wilful Defaulters on their respective websites. (b) Banks / FIs should, however, submit the quarterly list of wilful defaulters where suits have not been filed only to RBI in the format given in Annex 1. (c) In order to make the current system of banks/FIs reporting names of suit filed accounts and non-suit filed accounts of Wilful Defaulters and its availability to the banks by CICs / RBI as current as possible, banks / FIs are advised to forward data on wilful defaulters to the CICs/Reserve Bank at the earliest but not later than a month from the reporting date. d) After examining the recommendations of the Committee to Recommend Data Format for Furnishing of Credit Information to Credit Information Companies (Chairman: Shri. Aditya Puri) it has been decided to implement the following measures with regard to reporting and dissemination of information on wilful def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faulters The transparent mechanism referred to in paragraph 2.5(d) 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 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 submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the promoter/whole-time director for a personal hearing if the Committee feels such an opportunity is necessary. (c) The Order of the Committee should be reviewed by another Committee headed by the Chairman / CEO and MD and consisting, in addition, of two independent directors of the Bank and the Order shall become final only after it is confirmed by the said Review Committee. (d) As regard a non-promoter/non-whole time direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is also a fundamental right guaranteed under Article 21 of the Constitution. The decisions of the Hon'ble Supreme Court in the cases of Sukhwant Singh v. State of Punjab, Subramanian Swamy v. Union of India and Om Prakash Chautala v. Kanwar Bhan are noteworthy in this regard." 48. While dealing with the standard of proof to decide the validity of an event of Wilful Default under Master Circular in paragraph nos.65 to 69, it was concluded that in the test of validity of civil action on preponderance of probability, the graver the consequences of such civil action, the higher is the degree of proof required. The conclusion of the said discussion is encapsulated in the paragraph reproduced as under:- "69. From the aforesaid enunciation of law, it is evident that in the test of validity of civil action on preponderance of probability, the graver the consequences of such civil action, the higher is the degree of proof required. The court must first consider the existing probabilities, followed by a comparative analysis of the respective weights to be attached to the probabilities. The degree of probability is based on the subject matter. The subject matter under scrutiny is one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng its existing loan repayment obligations. The CDR Master Circular requires the borrower to submit a Flash Report to the lender banks making the restructuring proposal. Wherever necessary, the lender banks would obtain a TEV Report to ascertain the viability of the company. The CDR Master Circular also requires the lender banks to change the management of the company where there has been "diversion of funds". In case of "diversion of funds", wherever necessary, the banks may also carry out forensic audit of the company. Clause 3 of the CDR Master Circular reads as under: - "3. SCRUTINY BEFORE CDR REFERENCE/APPROVAL 3.1 Referring Institution (RI) should ensure prima facie viability of units at the time of submission of Flash Report. Wherever necessary TEV study from independent reputed agencies be conducted while drafting the final CDR package. 3.2 RI/MI may also examine the possibility of change of management while drafting the final CDR package. If the case has been found to be adversely affected due to incompetent management of the Company or where diversion/misuse of funds has taken place, change of management should be the first option. 3.3 Wherever necessary and speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets. (iv) The unit has defaulted in meeting its payment/ repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/ lender." 75. The aforesaid definition of wilful default in RBI's guidelines issued on 2.7.2012 is identical to the definition of wilful default as defined in the Master Circular in question in the present case. 76. Paragraph 2 of Annexure III of the CDR Master Circular then mandates that "Banks/ FIs should take" specified "measures in identifying and reporting instances of wilful default". These steps are similar to the steps provided in the Master Circular viz. identification by Identification Committee, show cause notice to borrower, representation before Grievance Redressal Committee/ Review Committee and finally a decision. 77. Paragraph 4 restates that "Cases of Wilful Defaulter Not Eligible Under CDR". This clarifies again that cases of reported siphoning of funds or misfeasance, fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... package, besides special conditions deemed necessary in specific cases..." Annexure IV in paragraph A (1) to (28), provides standard conditions for all four category of borrowers. 83. Paragraph B imposes "Additional Conditions for Borrower Class - 'B' (In addition to Standard Conditions Stipulated Under A)". Paragraph C imposes "Additional conditions for Borrower Class - 'C' (In addition to Standard Conditions Stipulated Under A & B)". Paragraph D imposes "Additional conditions for Borrower Class -'D' (In addition to Standard Conditions Stipulated under A, B & C)". Thus, the lower the Class assigned, the higher the conditions are to be placed. 84. As per Clause 8.1, "A decision of the CDR Empowered Group relating to prima facie feasibility and/or final approval of Restructuring Scheme shall be taken by a Super-Majority Vote at a duly convened meeting, after giving reasonable notice, to the Lenders and to the Eligible Borrower." 85. As defined in Clause 8.3, 'Super-Majority Vote' means not less than 60 per cent of number of lenders holding not less than 75 per cent of aggregate principal outstanding Financial Assistance. 86. On admission of Flash Report, as per Clause 9.3, " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to independently find that the "Wilful Default" is "intentional, deliberate and calculated" and the said conclusion is based on "objective facts and circumstances of the case". The Forensic Audit Report can act as a piece of corroboration for the said exercise, but not the sole basis. The lender banks must record their satisfaction of commission of Wilful Default which according to them are "intentional, deliberate and calculated". 54. Further, under Clause 2.1.3 of the Master Circular, the lender banks have to keep in mind the track record of the borrower and the decision to declare an entity or person as Wilful Defaulter cannot be taken on the basis of isolated transactions/incidents. A similar obligation is cast on the lender banks in Clause 2.5 of the Master Circular, which require the lender banks to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It is required to be ensured that solitary or isolated instances are not made the basis for imposing the penal action under the Master Circular. 55. In the present case, the satisfaction to issue Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase rent per annum to Security deposit (Times) 1. Deed for Sub lease of Building - Thin Film 1 Moser Baer India Limited 43,50,00,000 14,400,000 30.21 2. MOU for sub-lease of land - Thin Film 2 Moser Baer India Limited 2,00,00,000 3,900,000 5.13 3. Deed for sub-lease of land - Thin Film 1 Moser Baer India Limited 6,00,00,000 1,020,000 58.82 4. Deed for sub-lease of building -Thin Film 2 Moser Baer India Limited 55,00,00,000 1,36,80,000 40.20 5. MOU for leasing of utilities Moser Baer India Limited 29,00,00,000 416,460,000 0.70 Total/Average 133,50,00,000 44,94,60,000 3.05% 59. Learned counsel for the Respondent Bank has not controverted the aforesaid position. It thus appears that the first alleged act of Wilful Default is based on a factually incorrect premise that the security deposits by MBSL to MBIL were 58.82% of the rental. 60. The record of this case would further reveal that in March, 2007, MBSL had entered into an Agreement with Applied Materials, USA for supply of the Thin Film Solar Module Line. The said Agreement necessitated MBSL to establish its manufacturing unit for effecting supplies. 61. As noted above, MBSL was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Utilities Utility 7 31.03.2010 28.56 57,600,000 7 years 40.32 0.07 0.07 12.02% Utility 8 31.03.2010 58.51 108,300,000 8 years 86.64 0.07 0.07 12.03% Utility 9 31.03.2010 96.91 164,160,000 9 years 147.74 0.08 0.07 11.99% Utility 10 31.03.2010 55.10 86,400,000 10 years 86.40 0.09 0.07 12.02% Total 239.08 416,460,000 361.10 0.08 0.07 Total 353.53 44,34,60,000 444.82 0.3 3.06 12.80% IRR 64. The aforesaid chart, which is also not controverted by the Respondent Bank, indicates that the return made by MBIL for its investments does not appear to be anything out of the ordinary. The surrounding circumstances and the nature of return do not objectively establish that the lease agreements were intentional, deliberate and calculated acts of Wilful Default. 65. This Court shall now consider the Forensic Audit Report, which is the basis for invoking the Master Circular by the Respondent Bank. A perusal of the Forensic Audit Report reveals that it pertains to period between 01.04.2012 to 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to the Identification Committee of the Respondent Bank, amounts to diversion of funds. 70. Learned Senior Counsel for the Petitioner contends that the aforesaid observation made by the Identification Committee based on the Forensic Audit Report is also made in absence of documents of the relevant period. 71. As discussed above, the SEZ was owned by MBIL. MBIL being the parent company of MBSL, executed lease agreements to enable MBSL to manufacture in the SEZ and hence, developed the necessary infrastructure for the same. As per the approval letter dated 01.09.2006 issued by the Ministry of Commerce, Government of India, the right and responsibility to operate utilities including power generation and utility assets on the SEZ remained exclusively with MBIL. 72. It is also seen that as per approval dated 22.05.2007, MBSL received permission only to manufacture thin film and crystalline silicon based solar modules. 73. Hence, to comply with the said condition, MBSL was necessitated to give back on operating lease in favour of MBIL, the operation of power generation and utility assets for operations. These operating leases were effective from 01.04.2010 for a period of 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted its Flash Report. In Clause 13, under the head of "Buildings & Infrastructure Facilities", MBSL categorically disclosed the details of the financial and operating lease agreements entered into with its parent company i.e., MBIL. Thus, even by virtue of the Flash Report, the Respondent Bank was fully aware of the lease agreements and the nature of transactions. 79. Based on the Flash Report, at the time of consideration of MBSL's application for CDR, the lender banks in their meeting held on 10.10.2012 noted that MBSL had accumulated liabilities of around Rs.161 Crores towards lease agreements and MBSL proposed to pay them over a period of 10 years. Thus, even at the time of finalization of the CDR Scheme, the Respondent Bank was aware of the lease agreements and the liabilities arising out of it and did not find these to be questionable or out of the ordinary. 80. On 18.03.2013, when MBSL was not in a position to meet its loan repayment obligations, the CDR-EG approved the restructuring package of MBSL. In the letter dated 18.03.2013, the CDR-EG approved the CDR package as per Annexure-1 to the said letter. In Clause IX of Schedule-1, the lender banks again acknowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee passed its order quoting the Forensic Audit Report and even the Review Committee rejected the Petitioner's explanation by merely quoting the Forensic Audit Report. The Forensic Audit Report itself does not conclude diversion of funds. Hence, this Court is of the view that the Respondent Bank has failed to discharge its obligations under Clause 2.1.3 read with Clause 2.5 of the Master Circular and proceeded to invoke the jurisdiction under the Master Circular merely on the basis of the Forensic Audit Report, which itself did not record any conclusion of diversion of funds. 85. The third ground on which the Respondent Bank declared the Petitioner a Wilful Defaulter is that MBSL made investments of Rs.696.49 Crores in its subsidiary Helios Photovoltaic Ltd. (earlier known as MBPV) "without the approval of the lenders". 86. On behalf of the Petitioner, it is contended that the investments by MBSL in Helios Photovoltaic Ltd. were made from funds raised from Private Equity (PE) investors and were within the knowledge of the lender banks. The lender banks cannot allege these investments to be an act of Wilful Default, several years later, by observing that the investments were made w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reproduced as under: "2.3 Comments on financial position and working results *** Investments: The investments are towards equity and preference share capital in 100% fully owned subsidiary MBPV. These investments are required to be retained in terms of non-disposal undertaking executed with secured lenders of MBPV. Further, investment in MBPV is strategic investment, whereby MBPV supplies PV cells to MBSL in its assembly of modules." 92. Even after noting the investments made by MBSL in Helios Photovoltaic Ltd., the lender banks placed MBSL in Class-B borrower under the CDR Master Circular, which applies where a company is affected by external factors and not Class-C, which applies for diversion of funds. The lender banks, therefore, did not treat the investment in Helios Photovoltaic Ltd. as diversion of funds at any stage. On the contrary, the lender banks found the investment to be strategic and required MBSL to retain the said investment. 93. In this view of the matter, it is difficult to accept the Respondent Bank's argument that the investment in Helios Photovoltaic Ltd. amounts to diversion of funds as the same was made without approval of the Respondent Bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of facts and circumstances. However, the said burden is not discharged by merely quoting the Forensic Audit Report, which itself has not drawn any conclusion of diversion of funds. The documents of Respondent Bank of 2012 i.e., several years before the issuance of Show Cause Notice, found the investments to be strategic and required to be retained, cannot subsequently become "intentional, deliberate and calculated" acts of Wilful Default. 98. Learned Senior Counsel for the Petitioner has attempted to show that the investment in Helios Photovoltaic Ltd. was made by MBSL from the funds raised from PE investors. Even after making the investments, MBSL had cash surpluses. It is further contended that the Respondent Bank had given a loan of Rs. 261.35 Crores, as on 2009-10, to MBSL for creation of fixed assets. MBSL created fixed assets of Rs. 477.46 Crores, which implies that that the loan amount was used for the purpose for which it was granted. The investment in Helios Photovoltaic Ltd. was towards the creation of fixed assets as it manufactured PV cells, which was a critical component for MBSL in its assembly line of solar cells. When the investment is made to create a fixed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference shares. This amount had to be repaid by MBSL to M/s Value Solar Energy Ltd. Subsequently, under an Agreement dated 29.03.2012, MBSL purchased M/s Value Solar Energy Ltd.'s preference shares. However, MBSL could make the payment with a shortage of Rs. 7.2 Crores. Thus, after squaring up the transactions, it is MBSL which owed Rs. 7.2 Crores to M/s Value Solar Energy Ltd. The loans and advances by MBSL to M/s Value Solar Energy Ltd., therefore, cannot be termed as a diversion of funds. 104. While it is not necessary to go into the aforesaid details, suffice is to say that the Forensic Audit Report only observed that it is not in a position to comment on their nature of loans and advances made to M/s Value Solar Energy Ltd., as necessary documents were not available. Merely because necessary documents were unavailable to the Forensic Auditor, the Respondent Bank could not have drawn an inference of diversion of funds. In doing so, the Respondent Bank failed to adhere to the requirement of Clause 2.1.3 read with Clause 2.5 of the Master Circular to identify "Wilful Default" which is "intentional, deliberate and calculated" and based on "objective facts and circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Master Circular. Effect of Forensic Audit Report 109. From a reading of the orders passed by the Identification Committee and the Review Committee, it is evident that the Respondent Bank attributed acts of Wilful Default to the Petitioner only on the basis of the Forensic Audit Report. The question which arises at this juncture is whether the observations made in the Forensic Audit Report can be the sole basis for the Respondent Bank to conclude an event of Wilful Default. 110. The nature of the Forensic Audit Report in respect of a company is discussed by the Calcutta High Court in Prashant Bothra & Anr. v. Bureau of Immigration & Ors. 2023 SCC OnLine Cal 2643. It was held that a Forensic Audit Report, at best, is a piece of evidence in liquidation proceedings, and is in no manner a conclusive proof of any illegality committed under a law. The Forensic Audit Report is merely an opinion of the author, which is based on several disclaimers and it cannot be a conclusive proof of its observations. The relevant observations are reproduced as under:- "21. The very premise of the request was a forensic audit report allegedly authored by a particular concern. The said report, at b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lender banks to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It is required to be ensured that solitary or isolated instances are not made the basis for imposing the penal action under the Master Circular. This requirement is cast in the Master Circular with an object to punish those borrowers who have not acted bona fidely in the interest of the business enterprise but made a concerted effort to divert borrowed funds. The Master Circular assumes that where the track record of the borrower is otherwise sound, then isolated transactions or incidents that may not be financially prudent, may not, alone be sufficient to declare a borrower as Wilful Defaulter. 113. Let us now consider the track record of MBSL as per the FRS, which is an internal document prepared by the Respondent Bank before finalizing the CDR package. The FRS was prepared when MBSL was already in financial constraints and was unable to meet its loan repayment obligations. 114. In the FRS, the lender banks have noted that MBSL is a subsidiary of MBIL and engaged in the manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., the FRS, does not show a consistent negative track record of MBSL. MBSL was seen as a global player in photovoltaic cells. It had presence in several countries. It had serviced its debt and largely repaid the principal dues. The Respondent Bank, under Clause 2.1.3 read with Clause 2.5, was obligated to reflect upon the entire track record of MBSL and then conclude whether there existed events of Wilful Default and not on the basis of isolated transactions/incidents. Consequences of admitting MBSL for CDR under the CDR Scheme 119. This Court deems it appropriate to make certain observations regarding the manner in which the scheme of CDR Master Circular is to be implemented. The CDR Master Circular is equipped with several measures to ensure that cases involving frauds or diversion of funds with mala fide intent are not admitted for CDR. 120. These include provisions like Clause 6.3 read with paragraph no. 4 of Annexure III, which renders corporates indulging in fraud and malfeasance as ineligible for CDR. Further, CDR scheme provides for four Classes - A to D, out of which, Categories C and D relate to the cases of diversion of funds and which categorisation has to be don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an earlier CDR Scheme was finalised and nothing negative was flagged at that stage, may not come in way of the lender banks in invoking jurisdiction under the Master Circular. However, it may not be open for lender banks to classify known acts as events of Wilful Default merely because subsequently, in respect of the same known acts, the Forensic Audit Report has made certain observations. To declare a person as a Wilful Defaulter, lender banks have to independently find that the "Wilful Default" is "intentional, deliberate and calculated" and the said conclusion is based on "objective facts and circumstances of the case", as required under the Master Circular. The Forensic Audit Report, at best, can act as a piece of corroboration for the said exercise, but not the sole basis. 126. To take any other view would entail the transfer of jurisdiction to determine acts of Wilful Default to Forensic Auditors, which, by law under the Master Circular, is vested in the Identification and Review Committee of the Respondent Banks. When a law requires a particular act to be done in a particular manner, then it has to be done in that manner alone and no other. [See: Tata Chemicals Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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