NEUTRAL CITATION
C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO.16546 of 2022
FOR APPROVAL AND SIGNATURE :
HONOURABLE MR. JUSTICE NIRZAR S. DESAI Sd/-
=========================================
1. Whether Reporters of Local Papers may be NO
allowed to see the judgment ?
2. To be referred to the Reporter or not ? NO
3. Whether their Lordships wish to see the fair NO
copy of the judgment ?
4. Whether this case involves a substantial NO
question of law as to the interpretation of the
constitution of India, 1950 or any order made
thereunder ?
=========================================
JAGDISH PRASAD SABOO
Versus
BANK OF BARODA
=========================================
Appearance :
ADITYA A GUPTA for the Petitioner.
MOHIT A GUPTA for the Petitioner.
MR BIJU A NAIR for the Respondent.
=========================================
CORAM:HONOURABLE MR. JUSTICE NIRZAR S. DESAI
Date : 13/09/2023
ORAL JUDGMENT
1. By way of this petition under Article 226 of the Constitution of India, the petitioner has challenged the order / Page 1 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined communication dated 5.4.2022 issued by the Chief Manager of the respondent Bank as per the directions of the Committee of Executives (COE) on Willful Defaulters by which COE had declared the present petitioner as willful defaulter. The petitioner has also challenged the order / communication dated 7.7.2022 of the Review Committee which has confirmed the decision of the Committee of Executives (COE).
2. I have heard Mr. Aditya Gupta, learned advocate appearing for the petitioner and Mr. Biju Nair, learned advocate appearing for the respondent - Bank. With their consent, the matter is taken up for final disposal today itself. Rule returnable forthwith. Learned advocate Mr. Biju Nair waives service of rule on behalf of respondent - Bank.
3. The brief facts stated in the petition are as under :-
3.1 That the petitioner was a Director of a Company, namely, Surya Exim Limited which was incorporated in the year 1989 and the name of the Company was subsequently changed to Surya Exim from 13.9.2002. Due to inadequate cash flows on account of non-realization of trade receivables, the account of the Company Surya Exim Limited turned into a Non-Performing Asset into the books of various consortium member Banks including the respondent Bank and ultimately, the account of the Company was classified as NPA by other Banks also, details of which are stated as under :-
Page 2 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined Dates on which the account of the Petitioner No.1 was declared as NPA by consortium members 18.08.2019 IDBI Bank declared the account as NPA on 18.08.2019.
21.08.2019 Andhra Bank (Now Union Bank of
India) declared the account as NPA.
26.08.2019 Bank of Baroda including erstwhile
Dena Bank declared the account as
NPA.
28.08.2019 Canara Bank declared the account as
NPA.
31.10.2019 Union Bank of India declared the
account as NPA.
3.2 The account of Surya Exim Limited was Red Flagged on
9.10.2019 and the petitioner was not informed about the steps that the respondent had taken or by the consortium. Though it is stated in the petition that an internal investigation was carried out by one of the consortium member Canara Bank, the petitioner was not informed about the same and was not even provided with the copy of the same. Even a Forensic Auditor was also appointed by the Bank to carry out forensic audit of Surya Exim Limited and in the form of a questionnaire, some clarifications were sought from Surya Exim Limited. However, as due to Pandemic, the petitioner did not have the access to the records for giving reply to the aforesaid questionnaire. Without waiting for the reply, the Forensic Audit was carried out and the Report was issued on 8.7.2020, whereas the petitioner filed his reply on 13.7.2020 but as per the say of the petitioner, at the time when the forensic report was issued, the petitioner was kept in dark and, therefore, after Page 3 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined submission of forensic audit report, the petitioner submitted his reply. As per the case of the petitioner, in the end of December 2020, after issuance of forensic audit report, consortium of all Banks in the Lenders meet on 9.7.2020 decided to report the account as fraud to RBI. Even as per the case of the petitioner, the petitioner was not informed about the said decision as well and the decision to declare Surya Exim account as fraud was taken without giving any opportunity to the petitioner to rebut the allegations made against the petitioner and even the allegations against the petitioner along with the evidence was also not communicated to the petitioner. However, the petitioner challenged the aforesaid decision before this Court by way of Special Civil Application No.2233 of 2021 and by order dated 31.8.2023, the aforesaid petition was allowed and the action of the respondent Bank of classifying the account of the petitioner as fraud account was quashed and set aside and the matter was remanded back to the respective Banks with a direction to decide the grievance of the petitioner after observing the principles of natural justice.
3.3 In the meantime, the Chief Manager of the respondent Bank issued a show-cause notice dated 8.9.2021 calling upon the petitioner as to why Surya Exim Limited and its Directors and Guarantors should not be declared as willful defaulters.
3.4 The petitioner filed detailed reply to the aforesaid show-cause notice wherein the petitioner tried to put forward his version and requested the respondent Bank to abate the proceedings initiated against the petitioner for declaring as willful defaulter.
Page 4 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined 3.5 Thereafter, the respondent Bank vide order dated 5.4.2022 declared the petitioner as willful defaulter. Upon a representation by the petitioner, ultimately, the Review Committee also vide order dated 7.7.2022 confirmed the order passed by the Committee of Executives (COE). Hence, both these orders dated 5.4.2022 and 7.7.2022 have been challenged in the present petition.
4. Learned advocate Mr. Aditya A. Gupta for the petitioner made the following submissions :-
(i) That after having made an attempt to classify the account of the petitioner as fraud account, as the petitioner challenged the aforesaid action by way of Special Civil Application No.2233 of 2021 whereby the coordinate Bench of this Court granted interim relief in favour of the petitioner, the respondent Bank adopted a different method to harass the petitioner by issuing the show-cause notice dated 8.9.2021 for declaring him as willful defaulter and hence, the aforesaid action was a pre-determined action.
(ii) That though the petitioner submitted a detailed reply to the aforesaid show-cause notice dated 8.9.2021, in the impugned order dated 5.4.2022, the respondent has not assigned any reasons and merely stated that for the grounds stated in the show-cause notice, the account of the petitioner was declared as willful defaulter and hence, the aforesaid order cannot be said to be a reasoned order and, therefore, if by way of a non-speaking order, if the petitioner is declared as willful defaulter, the said action of the Bank is in violation of the ratio laid down by the Hon'ble Supreme Page 5 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined Court in the case of State Bank of India v. Jah Developers Private Limited and others, (2019) 6 SCC 787. Therefore, the impugned action of the respondent Bank is required to be quashed and set aside.
(iii) That the petitioner even challenged the order dated 5.4.2022 passed by the Committee of Executives (COE) by preferring an application / detailed representation dated 23.4.2022 to the Review Committee and the Review Committee rejected the representation of the petitioner and thereby confirmed the decision taken by the Committee of Executives (COE) on 27.12.2021 without considering the representation of the petitioner in its true spirit.
(iv) That though in the order of the Review Committee, in first paragraph, it is stated that the petitioner was declared willful defaulter vide order dated 27.12.2021 in its meeting by the Committee of Executives, the said order was never communicated to the petitioner and only order dated 5.4.2022 was communicated to the petitioner and in that order also, no reasons are assigned.
(v) That the show-cause notice issued by the respondent Bank was vague and the same does not give any specific instances which can be the basis to declare the petitioner as wilful defaulter. It was submitted that the show-cause notice contained a table and on the basis oftable, it was alleged that the transfer of funds, sales and purchase with the same party / associate concern were found which indicates that the funds were not utilized for the purpose for which the loans were sanctioned. Similarly, by way of another table, it was alleged that the purchases made from one group Company were sold to another group Company of same group.
Page 6 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined However, the basis for aforesaid allegations or any specific instances for such allegations are not stated in the show-cause notice. Therefore, in view of any specific allegation, if a show- cause notice based on table is issued against the present petitioner, it would not be possible for the petitioner to reply effectively to the aforesaid show-cause notice and, therefore, though the petitioner in its reply vide point Nos.3 and 8 pointed out the aforesaid details to the respondent Bank and requested to provide all supportive documents in support of the allegations, those vital documents which were the basis of the aforesaid tabular table on the basis of allegations were made, were not provided to the petitioner. Therefore, though the petitioner had replied to the aforesaid show- cause notice, in absence of the material on the basis of which the allegations were made were not provided to the petitioner despite the request made by the petitioner. He further submitted that any decision taken by the respondents without providing the material forming basis in the show-cause notice as well as without considering the reply filed by the petitioner to the show-cause notice and without incorporating or dealing with the reply and the submissions at the time of personal hearing made by the petitioner, in respect of show-cause notice, if any order is passed, the same can be termed as an order passed in violation of the principles of natural justice as well as a pre-determined order. As the procedure adopted by the respondent to show that the principles of natural justice are complied with, are merely an eye-wash and are not complied with in its true sense and spirit.
(vi) That when the petitioner's objections are not considered by the Committee of Executives, by assigning reasons, as to why the petitioner's response to the show-cause notice is Page 7 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined unacceptable, merely by stating the conclusion while drawing minutes and communicating the same vide order dated 5.4.2022, would not make the order a reasoned order. A reasoned order must contain the discussion as to how the reply to the show-cause notice given by the petitioner is not acceptable to the Committee and on the basis of that the Committee was required to form a conclusion. In the instant case, though the Committee had formed the conclusion, the basis for arriving at that conclusion were never forming part of the order and, therefore, the impugned order dated 5.4.2022 cannot be said to be a reasoned order. He further submitted that once the original order declaring the petitioner as wilful defaulter was defective, as it was based on a vague show- cause notice, and did not deal with the submissions of the petitioner in response to the show-cause notice, and no reasons were assigned for not acceptance of the petitioner's response, any order confirming the aforesaid order even if it is a reasoned order, is required to be quashed and set aside as the original order itself was a defective order and the Review Committee subsequently by assigning the reasons cannot justify the passing of the original order. As the Review Committee was assigned with a task only of reviewing the order and not by giving reasons beyond what is stated in the original order. Therefore, both the orders dated 5.4.2022 and 7.7.2022 are required to be quashed and set aside.
(vii) By making the aforesaid submission, learned advocate Mr. Gupta for the petitioner submitted that by passing the impugned orders, without considering the reply given by the petitioner to the show-cause notice and without considering the ratio of the decision of the Hon'ble Supreme Court in the case of SBI v. Jah Developers (supra), the respondent bank has declared Page 8 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined the petitioner as willful defaulter and hence, the aforesaid action is in violation of the principles laid down by the Hon'ble Supreme Court in the above referred decision and the impugned orders are passed in violation of the principles of natural justice as the decision of the respondent Bank is a pre-determined decision and hence, both the impugned orders are required to be quashed and set aside.
5. Mr. Biju Nair, learned advocate appearing for the respondent Bank has vehemently opposed the petition and submitted that the order dated 5.4.2022 is a reasoned order and while declaring the petitioner as willful defaulter, the Bank has assigned reasons. He further submitted that even when the petitioner made a representation before the Review Committee, by passing a detailed order, even the Review Committee has also assigned reasons and confirmed the order passed by the Committee of Executives dated 27.12.2021 which was conveyed to the petitioner vide letter dated 5.4.2022.
5.1 By making the aforesaid submissions, Mr. Nair submitted that in view of the fact that the petitioner's reply is considered and the reasons are also assigned in the order dated 5.4.2022, it cannot be said that the principles of natural justice were not followed by the Bank. He further submitted that as the petitioner was granted opportunity of hearing and both the orders dated 5.4.2022 and 7.7.2022 are reasoned orders, the procedural formality as prescribed as per the ratio of the Hon'ble Supreme Court in the case of SBI v. Jah Developers (supra) has been followed by the Bank and, therefore, considering the fact that decision has been taken by the Bank on the basis of facts and Page 9 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined circumstances of the case and the same is not open for judicial review by this Court, this Court may not interfere with the aforesaid orders and dismiss the petition.
6. I have heard learned advocates appearing for the respective parties and perused the record. Though the record of the petition is bulky, the main submission of learned advocate Mr. Gupta for the petitioner is based on non-observance of principles of natural justice by the Bank and about the fact that as the Bank has passed a non-speaking order, without assigning the reasons, the same is not as per the ratio of the Hon'ble Supreme Court in the case of SBI v. Jah Developers (supra). Since the contention of learned advocate Mr. Gupta is based on the decision of Hon'ble Supreme Court, I deem it appropriate to reproduce paragraph 24 of the said decision which reads thus :-
"24. 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-house proceedings contained in paragraph 3 of the Revised Circular dated 01.07.2015, as it is clear that the events of willful 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 utilized for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again Page 10 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined 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. 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 willful 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 willful defaulter, and a
promoter/director of a willful defaulter cannot be made promoter or director of any other borrower company. Equally, under Section 29A of the Insolvency and Bankruptcy Code, 2016, a willful 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 decision of the First Committee, we are of the view that first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following paragraph 3(b) of the Revised Circular dated 01.07.2015, 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 Page 11 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined 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 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, 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."
7. On perusal of the record, I found that the show-cause notice given to the petitioner on 8.9.2021 was replied by the petitioner and in paragraphs 3 and 8 of the reply, the petitioner has specifically contended as under :-
"3. Without prejudice to the aforesaid, it is stated that your said notice is vague and is not illustrative of the specific incident of "wilful default" on the basis of which our names have been suggested or inclusion in the list of "Wilful Defaulter".
4. xxxxxxxxxxxxxxxxxxxxxxxxxxx
5. xxxxxxxxxxxxxxxxxxxxxxxxxxx
6. xxxxxxxxxxxxxxxxxxxxxxxxxxx
7. xxxxxxxxxxxxxxxxxxxxxxxxxxx
8. We further state that your Show-cause Notice is not Page 12 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined accompanied with any evidence or material in support of your allegations that the alleged events of Wilful Defaults have been committed by us. In view of this, we are unable to effectively respond to the Show-Cause Notice and effectively deal with your averments in the Show- Cause Notice. It is stated that therefore, you are requested to provide us all supporting documents in support of your allegation in the Show-cause Notice within a period of 7 days failing which we will take necessary steps available in law."
8. On perusal of the reply, I also found that the petitioner has tried to elaborately explain as to how the show-cause notice is misconceived and why the petitioner should not be declared as willful defaulter.
9. The reply submitted by the petitioner runs into around 7 pages and though the respondent Bank seems to have considered the reply in its meeting held on 27.12.2021, a decision was taken on 27.12.2021 and it seems that the same was conveyed vide order dated 5.4.2022. Relevant paragraphs of the order dated 5.4.2022 is reproduced as thus :-
"As you are aware that our branch had sent the show cause notice referred above by registered post / speed post / courier on 08.09.2021, which you have received on 10.09.2021 in response to your representation dated 30.09.21, 05.10.21, 06.10.21, 29.09.21, 29.09.21, 29.09.21 opportunity for personal hearing before the committee has been given 27.12.21. Mr. Jagdish Prasad Page 13 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined Saboo, Mr. Nav Ratan Sharda Directors & Guarantor appeared before the Committee for personal hearing through MS Team App at Zonal Office, Ahmedabad and Mr. Bhalesh R. Mehta Director & Guarantor appeared for personal hearing at Surat Office, Regional Office. Both Mr. Jagdish Prasad Saboo, Mr. Nav Ratan Sharda Directors & Guarantor informed the committee that they are not involved in day to day affairs of the Company. Mr. Bhalesh R. Mehta Director & Guarantor also informed that he is an independent director. The Committee advised to submit the documentary evidence in support of their claim that they are not wilful defaulter.
In the light of the aforesaid facts and circumstances, after hearing the borrower and perusing the documents on record, the Committee of Executives on Wilful Defaulters (COE) of bank has decided to declare the M/s. Surya Exim Ltd and its Directors & Guarantors Mr. Jagdish Prasad Saboo, Archana Saboo and Directors Mr. Satish Kumar Saboo, Mr. Alok Srivastava, Mr. Nav Ratan Sharda, Mr. Ansari Zulfdikar Ali Rustan Ali Perwez, Mr. Bhalesh R. Mehta as "Wilful Defaulters" on the grounds mentioned in the show-cause notice, after concludign that the company/firm has not utilized the finance from the lender for the specific purposes for which finance was availed of but has diverted/siphoned off the funds for other purposes and the funds are not available with the unit. Further, the firm has defaulted in meeting its payment / repayment obligations to the lender.Page 14 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023
NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined In terms of RBI guidelines and to comply principles of natural justice, if you, desire, you may send your further submission / representation, if any, for consideration by the Review Committee on Wilful Defaulters within - 15 days from the date of receipt of this letter as to why your account and you be not classified by Bank as a Wilful Defaulter.
Please note that, in case your further submission/representation against the intention of Bank to declare you as a Wilful Defaulter is not received within
- 15 days from the date of receipt of this letter, it will be deemed that you have nothing to submit and the Bank will proceed further and classify your account as wilful defaulter. Bank reserves the right to publish the name and photograph of Wilful Defaulter in News Paper and will initiate the necessary recovery action as per extant guidelines issued by Reserve Bank of India.
This communication is issued as per the directions of the Committee of Executives on Willful Defaulters (COE)."
10. From the perusal of the aforesaid paragraphs of the order dated 5.4.2022 would indicate that the respondent Bank has declared the petitioner as willful defaulter by stating that the said decision is taken on the basis of grounds mentioned in the show- cause notice and after arriving at a conclusion that the Company has not utilized the finance from the lender for the specific purpose for which finance was availed of, but has diverted / siphoned off the Page 15 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined fund for other purposes and the funds are not available with the Unit. Further, the firm has defaulted in meeting its payment / repayment obligations to the lender. What is important is the fact that the petitioner has been communicated the decision taken by the Committee of Executives on 27.12.2021 vide order dated 5.4.2022. The original order dated 27.12.2021 was never communicated to the petitioner. During the course of arguments, pursuant to a specific query from this Court, learned advocate Mr. Nair points out to the contents of affidavit dated 6.9.2023 filed by Mr. Bhavesh D. Modi, Chief Manager of the respondent Bank wherein in paragraph 3, following averments are made :-
"3. In this regard, it is humbly submitted that in the present case there was no separate order passed by the First Committee, which the petitioner has alleged to have not been supplied to him. On the other hand, the First Committee after examining the reply / submissions given by the petitioner arrived at its findings and decision and the same has been recorded in the form of Minutes. All the reasons relied upon by the First Committee and its findings are incorporated in the letter dated 05-04-2022 addressed to the petitioner. In that letter all the grounds relied upon by the First Committee has been specifically elucidated. Hence in any aspect the principles of natural justice have not been violated and there is no violation of the judgment of the Honourable Apex Court in State Bank of India Vs Jha Developers."
11. The aforesaid affidavit also would indicate that the decision was minutized and the same was communicated vide order Page 16 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined dated 5.4.2022. However, except for the reasons stated in the order dated 5.4.2022, there are no separate grounds exist in the minutes of the meeting.
12. In view of the above affidavit filed by the Bank, now the question that the Court is required to determine is whether the grounds stated in the order dated 5.4.2022 can be said to be the reasons assigned by the Bank and the said order can be said to be a reasoned order or not. Considering the aforesaid facts, on perusal of the order dated 5.4.2022, this Court finds that though the petitioner has submitted a detailed reply in response to the show- cause notice dated 8.9.2021, the respondent Bank has not bothered to incorporate any of the contentions of the petitioner raised in the reply nor the Bank has dealt with any of the submissions of the petitioner which were made during the course of personal hearing given on 27.12.2021 and without assigning any reasons, the Bank has reached to the conclusion which is stated in the foregoing paragraph and on the basis of such conclusion, the Bank has declared the present petitioner as a willful defaulter.
13. The decision of the Hon'ble Supreme Court in the case of SBI v. Jah Developers (supra) specifically provides that once a person is declared willful defaulter, the impact on its fundamental right to carry on business is direct and immediate and, therefore, when the impact of declaring any person or entity as willful defaulter will have drastic consequences, it is the duty of the respondent Bank to assign reasons as to how and why the defence put forward by the petitioner by way of reply is not acceptable. All that is stated in the order dated 5.4.2022 is that for the grounds stated in the show-cause notice and by arriving at a conclusion Page 17 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined recorded in the order, the petitioner was declared a wilful defaulter.
13.1 Even in the affidavit dated 6.9.2023 of the Bank, it transpires that a stand is taken that except what is communicated to the petitioner, no other ground exists, prima facie, seems that the respondent Bank has vide its order dated 27.12.2021 not considered the representation made by the petitioner or the submissions of the petitioner during the personal hearing that took place on 27.12.2021 in its true spirit which amounts to taking away the right of audience from the petitioner and the action of the respondent Bank can be said to be a pre-determined one. Further, the decision of the Hon'ble Supreme Court in the case of SBI v. Jah Developers (supra) has also mandated the Banks to ensure that the decision taken by the Committee of Executives (COE) must be given its order to borrower as soon as it is made. In the instant case, the Committee of Executives (COE) passed order on 27.12.2021 and the aforesaid order was communicated to the petitioner after more than three months.
14. On perusal of the show-cause notice dated 8.9.2021, its reply and order dated 5.4.2022 as well as order dated 7.7.2022 passed by Review Committee, the following aspects emerges :-
(i) The show-cause notice dated 8.9.2021 is based on certain tabular information. However, the show-cause notice does not disclose the source of such information and though the petitioner had filed his reply requested to provide the supporting documents on the basis of which show-cause notice was given, the same was not provided to the petitioner.
Page 18 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined
(ii) The show-cause notice dated 8.9.2021 issued by the respondent Bank was not illustrative and no specific instances have been stated in the same and whatever was stated in the show-cause notice, alleging against the petitioner, was stated without disclosing the basis for such allegations from where or through which source, those information was collected and how was collected is not disclosed in the show-cause notice nor any specific illustration has been given for alleging against the petitioner and despite the petitioner's request to provide documents, such documents were not provided to the petitioner.
(iii) Though the petitioner was given personal hearing on 27.12.2021, neither the contents of the reply to the show-cause notice nor the submissions made by the petitioner at the time of personal hearing were either incorporated or dealt with in the order dated 5.4.2022 and straightway, after reproducing majority of what were the contentions of the show-cause notice, straightway the respondent Bank had stated that on the basis of grounds stated in the show-cause notice, the Committee of Executives had arrived at a conclusion that the Company's / Firm has not utilized the finance from the lender for the specific purpose for which finance was availed but has diverted / siphoned off the funds for other purposes, and the funds are not available with the Unit.
(iv) Though the aforesaid conclusion was arrived at, why the reply of the petitioner as well as the submissions of the personal hearing are not acceptable is not stated in the order dated 5.4.2022 which shows that the reasons were not assigned for rejection of representation of the petitioner vide order dated Page 19 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined 5.4.2022.
(v) Even the Bank also in its affidavit dated 6.9.2023 has stated that no separate order was passed by the first Committee i.e. the Committee of Executives and the findings / decision recorded was minutized and the same has been incorporated in letter dated 5.4.2022. Meaning thereby, a decision taken by the Committee of Executives was introduced on 27.12.2021 and the same was merely communicated vide order dated 5.4.2022, but from the stand taken by the Bank in its affidavit dated 6.9.2023, it transpires that the even while minutizing the decision taken by the Committee of Executives, no reasons were assigned by the Committee and straightway, the conclusion arrived at by the Committee was minutized.
(vi) The affidavit filed by the Bank is silent and rather does not deny the fact that the documents as prayed for by the petitioner which form the basis of the show-cause notice were not supplied to the petitioner.
(vii) Though the Review Committee has passed a reasoned order, the said order gives the reasons which were never given in the original order dated 5.4.2022 or the minutes dated 27.12.2021 and, therefore, the said order cannot be said to be an order reviewing the decision, but can be said to be a separate order assigning additional reasons and, therefore, the same cannot be termed as an order passed on the review application.
15. In view of aforesaid aspects transpired on perusal of the record, this Court is of the view that the action of the Page 20 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined respondents of not providing the documents forming basis for the show-cause notice despite requested for by the petitioner, would amount to violation of principles of natural justice. Further, on perusal of the show-cause notice also, I found that the show-cause notice was vague and, therefore, when the petitioner has specifically asked for instances on the basis of which the allegations are made, when the same is not provided, the same also would amount to violation of principles of natural justice. Not only that, as can be seen from the affidavit filed by the respondents on 6.9.2023, be it as minutized dated 27.12.2021 or order dated 5.4.2022, both the orders lack reasons for not accepting the submissions of the petitioner by way of representation as well as personal hearing and straightway, the conclusion is recorded and, therefore, the impugned order dated 5.4.2022 is an order passed without assigning the reasons and, therefore, the same is bad in the eyes of law. Further, this Court found that the order dated 7.7.2022 passed by the Review Committee not just though is a reasoned order, the same is passed on the basis of grounds which were not there in the original order dated 5.4.2022. Therefore, if the grounds on which the original order was passed are not considered by the Review Committee and the Review Committee in its order provides additional reasoning / grounds, that would affect the right of the petitioner of effective hearing before the First Committee and, therefore, even order dated 7.7.2022 is also required to be quashed and set aside. Further, if the original order dated 5.4.2022 itself is found to be faulty, any subsequent order confirming the aforesaid order also cannot stand.
16. Considering the fact that in view of the observations made by the Hon'ble Supreme Court and more particularly, in Page 21 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined paragraph 24 of the judgment in the case of Jha Developers (Supra) that in such cases, considering the fact of the cases, Article 19(1)
(g) is attracted, as the fundamental right of a person are affected upon him being declared a wilful defaulter. The impact of such declaration upon his fundamental right to carry the business is direct and immediate as no additional facilities can be granted to him by Banking / financial institutions and the entrepreneurs / promoters would be barred from institutional finance for five years. Even the Bank / financial institutions can change the management of the wilful defaulter and a promoter / Director of the wilful defaulter cannot be made promoter or Director of any other borrower Company. Therefore, considering the far-reaching impact of the action of the Bank of declaring a person wilful defaulter, it is necessary that the principles of natural justice are complied with in its true sense and does not merely remain on paper as an eye-wash just to indicate that a particular procedure has been followed, which is not followed in its true spirit in reality. In the instant case, perusal of relevant documents as well as orders under challenge, this Court is of the view that in the instant case also, principles of natural justice are not complied with in its true spirit. Therefore, both the impugned orders in the instant case are required to be quashed and set aside in view of above discussion.
17. Considering also, the fact that instead of assigning the additional reasons, the Review Committee could have remanded the matter back but the same was not done by the Review Committee as well as considering the fact that the original order dated 5.4.2022 based on the meeting of the Committee of Executives and decision taken on 27.12.2021 itself was an order suffering from the vice of principles of natural justice, both the Page 22 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023 NEUTRAL CITATION C/SCA/16546/2022 JUDGMENT DATED: 13/09/2023 undefined orders dated 5.4.2022 and 7.7.2022 are required to be quashed and set aside and the same are quashed and set aside.
18. In the result, the petition succeeds and is allowed. The orders dated 5.4.2022 and 7.7.2022 are quashed and set aside. Rule is made absolute to the above extent. No order as to costs.
19. It is clarified that this Court has not examined the merits of the case and the matter is remanded back to the Committee of Executives (COE) to consider the matter afresh after issuing fresh show-cause notice to the petitioner and giving an opportunity to the petitioner to file reply to the said show-cause notice and thereafter pass a fresh reasoned order taking into consideration all the contentions / submissions of the petitioner. This order is passed by this Court only on the ground that the Committee of Executives has while passing the order dated 5.4.2022 not considered the reply filed by the petitioner and the submissions made by the petitioner during personal hearing on 27.12.2021.
Sd/-
(NIRZAR S. DESAI,J) SAVARIYA Page 23 of 23 Downloaded on : Mon Sep 18 20:36:22 IST 2023