The Gujarat High Court bench comprising Justice A.S Supehia while dealing with the issue of Wilful defaulter ruled that the intention of the moratorium, granted under Section 96 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC”) cannot be extended to the proceedings with respect to a borrower, who has been declared as a Wilful Defaulter. The interim moratorium under Section 96 of the IBC can be referred only to the debt, as mentioned therein. Further, the proceedings of Wilful Defaulter cannot be equated with the recovery of debt.
Further, the Court opined that an order cannot be set aside solely on the ground that the order of Wilful Defaulter Identification Committee (WDIC) is a cut-and-paste order.
In the present case, the entire exercise of both the committees, including calling upon the forensic report could not be ignored and the impugned orders could not be set aside merely on the ground that the Petitioner was not supplied the Forensic Audit Report (FAR) in wake of the fact that he was already made aware of the relevant irregularities on illegalities committed by him, which was unearthed by the FAR.
Brief Facts:
In the present case, Petitioner was aggrieved of the order passed by Wilful Defaulter Identification Committee (WDIC) and a communication titling him as “Wilful Defaulter”.
Due to inadequate cash- flows, on account of the non-realization of trade receivables, the account of the company - Surya Exim Ltd. (SEL) of which the Petitioner was the Director turned into a Non-Performing Asset (NPA) in the books of various consortium members banks, including the Respondent-Bank. Such an account of the petitioner was declared as NPA by the consortium members in the month of August 2019. The account of SEL was red-flagged and an internal investigation was carried out by Canara Bank. The petitioner replied to the show-cause notice Thereafter, WDIC declared the petitioner as a Wilful Defaulter.
Contentions of the Petitioner:
It was argued that the Petitioner has been granted an interim moratorium under section 96 of the IBC and hence, no proceedings can be initiated for any debt.
It was further submitted that all the proceedings were conducted behind the back of the Petitioner.
Contentions of the Respondent:
It was contended that the contention raised by the Petitioner with regard to the non-supply of the FAR of SKVM & Co. deserved to be rejected since in the show-cause notice itself, the relevant findings of FAR were incorporated and the Petitioner was given ample opportunities to deal with the same.
It was submitted that the Petitioner was involved in serious irregularities of diversion, routing, and siphoning of the funds.
Observations of the Court:
The Bench with regard to the contention of interim moratorium under Section 96 raised by the Petitioner opined that expression “in respect of any debt” has wide connotations and includes anything done directly or indirectly with respect to recovery of any debt and any legal proceedings being the indirect recovery of any debt would also be covered.
It was ruled that the intention of the moratorium, granted under Section 96 of the IBC cannot be extended to the proceedings with respect to a borrower, who has been declared as a Wilful Defaulter. The interim moratorium under Section 96 of the IBC can be referred only to the debt, as mentioned therein. Further, the proceedings of Wilful Defaulter cannot be equated with the recovery of debt.
Further, the Court opined that an order cannot be set aside solely on the ground that the order of WDIC is a cut-and-paste order.
Both the Committees, after detailed analysis and observations and considering the representation filed by the Petitioner have concluded that the Petitioner was fit to be declared as a Wilful Defaulter in terms of the RBI master circular.
The Court held that while exercising the jurisdiction under Article 226 of the Constitution of India, the Court could not be in a position to act as an expert body, sitting in the armchair of the financial experts as to what should have been the business prudence, and it cannot be the subject-matter of judicial scrutiny. It was further observed that the conclusion reached by the experts, particularly in the field of finance and banking cannot be substituted with a view of the Court and interference in such matters in the writ.
In the present case, the entire exercise of both the committees, including calling upon the forensic report could not be ignored and the impugned orders could not be set aside merely on the ground that the Petitioner was not supplied the FAR in the wake of the fact that he was already made aware of the relevant irregularities on illegalities committed by him, which was unearthed by the FAR.
The decision of the Court:
Based on the aforementioned findings, the Writ Petition was accordingly dismissed.
Case Title: Jagdish Prasad Saboo Vs. IDBI Bank Ltd.
Coram: Hon’ble Justice A.S Supehia
Case No: Special Civil Application No. 19261 of 2022
Advocates for Petitioner: Advs. Aditya Gupta and Mohit Gupta
Advocate for Respondents: Adv. BH Bhagat
Read Judgement @LatestLaws.com
Picture Source :
