Shri Gunwant S/O Sudamrao Deopare ... vs The Branch Manager, Bank Of ...
2021 Latest Caselaw 11635 Bom

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              IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                        NAGPUR BENCH, NAGPUR.

                         WRIT PETITION NO. 1958 OF 2020

  1) Shri Gunwant s/o Sudamrao Deopare,
  Aged about 48 years; Occ: Agriculturist and
  Business, R/o. Aaishri Colony, Rahatgaon Road,
  Amravati. 444 603 and also at Flat No.301-B,
  Swami Sadan-2, Chitnavis Layout,
  Byramji Town, Sadar, Nagpur-440 013

  2) Mrs. Swati w/o. Gunwant Deopare,
  Aged about 42 years; Occu:Agriculturist and
  Business, R/o. Aaishri Colony, Rahatgaon Road,
  Amravati. 444 603 and also at Flat No.301-B,
  Swami Sadan-2, Chitnavis Layout,
  Byramji Town, Sadar, Nagpur-440 013.                   .... PETITIONERS


                                 // VERSUS //

  1. The Branch Manager,
  S: Bank of Maharashtra, Gadgenagar,
  Amragvati Branch, M Sahu Building,
  Gadge Nagar, Amravati -444 603
  email: [email protected]

  2. The Zonal Manager,
  Bank of Maharashtra, Zonal Office,
  Rukmini Nagar, Amravati -444 602
  email: [email protected]

  3. The Deputy General Manager (Recovery and Legal)
  Bank of Maharashtra having its Head Office
  at Lokmangal, 1501, Shivaji Nagar, Pune 411 005
  email: [email protected]
  acmrec [email protected]                  .... RESPONDENTS

  Shri Masood Sharif, Advocate and Shri Adil Mirza, Advocate for the
  petitioners
  Shri V.K. Kolte, Advocate for respondent Nos.1 to 3
  ________________________________________________________________

                               CORAM :    SUNIL B. SHUKRE AND
                                          ANIL S. KILOR, JJ.

DATE : 24.08.2021.

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ORAL JUDGMENT: [PER ANIL S. KILOR, J.]

. Rule. Rule is made returnable forthwith. Heard finally by

consent of the parties.

2. In this petition, the petitioners are being declared as

'wilful defaulter', by the respondent Bank of Maharashtra, under

Master Circular on 'Wilful Defaulters' issued by Reserved Bank of

India, the same is under Challenge.

3. The brief facts which emerge from the present petition,

are as under:

The petitioners have availed following term loans,

agricultural cash credit limit and other facilities from the respondent

bank.

  i)              Agriculture Term Loan of Rs.56 lakh (take over)

  ii)             Agriculture Term Loan of Rs.55 Lakh.

  iii)            The Term Loan of Rs.74.72 Lakh in the name of

                  petitioner No.1.

  iv)             The Term Loan of Rs.74.72 Lakh in the name of

                  petitioner No.2

  v)              Agricultural Cash Credit Limit of Rs.7 lakh.

4. The respondent No.3 on 12.04.2019 issued notice to the

petitioners to show cause why they should not be declared as 'wilful

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defaulter' in terms of the Master Circular dated 01.07.2015 issued

by the Reserve Bank of India (for short 'the RBI Guidelines'), for

alleged default made by them in making the repayment of aforesaid

loan and cash credit facilities.

5. The petitioners on 25.04.2019 and 07.09.2019

submitted their reply in detail, denying alleged default.

6. Thereupon, the petitioners were called for personal

hearing. Accordingly, the petitioners appeared before the

Empowered Committee.

7. Consequently, a communication dated 25.11.2019 came

to be issued, informing that the 'wilful default' has been established

against the petitioners and the bank is proceeding with the process

to declare them as 'wilful defaulter'.

8. Thereafter, the respondents published the photographs of

the petitioners as 'wilful defaulter, in the newspapers which gave

cause to the petitioners to approach this Court by way of the present

writ petition.

9. We have heard the learned counsel for respective parties.

10. Shri Masood Sharif, learned counsel appearing for the

petitioners submits that without issuing any reasoned order as

stipulated under the RBI Guidelines, the petitioners have been

declared as 'wilful defaulter'.

11. It is submitted that the entire action against the

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petitioners declaring them as 'wilful defaulter' is contrary to the RBI

Guidelines. He has placed reliance on the judgment of the Hon'ble

Supreme Court of India in the case of State Bank of India Vs. Jah

Developers Private Limited and others1.

12. Per contra, Shri Kolte, learned counsel for the respondent

bank strongly opposed the present petition.

13. He would submit that the committee was satisfied on

considering the material available on record that although, the

petitioners had sufficient income to repay the dues, they defaulted

the payment and that due process of law was followed in doing so,

as a show cause notice dated 12.04.2019 was served to the

petitioners and on filing reply the petitioners were heard before

declaring them as 'wilful defaulter'.

14. The learned counsel for the respondent bank further

submits that the High Level Committee's decision was approved, by

the Review Committee. Thus, it is submitted that no fault can be

found in the procedure adopted by the respondent bank in declaring

the petitioners as 'wilful defaulter'.

15. To appreciate and consider the rival contentions of the

parties, we have perused the record and also gone through the

relevant judgments.

16. In this matter, the whole controversy revolves around the

1 (2019) 6 Supreme Court Cases 787

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procedure to be adopted in terms of the RBI Guidelines for

declaration of a borrower as 'wilful defaulter'. Hence, we are of the

view that it would be appropriate to refer to the relevant provisions

of Guidelines of RBI, which read thus:

"2.1.3 Wilful Default: A 'wilful default' would be deemed to have occurred if any of the following events is noted:

(a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honour the said obligations.

(b) The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.

(c) The unit has defaulted in meeting its payment / repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.

(d) 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 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.

3. Mechanism for identification of Wilful Defaulters The mechanism referred to in paragraph 2.5 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 or equivalent 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.

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(c) The Order of the Committee should be reviewed by another Committee headed by the Chairman / Chairman & Managing Director or the Managing Director & Chief Executive Officer / CEOs and consisting, in addition, to two independent directors / non-executive directors of the bank and the Order shall become final only after it is confirmed by the said Review Committee. However, if the Identification Committee does not pass an Order declaring a borrower as a wilful defaulter, then the Review Committee need not be set up to review such decisions."

17. The definition of wilful default makes it clear that the

wilful default would be deemed to have occurred if any of the

following events, namely:

A unit has defaulted in meeting its payment / repayment/

obligations to the lender,

a) even it has the capacity to honour the said obligation;

b) and not utilized the finance from the lender for the specific

purpose for which the finance was availed of but as diverted

the funds for other purposes;

c) and has siphoned off the funds so that the funds have not

been utilised for the specific purpose for which finance was

availed of, nor are the funds available with the unit in the

form of other assets.

d) and has disposed of 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.

18. However, there is a rider that the identification of the

wilful default should be made keeping in view the track record of

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the borrowers and should not be decided on the basis of isolated

transaction/instances. It is significant that the default to be

categorized as 'wilful' must be intentional, deliberate and

calculated.

19. However, before commenting on paragraph 3 of the RBI

Guidelines, at this juncture it is imperative to also take into

consideration certain findings recorded in the case of State Bank of

India Vs. Jah Developers Private Limited and others (supra) by the

Hon'ble Apex Court, which read thus:

"24....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 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...."

20. Thus, on reading para 3 of the RBI Guidelines, coupled

with aforesaid findings recorded by the Hon'ble Apex Court

following steps emerge as the steps which must be followed by the

banks, before declaring any borrower as 'wilful defaulter', namely:

(I) A Committee should examine the evidence of wilful

default.

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(II) If the committee concludes that an event of wilful default

has occurred,

(a) it shall issue a show cause notice to the concerned.

(b) call for their submissions.

(c) consider submissions.

(d) grant personal hearing if such an opportunity is

necessary.

(e) issue an order recording;

(i) the fact of wilful default; and

(ii) the reasons for the same

(III) serve the order on the concerned borrower as soon as it

is made.

(IV) the borrower may submit representation against such

order within a period of 15 days to the Review Committee.

(V) the Review Committee must pass a reasoned order on

such representation.

(VI) serve the order of the Review Committee to the

borrower.

21. In the matter in hand, the show-cause notice was issued

on 12.04.2019, to the petitioners informing that the Empowered

Committee after considering all the facts, record and findings of the

case, has arrived at a conclusion that the event of wilful defalt has

occurred.

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22. The petitioners thereupon, submitted their

explanation/objection on 25.04.2019, denying the allegations of

'wilful default'.

23. Then, the petitioners were called for personal hearing

and accordingly, the petitioners appeared before the Empowered

Committee for hearing.

24. Whereupon, the respondents issued a communication

dated 25.11.2019, inter alia communicating the petitioners that the

act of wilful default on the part of the petitioners, has been

established beyond doubt in terms of the RBI Guidelines and the

bank is proceeding with the process of declaration of the petitioners

as 'wilful defaulter'.

25. Consequently, advertisement was published in various

newspapers with photographs of the petitioners, informing to public

at large that the petitioners have been declared as 'wilful defaulter'.

26. However, the respondents have not produced any order

issued by the first Committee, in consonance with paragraph 3 of

the RBI Guidelines declaring the petitioners as 'wilful defaulter'.

27. In light of the aforesaid fact, any man of ordinary

prudence would come to the conclusion that in the instant case, the

RBI Guidelines have not been complied with.

28. At this juncture, it is also necessary to consider the

consequences of declaration of any borrower as a 'wilful defaulter',

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which reads thus:

i. A copy of the list of wilful defaulters will be forwarded to SEBI and CICs, RBI by bank in order to prevent access to the capital markets, including putting your name on Bank's website as Wilful Defaulter.

ii. No additional facilities will be granted by any Bank / FI. In addition, the entrepreneurs/promoters of unit will be debarred from institutional finance from all the scheduled commercial banks, Development Financial Institutions, Government owned NBFCs, investment institution etc for floating new ventures as long as they are included and shown as wilful defaulters and or a period of 5 years from the date of removal of their name from the list of wilful defaulters as published/disseminated by RBI/CICs. iii. Initiation of legal process for recovery of dues. iv. Wherever necessary initiation of Criminal action. v. Publishing of Photographs in the Newspaper/Public Domain."

29. Thus, looking to the aforementioned consequences it is

clear that it has cascading and far reaching adverse effects. Thus, in

the case of State Bank of India Vs. Jah Developers Private Limited

and others (supra), the Hon'ble Apex Court has held that the

moment a person is declared to be a 'wilful defaulter', the impact on

its fundamental right to carry on business is direct and immediate

and therefore, Article 19(1)(g) of the Constitution of India is

attracted.

30. In catena of judgments of the Hon'ble Apex Court it has

been held that the decision shall contain reasons, which is one of

the fundamentals of the good administration. The affected party

can know why the decision has gone wrong. Failure to give reasons

especially when the Authority has a power to take punitive steps

against the person after giving him a show-cause notice, lacks

fairness and reasonableness in action.

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31. Thus, before any such declaration as 'wilful defauler', is

made, the fairness and reasonableness demand that, the concerned

borrower should be served with the order recording the fact of

wilful default and the reasons for the same. It is also necessary in

light of definition of 'wilful default' to get satisfied by the Bank that

the default is an intentional, deliberate and calculated and such

satisfaction must be reflected in the order.

32. In the case in hand, admittedly, no order of the first

committee, has been produced by the respondent bank before this

Court or served upon the petitioners, recording the fact of willful

default and the reasons for the same and also holding the alleged

default on the part of the petitioner as intentional, deliberate and

calculated.

33. Thus, in absence of compliance of mandatory procedure

to be followed before declaring any person as 'wilful defaulter' the

impugned action can be termed as arbitrary, unreasonable and in

contravention of the judgment of the Apex Court and RBI

Guidelines.

34. In that view of the matter, we are of the considered

opinion that the declaration of the petitioners as 'wilful defaulter' is

arbitrary, illegal and not sustainable in the eye of law.

35. We accordingly pass the following order:

           i)              The writ petition is allowed.




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                ii)             It is hereby declared that the action on the part of

the respondent Bank, declaring the petitioners as 'wilful

defaulter' is illegal.

iii) The impugned communication dated 25.11.2019

and communication dated 24.06.2020 issued by the

respondents and publication thereof in the local dailies,

thereby declaring the petitioners as 'wilful defaulter', are

hereby quashed and set aside.

iv) It is made clear that the respondent bank may take

decision afresh after following the steps as stipulated in the

RBI Guidelines and noted in this judgment.

36. Rule is made absolute accordingly. No order as to costs.

                        JUDGE                                    JUDGE
nd.thawre