Bombay High Court
Milind Patel vs Union Bank Of India on 4 March, 2024
Author: B.P. Colabawalla
Bench: B.P. Colabawalla
2024:BHC-OS:3728-DB
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 3671 OF 2023
Mr.Milind Patel ]
13-A Vaibhav, 80 Bhulabhai Desai Road, ]
Next to American Consulate, ]
Cumballa Hill, Mumbai 400 026. ]
]... Petitioner
Versus
1. Union Bank of India ]
On behalf of its Wilful Defaulter's ]
Identification Committee and Wilful Defaulter's ]
Review Committee, Union Bank, 239 Vidhan ]
Bhavan Marg, Nariman Point, ]
Mumbai 400 021. ]
]
2. Reserve Bank of India ]
Constituted under the Reserve Bank of India ]
Act, 1934, ]
having its Mumbai headquarters at ]
Main Building, Shahid Bhagat Singh Marg, ]
Mumbai 400 001. ]
]
]
3. Trans Union CIBIL Limited ]
(formerly known as Credit Information Bureau ]
(India) Limited) ]
having its office at One World Centre, Tower ]
2A, 19th Floor, Senapati Bapat Marg, ]
Elphinstone Road, Mumbai 400 013. ]
]
4. Experian Credit Information Company of India ]
Private Limited ]
having its office at 5 Floor, East Wing, Tower ]
th
3, Equinox Business Park, L.B.S. Marg, ]
Kurla (W), Mumbai 400 070. ]
]
]
Page 1 of 27
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5. Equifax Credit Information Services Private ]
Limited, ]
having its office at Unit No.931, 3 Floor, ]
rd
Building No.9, Solitaire Corporate Park, ]
Andheri Ghatkopar Link Road, Andheri East, ]
Mumbai 400 093. ]
]
6. CRIF High Mark Information Services Private ]
Limited, ]
having its office at B-04, 05, 06, 4 th Floor, Art ]
Guild Home, Phoenix Market City, L.B.S. Marg, ]
Kurla (W), Mumbai 400 070. ]...Respondents
Mr.Rohaan Cama, a/w Pheroze F. Mehta, i/b Dastur Kalambi &
Associates, Advocates for Petitioner.
Mr. Jamshed Ansari, Advocate for Respondent No.1.
Mr. Prasad Shenoy a/w Vijay Salokhe i/b BLAC Co ., Advocate for
Respondent No. 2 (RBI).
Mr. V. Mannadiar a/w Dhannya Prasad i/b V. Mannadiar & Co.,
Advocate for Respondent No. 3.
Ms.Garima Singh i/b MLS Vani & Associates, Advocates for
Respondent Nos.4 & 5.
Mr.Mohit Sahani, a/w. Mr. Meiron Damania, i/b Pamela Dalal,
Advocates for Respondent No. 6.
Mr.Vikas Srivastava, Chief Manager and Mr. Man Mohan Sharma,
Senior Manager, officials of the Union Bank of India, Respondent No.
1.
CORAM : B.P. COLABAWALLA &
SOMASEKHAR SUNDARESAN, JJ.
DATE : MARCH 4, 2024
March 04, 2024
Shraddha Talekar, PS
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ORAL JUDGEMENT: (Per, Somasekhar Sundaresan J.)
1. Rule. By consent, rule is made returnable forthwith, and the writ
petition is taken up for final hearing and disposal.
Show Cause Notice and Context:
2. This Petition seeks various declaratory reliefs whereby adherence
to principles of natural justice, including provision of inspection of
relevant material, is sought to be read into the due process stipulated by
the Respondent No. 2, the Reserve Bank of India (" RBI"), in connection
with declaration of bodies corporate, their promoters and directors, as
"wilful defaulters".
3. The Petitioner is a former Joint Managing Director of IL&FS
Financial Services Limited ("IFIN"), a wholly-owned subsidiary of
Infrastructure Leasing & Financial Services Limited (" ILFS"). The
Petitioner has worked with ILFS since June 1993, except for a brief period
between February 2003 and August 2005. The Petitioner was eventually
designated as a Joint Managing Director of IFIN with effect from 1 st April
2014. The Petitioner ceased to be in the services of IFIN with effect from
31st March 2018. The Petitioner's role as a "whole time director" of IFIN
is up for consideration by Respondent No. 1, Union Bank of India
("Union Bank") in proceedings to declare IFIN, and consequently the
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Petitioner, as wilful defaulters.
4. IFIN and the Petitioner were served with a common Show Cause
Notice dated 5th July 2022 ("SCN") by Union Bank, which had sanctioned
credit limits aggregating to Rs.175 Crores to IFIN. The SCN stated that
Union Bank had formed a prima facie view that IFIN and the Petitioner
deserved to be declared as wilful defaulters in connection with the
facilities sanctioned to IFIN. The SCN sets out nine broad heads of
reasons to allege diversion and siphoning of funds by IFIN in the context
of default by IFIN in servicing the indebtedness owed to Union Bank.
Some of the heads of reasons were generic in nature, even while other
heads of reasons made reference to specific amounts involved, and
specific number of instances of allegedly deviant conduct by IFIN. The
SCN does not set out any detail of the Petitioner's individual involvement
in the nine heads of reasons, except for identification of the Petitioner as
a noticee in his capacity as a "whole time director". No other whole time
director or promoter is a noticee in the SCN.
Master Circular on Wilful Default:
5. The process of declaring any body corporate as a wilful defaulter
and consequently, any person in charge of or responsible to the body
corporate as a wilful defaulter, is governed by the RBI's Master Circular
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on Wilful Defaulters dated 1st July, 2015 ("Master Circular"). Paragraph 3
of the Master Circular sets out the Mechanism for Identification of a
Wilful Defaulter. Paragraph 2.5 sets out the "Penal Measures" that would
follow once a person is identified as a wilful defaulter. The term "wilful
default" itself is defined in Paragraph 2.1.3 of the Master Circular.
6. In the interest of brevity, each of these paragraphs from the Master
Circular is not being reproduced, but the salient features of these
paragraphs may be summarised thus:
a) Wilful default by a borrower would be deemed to have
occurred1 if a borrower defaults in paying the bank or financial
institution despite having capacity to honour the payment
obligations. Such wilful default will also be deemed to have
occurred if the borrower does not utilise the monies raised from
the lender for the designated purposes, and instead diverts the
funds towards other purposes, or if the borrower siphons out
the funds borrowed;
b) To declare a person as a wilful defaulter, "the evidence
of wilful default"2, on the part of the borrower and its whole-
time Director "at the relevant time" should be examined by a
Paragraph 2.1.3 of the Master Circular
Paragraph 3(a) of the Master Circular
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Committee headed by an Executive Director of the bank along
with two other Senior Officers in the rank of General Manager
or Deputy General Manager ("Identification Committee");
c) If such Identification Committee concludes that an
event of wilful default has occurred, a show cause notice must
be issued to the borrower and its relevant whole-time directors
and call for an explanation. After considering the submissions
in reply, and providing an opportunity of being heard (should
the Identification Committee feel such an opportunity is
necessary)3, a reasoned order recording the wilful default must
be issued; and
d) The aforesaid reasoned order is not a final order, but it
is a draft order that is subjected to review by another Committee
headed by the Chairman or the Chairman and Managing
Director or the CEO of the bank or financial institution, along
with two independent directors or non-executive directors
("Review Committee")4. It is only upon review of the
Identification Committee's order and its confirmation by such
Review Committee, that the draft order would become final.
Paragraph 3(b) of the Master Circular
Paragraph 3(c) of the Master Circular
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7. Once a final order is passed, multiple grave and serious "penal" 5
consequences (it is the Master Circular that terms the consequences to be
"penal" in character) follow for the persons identified as wilful defaulters.
In a nutshell, the wilful defaulters are ostracised from access to the
financial sector. No additional facilities can be granted to such a person
by any bank or financial institution. Bodies corporate declared to be
wilful defaulters, and their promoters and directors, would be debarred
from access to institutional finance from scheduled commercial banks,
financial institutions and non-banking financial companies for a period of
five years after the date on which their names are eventually removed
from the list of wilful defaulters. So also, wherever warranted, civil
recovery proceedings and criminal proceedings are to be initiated against
such persons. We are not setting out other implications under other
legislations that fasten on to wilful defaulters once such a declaration is
made, and are restricting ourselves to the consequences set out in the
Master Circular.
8. The gravity and import of the aforesaid salient features have been
underlined and cautioned by the RBI, inasmuch as the Master Circular
itself explicitly contains, the following note of caution.
"It would be imperative on the part of the banks and FIs to
put in place a transparent mechanism for the entire process
Paragraph 2.5 of the Master Circular
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so that the penal provisions are not misused and the scope
of such discretionary powers are kept to the barest
minimum. It should also be ensured that a solitary or
isolated instance is not made the basis for imposing the
penal action."
[Emphasis Supplied]
Process Adopted by Union Bank's Committees:
9. It is a matter of record that Union Bank did not enclose with the
SCN any of the material or records based on which the allegations were
levelled. Therefore, vide a letter dated 12th July, 2022, the Petitioner
sought a copy of the material available with Union Bank, and on which it
based the SCN. The Petitioner also made submissions on the scope of his
responsibilities on IFIN to submit that since March 2014, his role
fundamentally changed from overseeing lending business to overseeing
equity investments and advisory operations. The Petitioner did not get a
response to this request, but on 25 th July, 2022, Union Bank issued to the
Petitioner a hearing notice giving him an opportunity of being heard,
scheduling such hearing for 5th August 2022 by video conferencing. On
31st July, 2022, the Petitioner reiterated his request for the underlying
documents, information and other material, in order to effectively deal
with the allegations contained in the SCN, without any response.
10. On 5th August, 2022, the Petitioner participated in a personal
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hearing, and on 15th August, 2022, filed his written submissions pursuant
to the personal hearing. In these submissions, the Petitioner yet again
requested access to essential documents based on which the SCN came to
be issued. The Petitioner also made other submissions to the extent he
was able to, with the documents and information available with him. His
written submissions ran into 46 pages with various annexures from
annual reports and other material in the Petitioner's possession.
11. Thereafter, the Petitioner states that he heard from Union Bank,
nearly seven months later. On 28th February, 2023, Union Bank issued
the final order passed by the Review Committee, essentially reproducing
the contents of the SCN purporting to confirm that the Petitioner has
been identified as a wilful defaulter. The Review Committee's order
asserted that the Identification Committee had passed an order at its
meeting held on 5th August, 2022 and that such order had been conveyed
to the Petitioner on 8th September, 2022. In other words, according to
Union Bank, on the same day and right after conducting the personal
hearing on 5th August, 2022, the Identification Committee forthwith
passed its order. That would mean that the detailed written submissions
made on 15th August, 2022 (ten days later), were not and could not have
been considered by the Identification Committee. According to the
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Petitioner, such draft order of the Identification Committee was not
communicated to the Petitioner, and that he directly received the final
order from Union Bank on 28th February, 2023.
12. It is the Petitioner's case that he had never been, and till date has
not been, served with a copy of the draft order prepared by the
Identification Committee, which Union Bank claims to have conveyed on
8th September, 2022. From the record before us, we find that Union Bank
has not brought anything on record to substantiate its assertion that is
contested by the Petitioner. Be that as it may, the final order of the
Review Committee does not even purport to deal with the submissions of
the Petitioner made on 15 th August, 2022. Assuming for the sake of
argument that the draft order of the Identification Committee had indeed
been served on the Petitioner, inexplicably, there is not even a whisper of
the contentions of the Petitioner recorded in the final order, much less
any analysis of such submissions.
13. Be that as it may, vide a letter dated 2nd November, 2023, the
Petitioner protested non-receipt of the Identification Committee's draft
order, and asserted that the Review Committee's final order was a
product of violation of the inherent safeguards contained in the Master
Circular, and that in any case, basic principles of natural justice had been
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violated. The Petitioner, therefore, sought rescission of the Review
Committee's order, and sought an opportunity of personal hearing before
the Review Committee, after being served with draft order of the
Identification Committee. There is no response from Union Bank to
these requests from the Petitioner.
14. It is against the aforesaid factual backdrop that the Petitioner has
filed this writ petition seeking intervention from a constitutional court
inter alia by way of a declaration that all documents referred to and relied
upon in the SCN ought to be provided, and, seeking the quashing of the
final order of the Review Committee.
Findings and Analysis:
15. We are not getting into the merits of whether IFIN, and thereby the
Petitioner are guilty of committing wilful defaults. What is noteworthy is
that the RBI itself had expressed a clear policy view that it was arming
banks and financial institutions with serious powers to inflict the drastic
civil consequences on borrowers (the RBI terms these as "penal"). Banks
are essentially commercial entities without quasi-judicial expertise or
experience. Therefore, the RBI took care to stipulate that it would be
"imperative" for banks to put in place a " transparent mechanism" so that
the "penal" provisions are not mis-used and the scope of " discretionary
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powers" are kept to the "barest minimum". In fact, the RBI has
mandated that evidence of wilful default must be examined by the bank.
Evidence of the default can only come from material relevant to arriving
at a finding on whether there has been wilful default and the role of
individuals accused of having been instrumental in committing such
wilful default.
16. The very "imperative" cast in the Master Circular of ensuring a
"transparent mechanism" would entail being transparent with a noticee
with all relevant facts that would form the basis of a determination of
whether there has been a wilful default. The discretion conferred on
these commercial banking entities to inflict penal consequences was
meant to be kept to the bare minimum, which only underlines that the
exercise of discretion has to be reasonable and not arbitrary. The absence
of transparency with the reasons would render the exercise of discretion
to be arbitrary. In this light, various petitions have been dealt with by
writ courts including the Hon'ble Supreme Court of India and multiple
benches of this very High Court, in connection with declaration of
borrowers as wilful defaulters. However, for purposes of these
proceedings, and in the interest of brevity, we highlight just a few of
them.
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17. In State Bank of India Vs. Jah Developers Private Limited and
Others([2019] 6 SCC 787) ("Jah Developers") the need for the due
process in the context of the Master Circular was analysed by the Hon'ble
Supreme Court. After noting earlier judgments of the Hon'ble Supreme
Court in connection with the Master Circular, the Court went on to
declare the following6:
"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 utilised for
the specific purpose for which the finance was made
available. Whether a default is intentional, deliberate, and
calculated is again 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 wilful
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 wilful
defaulter, and a promoter/director of a wilful defaulter
cannot be made promoter or director of any other borrower
company. Equally, under Section 29-A of the Insolvency and
Bankruptcy Code, 2016, a wilful 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,
In Paragraph 24 of the judgement
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and given the fact that Para 3 of the Master Circular dated 1-
7-2013 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 Para 3(b) of the Revised Circular dated 1-7-2015,
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 1-7-2013 itself considered such steps to be reasonable,
we incorporate all these steps into the Revised Circular dated
1-7-2015"
[Emphasis Supplied]
18. The decision in Jah Developers was rendered on 8 th May, 2019,
i.e., well before the SCN issued on 5 th July, 2022. Therefore, as a matter
of declared law, it was an imperative that the order, whether passed by
the Identification Committee or by the Review Committee, must
necessarily be a reasoned order. The draft order must be reasoned, and it
must be served upon the noticee, who may then make submissions on the
reasoning arrived at by the Identification Committee. It would follow
that the Review Committee must deal with such submissions and must,
with reasons, deal with them, accepting or rejecting them to arrive at the
final findings.
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19. In the context of the Master Circular, a Division Bench of this Court
in the case of Kanchan Motors and Others Vs. Bank of India & Ors. (2018
SCC OnLine Bom 1761) (Kanchan Motors)7 has articulated the need for
clarity in the SCN and the importance of providing reasoned orders at
both stages, namely the draft order by the Identification Committee and
the final order by the Review Committee. Non-speaking orders have been
frowned upon and orders which did not comply with such requirements
were set aside.
20. Likewise, in the case of Narendra Seoomal Sabnani & Others Vs.
State Bank of India & Others (2021 SCC OnLine Bom.4604) (Narendra
Seoomal)8, another Division Bench of this Court has made it clear that the
penal measures being quite substantial and severe, the principles of
natural justice and fair play with recorded reasons would be an
imperative. Here too, this Court set aside the non-speaking orders
considering that the orders in question were not reasoned orders.
21. We have reviewed the final order of the Review Committee, which
is the order impugned in this writ petition, which on the face of it, would
show that the submissions of the Petitioner (although made to the
Identification Committee after the personal hearing) have not even been
Paragraphs 14 to 21 thereof
Paragraphs 12 to 25
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recorded, much less, been dealt with. Seeking to resist the writ petition,
Union Bank has turned on its head, the imperative requirement of having
a transparent mechanism as mandated in the Master Circular. The
affidavit asserts that the Master Circular does not provide for giving any
document to the person who is proposed to be declared as a wilful
defaulter. The affidavit-in-reply dated 21 st February, 2024 asserts the
following :-
"9. ...I say the circular dated 1st July 2015 does not
provide for giving any documents to the person who is
proposed to be declared as a willful defaulter. It is for the
person who is proposed to be declared as a willful
defaulter to submit all the relevant documents to prove his
innocence. I say that the present case after issuance of
show cause , notice dated 5th July 2022, the Petitioner has
submitted his response dated 12th July 2022, 31st July 2022
and 15th August 2022. He was also given opportunity to
attend personal hearing which has taken place on 5 th
August 2022. Thus, the grievance of denial of natural
justice is misplaced.
10. .....the Circular dated 1st July 2022 does not provide
that the document had to be supplied by the Bank. It is for
the Petitioner to submit documents to support his case.
11. .....At the cost of repetition, I say and submit that the
Petitioner was not entitled to be provided with the
documents by the Bank. I say that the said allegation of
making out the case of willful defaulter is clearly spelt out
in the show cause notice dated 5 th July 2022. The
Petitioner was also afforded opportunity of a personal
hearing on 5th August 2022. Thus, the allegation that the
Petitioner was not provided with the documents and not
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given an opportunity to prove his case is false and bogus.
19 ...........I say and submit that there is no provision in
the. Master Circular dated 1st July 2015 that along with
show cause notice, documents has to be provided to the
borrower. I say that the demand of the Petitioner is
something which is utterly unreasonable and beyond the
scope of Master Circular dated 1st July 2015."
[Emphasis Supplied]
22. In other words, the Union Bank is firmly of the view that it is not
obligated to provide any material to prove its allegations and that the
onus is on the Petitioner to prove his innocence. Therefore, the stance of
Union Bank is in conflict with first principles of the rule of law in India.
Put differently, once a bank has accused someone of being a wilful
defaulter (without providing supporting material), the person accused
has to shoulder the onus and burden of proving his innocence. The
affidavit in reply makes no bones about the Union Bank's belief that no
underlying material needs to be disclosed to any noticee under the Master
Circular. The Review Committee's final order is a near-verbatim
replication of the SCN. Even if the Identification Committee formulated
the draft order within hours of the hearing on 5 th August, 2022, as has
been asserted, at the least, it was imperative for the Review Committee to
consider the detailed written submissions that came to be made by the
Petitioner on 15th August, 2022. There cannot be a concept more alien to
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the constitutional protections available under the rule of law in India.
The aforesaid stance flies in the teeth of the "imperative" requirements of
transparency stipulated by the RBI in the Master Circular.
23. It is now trite law that in proceedings that can inflict serious civil
consequences on any citizen, the noticee should be able to appreciate the
case made out against him so that he may deal with the allegations to the
best of his ability. The only means of doing so is to provide detailed
proper notice of the reasons for having formed a prima facie view when
calling upon the noticee to show cause why such prima facie view must
not translate into a final view. Such an approach would enable the
noticee to understand in a cogent manner the case that he is supposed to
meet.
Takano - the law on inspection for natural justice:
24. It is now well settled that due compliance with principles of natural
justice must essentially entail compliance with the obligation to provide
access to the material on which the allegations are based. In the case of
T.Takano Vs Securities and Exchange Board of India & Anr. [(2022) 8
SCC 162] (Takano), after considering the law declared on access to the
material underlying the allegations, across various types of enforcement
proceedings under various legislations, the Hon'ble Supreme Court
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pithily summarized the relevance of disclosure of information and record
in the following words:
"C.2. Duty to disclose investigation material
27. While the respondents have submitted that
only materials that have been relied on by the Board
need to be disclosed, the appellant has contended that
all relevant materials need to be disclosed. While trying
to answer this issue, we are faced with a multitude of
other equally important issues. These issues, all
paramount in shaping the jurisprudence surrounding
the principles of access to justice and transparency,
range from identifying the purpose and extent of
disclosure required, to balancing the conflicting claims
of access to justice and grounds of public interest such
as privacy, confidentiality and market interest.
28. An identification of the purpose of disclosure
would lead us closer to identifying the extent of required
disclosure. There are three key purposes that disclosure
of information serves:
28.1. Reliability: The possession of information by
both the parties can aid the courts in determining the
truth of the contentions. The role of the court is not
restricted to interpreting the provisions of law but also
determining the veracity and truth of the allegations
made before it. The court would be able to perform this
function accurately only if both parties have access to
information and possess the opportunity to address
arguments and counter-arguments related to the
information.
28.2. Fair trial: Since a verdict of the Court has far-
reaching repercussions on the life and liberty of an
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individual, it is only fair that there is a legitimate
expectation that the parties are provided all the aid in
order for them to effectively participate in the
proceedings.
28.3. Transparency and accountability: The
investigative agencies and the judicial institution are
held accountable through transparency and not
opaqueness of proceedings. Opaqueness furthers a
culture of prejudice, bias, and impunity--principles that
are antithetical to transparency. It is of utmost
importance that in a country grounded in the Rule of
Law, the institutions adopt those procedures that further
the democratic principles of transparency and
accountability. The principles of fairness and
transparency of adjudicatory proceedings are the
cornerstones of the principle of open justice. This is the
reason why an adjudicatory authority is required to
record its reasons for every judgment or order it passes.
However, the duty to be transparent in the adjudicatory
process does not begin and end at providing a reasoned
order. Keeping a party bereft of the information that
influenced the decision of an authority undertaking an
adjudicatory function also undermines the transparency
of the judicial process. It denies the party concerned
and the public at large the ability to effectively
scrutinise the decisions of the authority since it create
an information asymmetry.
29. The purpose of disclosure of information is
not merely individualistic, that is to prevent errors in the
verdict but is also towards fulfilling the larger
institutional purpose of fair trial and transparency.
Since the purpose of disclosure of information targets
both the outcome (reliability) and the process (fair trial
and transparency), it would be insufficient if only the
material relied on is disclosed. Such a rule of
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Shraddha Talekar, PS
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disclosure, only holds nexus to the outcome and not the
process. Therefore, as a default rule, all relevant
material must be disclosed.
[Emphasis Supplied]
25. A plain reading of Takano would throw light on how the Master
Circular must be construed. The Master Circular consciously enables
inflicting "penal" consequences, and underlines the " imperative" need to
adhere to a "transparent mechanism". The avoidance of information
asymmetry and the means of ensuring transparency as outlined by the
Hon'ble Supreme Court in Takano would necessarily mean that principles
of natural justice, including the need to provide the underlying material,
are inherent and implicit in the process stipulated under the Master
Circular. The material and information in question for disclosure to the
noticee would be all "relevant" material and not just information that is
"relied upon" or "referred to" in the SCN.
26. Not only must information that is referred to and relied on in the
SCN be supplied but also information that may undermine the allegations
contained in the SCN (which may therefore not be referred to or relied
on) must be supplied - only to ensure that everything relevant to arrive at
the truth is available to both parties. The objective of the proceedings
initiated by issuance of a SCN is not to somehow find the noticee guilty of
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Shraddha Talekar, PS
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wilful default on the same terms as alleged. Instead, the objective is to
arrive at the truth as to whether or not an individual in question is to be
subjected to "penal" (in the RBI's words) consequences. Therefore, if the
bank has conducted a forensic investigation into alleged diversion and
siphoning of funds, and specific roles played by specific individuals is
brought out in the investigation, and such a probe would point to
plausible interpretation that certain individuals did not play any role in
the diversion and siphoning, the material underlying such plausible
inference would undermine the allegations. Therefore, fair and
transparent symmetrical access to information, as stipulated by the
Hon'ble Supreme Court in Takano would mean providing access to not
only incriminating material but also exculpatory material, since all such
information would be relevant for arriving at the truth. Therefore, access
to the record is a vital element of complying with principles of natural
justice. In the instant case, not only has no material been supplied, but
also Union Bank has actually asserted on oath that it was not required to
provide any material whatsoever, and that it is for the noticee to prove his
innocence.
Stance of Union Bank:
27. This matter has demonstrated the risk of placing serious
discretionary powers to inflict penal measures in the hands of commercial
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Shraddha Talekar, PS
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entities such as banks, without appropriate capacity and training to
appreciate requirements of the rule of law. First, the bank has asserted
that no material needs to be provided. The bank has also asserted that the
onus of proving innocence is on the accused. While IFIN may have been
declared a wilful defaulter as a borrower, there is not a whisper of
analysis of evidence at the relevant time demonstrating the role of the
Petitioner for holding him to be individually responsible. The Petitioner
had made submissions about who was in charge of lending activity and
that his role was restricted to equity investments. There is nothing in the
final order to even suggest show how all this has been considered and
dealt with. In these circumstances, it is evident that the final order, a
near-verbatim reproduction of the SCN, is not a reasoned order and is a
product of non-compliance with the principles of natural justice.
28. In these circumstances, after having heard the submissions of the
parties, we put it to the learned counsel for Union Bank to ask his client
to consider recalling the orders of the Identification Committee and the
Review Committee, with liberty to conduct the proceedings afresh from
the stage of the SCN, after providing proper access to the relevant
material. After review of our suggestion, Union Bank, whose officials are
also present in court today, have fairly instructed learned counsel to state
that the orders of the Identification Committee and the Review
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Shraddha Talekar, PS
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Committee may be considered as withdrawn, with liberty to continue the
proceedings from the stage of the SCN, and that Union Bank would
provide the Petitioner full access to the relevant documents and the
relevant material on record.
29. We say nothing more in view of the fair stance now taken by the
Union Bank. We grant liberty to Union Bank to make a proper disclosure
of materials and information on which the SCN is based. Once such
disclosure is made to the Petitioner, the Petitioner is at liberty to submit a
fresh reply to the SCN, after which a reasoned draft order may be issued
by the Identification Committee. This draft order of the Identification
Committee shall be served on the Petitioner so as to enable him to make
his representation to the Review Committee why the said order ought not
to be confirmed. Thereafter, a reasoned final order may be passed by the
Review Committee, if it is found that there has been a wilful default
attributable to the Petitioner.
30. We are not foreclosing a fair and effective determination of the
truth by Union Bank, for which it would be required to comply with due
process of law and adhere to principles of natural justice, and give a full
run to a transparent mechanism as mandated by the RBI.
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Shraddha Talekar, PS
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Directions Issued:
31. In the result, we issue the following directions:
(a) We permit Union Bank to withdraw the final
order dated 28th February, 2023 passed by the Review
Committee as also the draft order dated 5 th August,
2022 purported to have been passed by the
Identification Committee, insofar as it relates to the
Petitioner;
(b) Union Bank is given liberty to supply all the
material underlying the SCN and relevant to arrive at
a finding on the Petitioner's role in the alleged wilful
default;
(c) The Petitioner is granted liberty to provide a
reply to the SCN after appreciation of the material
disclosed by Union Bank;
(d) An Identification Committee of Union Bank
must deal with the Petitioner's fresh reply and his
submissions, that may be made after having reviewed
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Shraddha Talekar, PS
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the material relevant for dealing with the SCN;
(e) Banks and financial institutions that seek to
invoke the Master Circular to declare occurrence of
wilful default, must identify the members of the
Identification Committee and the members of the
Review Committee, and share the reasoned orders
passed by such committees. In the instant case, the
SCN, the hearing notice and the final order are all
signed by the same individual, who purports to
communicate them, with no clarity on who were the
persons who conducted the hearing and who were the
persons who passed the orders;
(f) Any agency, including Respondent Nos. 3 to 6,
that has published or disseminated the name of the
Petitioner identifying him as a wilful defaulter on the
strength of the orders that now stand withdrawn by
Union Bank, shall forthwith remove such
identification from publicly accessible information
resources.
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Shraddha Talekar, PS
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32. Rule is made absolute in the aforesaid terms and the writ petition is
disposed of accordingly.
33. We have persuaded ourselves that there shall be no order as to
costs. We trust that the law declared in this judgement would provide
guidelines for conduct of proceedings under the Master Circular, which
itself is an important instrument of law aimed at dealing with societal
conditions affecting the banking sector in India.
34. This order will be digitally signed by the Private Secretary/Personal
Assistant of this Court. All concerned will act on production by fax or
email of a digitally signed copy of this order.
[SOMASEKHAR SUNDARESAN, J.] [B.P. COLABAWALLA, J.]
March 04, 2024
Shraddha Talekar, PS
