The High Court of Calcutta, while disposing of a petition filed by the petitioner, challenging a Show-cause Notice dated March 1, 2024, issued by the respondent-Authorities for declaring the petitioners as wilful defaulters in terms of the Master Circular on Wilful Defaulters issued by the Reserve Bank of India (RBI), held that the yardsticks of declaration of a wilful defaulter under the Master Circular are different from a recovery proceeding or a relatable proceeding; such declaration is merely to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions.
Brief Facts:
The premise of the Show-cause Notice was a purported classification of the account of petitioner No. 1 as a Non-Performing Asset (NPA). However, in a writ petition preferred against such classification, this Court had restrained the respondent by an order of injunction from proceeding on the premise that the classification of petitioner no. 1’s account as NPA was patently dehors the relevant RBI Circulars issued during the Covid-19 pandemic. Next, a Show-cause Notice dated March 1, 2024, was issued by the respondent authorities for declaring the petitioners as wilful defaulters against which the present petition has been preferred.
Contentions of the Petitioner:
The learned counsel appearing on behalf of the Petitioner submitted that the respondent, after having failed in numerous attempts to vex the petitioners on the self-same alleged default, has issued the impugned Show-cause Notice. He argued that the present Show-cause Notice, which is nothing but a proceeding in respect of the debt, is violative of Section 96, IBC. He further contended that no copy of the Forensic Audit Report (FAR) or other documents relied on by the respondent in the Show cause Notice were served on the petitioners.
Contentions of the Respondent:
The learned counsel appearing on behalf of the Respondent submitted that writ petitions are normally not entertained at the Show-cause stage. There has been no determination as yet on the merits of the allegations. Hence, no legal rights of the petitioners have been infringed for the petitioners to seek redress under Article 226 of the Constitution of India.
Observations of the court:
The court noted that if a wilful defaulter proceeding does not come within the wider purview of Section 14 of the IBC, Section 96 of the same cannot be a bar to such a proceeding.
The court observed that the yardsticks of declaration of a wilful defaulter under the Master Circular are different from a recovery proceeding or a relatable proceeding; such declaration is merely 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 pendency of a proceeding under Section 95, IBC does not automatically entail a moratorium under Section 96 on a wilful defaulter proceeding.
The Court said that it was the incumbent duty of the respondent bank to serve a copy of the Forensic Audit Report along with the show-cause Notice on the petitioners but merely on such ground, the Show-cause Notice, which is otherwise valid in law, cannot be set aside.
The decision of the Court:
The Calcutta High Court, disposing of the petition, held that the respondent bank is directed to serve a copy of the Forensic Audit Report or any other document, on which the bank intends to rely to substantiate the show-cause allegations.
Case Title: Atibir Industries Company Limited & Ors. vs Indian Bank
Coram: Hon’ble Mr. Justice Sabyasachi Bhattacharyya
Case No.: WPO No. 204 of 2024
Advocate for the Petitioner: Mr. Ranjan Bachawat
Advocate for the Respondent: Mr. Sakya Sen
Read Judgment @LatestLaws.com:
Picture Source :
