Miltech Industries Pvt. Ltd., ... vs State Bank Of India, Stressed ...
2022 Latest Caselaw 9261 Bom

WP 4945-2021                                   1           Judgment

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

                 WRIT PETITION NO. 4945 OF 2021

1.   MILTECH INDUSTRIES PVT. LTD
     Through its managing director
     Pradeep S/o Govindlal Agrawal,
     Having its Registered Office at Plot F-27/01,
     MIDC Hingna Industrial Area, Hingna Road,
     Nagpur-440016.

2.   Shri Pradeep S/o Govindlal Agrawal,
     Aged about 58 years, Occ. Business,
     R/o Plot No.80, Kotwal Nagar, Ring Road,
     Vivekanand Nagar, S.O. Nagpur-440015.

3.   Shri Govindlal S/o Nityanand Agrawal,
     Aged about 83 years, Occ. Business,
     R/o Plot No.80, Kotwal Nagar, Ring Road,
     Vivekanand Nagar, S.O. Nagpur-440015.
                                                        PETITIONERS
                                .....VERSUS.....
1.   State Bank Of India,
     Stressed Assets Management Branch - II,
     through its Dy. General Manager, Mumbai,
     Raheja Chambers, Ground Floor,
     Wing-B Free Press Journal Marg, Nariman Point,
     Mumbai-400021.

2.   Willful Defaulter Identification Committee-I of
     State Bank Of India,
     Raheja Chambers, Ground Floor,
     Wing-B Free Press Journal Marg, Nariman Point,
     Mumbai-400021.

3.   Review Committee Of State Bank Of India,
     Samb-II, Raheja Chambers, Nariman Point,
     Mumbai-400021.

4.   Reserve Bank Of India,
     Main Building, Shahid Bhagat Singh Marg,
     Mumbai-400001.
                                                       RESPONDENTS
 WP 4945-2021                                   2                        Judgment

                  Shri Sahil Dewani, Advocate for the petitioners.
             Shri M. Anil Kumar, Advocate for respondent Nos. 1 to 3.



CORAM : A. S. CHANDURKAR AND URMILA JOSHI - PHALKE, JJ.

DATE : SEPTEMBER 15, 2022 ORAL JUDGMENT (PER : A.S. CHANDURKAR, J.)

RULE. Rule made returnable forthwith and heard the learned

Counsel for the parties.

2. The challenge raised in this Writ Petition is to the order dated

7/1/2021 passed by the Wilful Defaulters Identification Committee

declaring the petitioners to be the wilful defaulters. Further challenge has

also been raised to the order passed by the Wilful Defaulters Review

Committee dated 27/9/2021 by which the review application has been

dismissed.

3. The facts relevant for considering the aforesaid challenges are

that the petitioners had obtained credit facilities from respondent No.1 -

Bank. On failure to abide by the terms of repayment, the loan of

petitioner No.1 was declared to be a non-performing asset from

25/11/2018. On 11/3/2020, a show cause notice was issued to petitioner

No.1 calling upon it its response as to why its name should not be

included in the list of wilful defaulters. The justification seeking to WP 4945-2021 3 Judgment

declare petitioner No.1 as a wilful defaulter was indicated. In response

thereto, reply was submitted and it was denied that petitioner No.1 was

liable to be declared as a wilful defaulter. On 29/12/2020, a notice was

issued by respondent No.1 - Bank informing petitioner No.1 that hearing

would be conducted by the Wilful Defaulters Identification Committee on

7/1/2021 at Mumbai. The representative of petitioner No.1 was not

present on the scheduled date. The Wilful Defaulters Identification

Committee held that the name of petitioner No.1 was liable to be entered

in the list of wilful defaulters. Subsequent thereto, on 11/1/2021, the

Director of petitioner No.1 - Company issued a communication to the

Bank stating therein that on account of ill health, he could not remain

present before the Committee on 7/1/2021. Another opportunity to

appear before the Committee was sought. Notwithstanding the said

request, petitioner No.1 preferred a Review Application against the order

dated 7/1/2021. In that application, various grounds were sought to be

raised including request for supply of various documents mentioned

therein. The Review Committee considered the application and on

27/9/2021 observed that the grounds raised were not supported by any

documents and hence those grounds were not tenable. The Review

Application was accordingly dismissed.

Being aggrieved, the aforesaid orders have been challenged in

the present Writ Petition.

WP 4945-2021 4 Judgment

4. The learned Counsel for the petitioners submitted that

petitioner No.1 had been declared as wilful defaulter without granting

due opportunity to it to contest the show cause notice. Though the notice

dated 29/12/2020 was received by petitioner No.1, its representative

could not remain present on 7/1/2021 on account of his ill health. The

Identification Committee passed an adverse order on the same day. The

stand taken in the reply to the show cause notice was not properly

considered. It was further submitted that in the Review Application, the

applicant had made a request for supply of various relevant documents to

substantiate the stand of petitioner No.1 that it was not a wilful defaulter.

This request was not considered and without assigning any reason, the

Review Application came to be rejected. Placing reliance on the decision

of the Hon'ble Supreme Court in State Bank Of India Vs. Jah Developers

Private Limited And Others [(2019) 6 SCC 787] as well as the decision of

the Division Bench in Finolex Industries Limited and Another Vs. Reserve

Bank Of India and Others [2011 SCC OnLine Bom 1781], it was

submitted that declaration of Company as a wilful defaulter ought to be

made after complying with the principles of natural justice and by

granting due opportunity to the entity that is sought to be declared as a

wilful defaulter. Petitioner No.1 was not heard when the initial order was

passed by the Identification Committee. Similarly, the Review Committee

did not consider the request made for supply of relevant documents and WP 4945-2021 5 Judgment

passed a cryptic order. It was urged that though the Review Committee

was shown to consist of three members, the order dated 27/9/2021

passed by that Committee was signed only by one member. It was not

clear as to whether the Committee comprising of three members

considered the Review Application. The consequence of being declared as

a wilful defaulter had a cascading effect and therefore it was necessary

for the entire Committee to have considered the matter. It was thus

submitted that the impugned orders were liable to be set aside on that

count.

5. The learned Counsel for respondent Nos. 1 to 3 supported the

impugned orders. He submitted that after giving show cause notice along

with a notice of hearing, the Identification Committee had declared

petitioner No.1 to be a wilful defaulter. All material that was available

was indicated to the petitioners and the reply as filed was also

considered. Since no satisfactory ground was made out, petitioner No.1

was declared as a wilful defaulter. The documents referred to in the

Review Application were being sought for the first time and no such

request was made at any earlier point of time. The scope of review

proceedings could not have been expanded in such manner. Since the

requirement of the Master Circular in question was complied with and as

the impugned orders were passed after giving due opportunity to the WP 4945-2021 6 Judgment

petitioners, there was no reason to interfere with the same. It was thus

submitted that the Writ Petition was liable to be dismissed.

6. We have heard the learned Counsel for the parties and we

have perused the material on record. The issuance of show cause notice

dated 11/3/2020 to petitioner No.1 and the subsequent notice of hearing

issued on 29/12/2020 are not in dispute. The Identification Committee

passed its order on 7/1/2021 and as per the application moved by the

representative of petitioner No.1, he was not well on that date and hence

he could not attend the proceedings. A request for grant of further

opportunity was made on 11/1/2021 after passing of the initial order.

Against that order, petitioner No.1 preferred a Review Application as

contemplated by the Master Circular. In that application, while seeking to

substantiate its stand that it was not liable to be declared as a wilful

defaulter, demand was made for supply of certain documents that have

been referred to in paragraphs 1.7 to 1.7.6 of the Review Application.

Other grounds seeking re-consideration were also raised. Perusal of the

order passed by the Review Committee indicates that a reference has

been made to such demand of documents. After reproducing the factual

aspects, it has been observed by the Review Committee that the reply

furnished by the Company and its Director was not supported by any

documents and hence the stand was not tenable. The Review Committee WP 4945-2021 7 Judgment

has not considered the request for supply of various documents as made

by petitioner No.1. The aspect whether those documents as demanded

were relevant or not has also not been considered. When petitioner No.1

was seeking to substantiate its stand by referring to certain documents

and had also demanded some of them, it was incumbent upon the Review

Committee to have considered and commented upon that request. The

same could either have been accepted or refused by assigning reasons.

The order dated 27/9/2021 however does not indicate any reason

whatsoever in that regard. In fact, there is no reference to consideration

of the request for supply of documents.

7. In State Bank Of India (supra), it has been held by the

Hon'ble Supreme Court that considering the consequences of declaring an

entity as a wilful defaulter, it was necessary that due and proper

opportunity ought to be furnished to such party before making such

declaration. In Finolex Industries Limited (supra), the Division Bench has

observed that consistent with the principles of natural justice, it would be

impermissible to accept the stand of the Committee that it was not

required to submit necessary documents to the noticee. In fact, for

making an effective representation against the proposed action, the

material in that regard ought to be disclosed. Though it is true that the

request for supply of documents was made by petitioner No.1 before the WP 4945-2021 8 Judgment

Review Committee, it was necessary for that Committee to have at least

considered such request and given reasons for either accepting or

declining that request. Perusal of the impugned order does not indicate

consideration of such request. It need not be emphasized that the

procedure prescribed under the Master Circular on wilful defaulters

issued by the Reserve Bank Of India is mandatory in nature. Though it

was urged on behalf of the petitioners that the order dated 27/9/2021

passed by the Review Committee was signed by only one member which

aspect was denied by respondent Nos. 1 to 3 by filing an additional

affidavit pursuant to the order dated 26/7/2022, we do not find it

necessary to go into that aspect since we find that the Review Committee

has failed to consider the request made on behalf of petitioner No.1 for

supply of documents.

8. Thus, on account of failure to consider the request made on

behalf of petitioner No.1 to supply necessary documents, the matter

requires re-consideration at the hands of the Wilful Defaulters Review

Committee.

9. For the aforesaid reasons, the following order is passed :

i. The order dated 27/9/2021 passed by the Wilful Defaulters

Review Committee is set aside. It is directed that the Review Application WP 4945-2021 9 Judgment

preferred by petitioner No.1 shall be re-considered in the light of the

grounds raised in the Review Application. After giving due opportunity to

the petitioner, that application be decided on its own merits and in

accordance with law. It is clarified that the observations made in this

judgment are only for the purposes of deciding the challenge as raised.

The Review Committee shall not be influenced by any such observations

made in this judgment.

ii. Rule is made absolute in the aforesaid terms. No costs.

                                    (URMILA JOSHI - PHALKE, J.)          (A.S. CHANDURKAR, J.)

                         Sumit




Digitally signed bySUMIT CHETAN
AGRAWAL
Signing Date:17.09.2022 11:34