Gujarat High Court
Sarita Joshi vs Binod Kumar Kabra S/O Ram Prasad ... on 13 October, 2021
Bench: R.M.Chhaya
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/LETTERS PATENT APPEAL NO. 605 of 2021
In
R/SPECIAL CIVIL APPLICATION NO. 11572 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR Sd/-
and
HONOURABLE MR. JUSTICE R.M.CHHAYA Sd/-
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1 Whether Reporters of Local Papers may be allowed to see the YES
judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the judgment ?
4 Whether this case involves a substantial question of law as to the
interpretation of the Constitution of India or any order made
thereunder ?
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SARITA JOSHI
Versus
BINOD KUMAR KABRA S/O RAM PRASAD KABRA
==================================================================
Appearance:
MR RASHESH S. SANJANWALA, SENIOR COUNSEL WITH
MR AKSHAT KHARE(5912) for the Appellant(s) No. 1,2,3
MR JEET J BHATT(6154) for the Respondent(s) No. 4
MR SHAAN M MUNSHAW(10825) for the Respondent(s) No. 1,2,3
MR YH MOTIRAMANI(3720) for the Respondent(s) No. 1,2,3
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CORAM : HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR
and
HONOURABLE MR. JUSTICE R.M.CHHAYA
Date : 13/10/2021
ORAL JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR)
1. This intra court appeal is directed against the order dated
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
24.12.2019 passed in Special Civil Application No.11572 of 2019
whereunder learned Single Judge exercising extra-ordinary jurisdiction
vested under Article 226 of the Constitution of India, has set aside the
decisions of the Committee dated 04.02.2019 and 16.02.2019 as also the
publication of the notice dated 25.05.2019 on the ground that the show
cause notice dated 05.10.2018 was not issued by the Willful Defaulters
Committee. Hence this appeal.
2. We have heard Mr. Rashesh S. Sanjanwala, learned Senior Counsel
appearing on behalf of Mr. Akshat Khare, for the appellants and Mr. Y.H.
Motiramani, learned counsel appearing for respondent Nos.1 to 3 as well
as Mr. Jeet J. Bhatt, learned counsel for respondent No.4. By consent of
all the learned counsels appearing for the parties, this appeal is taken up
for final disposal as it lies in a narrow compass.
3. Facts in brief which had led to the filing of this appeal can be
crystalised as under.
4. The appellant, a financial institution, sanctioned an amount of
Rs.19.00 crores to the respondents by way of working capital loan which
was later classified as Non Performing Assets ('NPA' for short). On
issuance of various demand letters demanding outstanding loan amount
with interest it did not yield any result and, as such, a show cause notice
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
dated 05.10.2018 was issued calling upon the debtor as to why the
respondents herein should not be declared as willful defaulters. Said
notice came to be replied on 15.10.2018 by the respondents by refuting
the allegations made under the show cause notice. As per the Master
Circular dated 01.07.2015, the Willful Defaulters Committee ('WDC' for
short) in its meeting held on 13.12.2018 on consideration of the reply
filed to the show cause notice resolved to declare the respondents as
willful defaulters and it was reviewed by the Review Committee known
as Willful Defaulters Review Committee ('WDRC' for short) in its
meeting held on 04.02.2019 which also affirmed the decision of WDC by
declaring / classifying the respondents as willful defaulters in terms of
abovesaid Master Circular issued by the Reserve Bank of India ('RBI' for
short).
5. On publishing the names of the respondents as willful defaulters,
the bank by communication dated 13.03.2019 granted an opportunity for
repayment of the then outstanding amount of Rs.14.99 crores within 15
days which also did not yield any positive result. On the contrary, the
respondents by communication dated 18.03.2019 filed their objections
which objections had already been considered by the Review Committee.
It is thereafter that bank issued a communication dated 15.04.2019 to the
respondents and published the defaulters' list in the newspaper on
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
25.05.2019, which triggered the respondents herein to file a petition
under Article 226 of the Constitution of India before learned Single Judge
wherein prime contention which came to be raised was that show cause
notice issued by creditors is by an incompetent authority and, as such, all
consequential proceedings are to be quashed. Reiterating the grounds
urged in the writ petition and assailing the proceedings initiated against
the petitioners, they sought for grant of prayer made in the writ petition.
6. The learned Single Judge, after considering rival contentions raised
at the bar, was of the considered view that it is the WDB Committee only
which could have issued the show cause notice and any other authority
including the General Manager of the bank could not have issued such
show cause notice or in other words could not have exercised the power
to issue show cause notice which was exclusively in the domain of WDB
Committee. The contentions raised by the Petitioners found favour by the
learned Single Judge on the premise that there is no authority granted by
the Committee to sub-delegate their powers to any official of the bank
which had been done in the instant case while issuance of show cause
notice viz., by the General Manager of the Committee and, as such, the
proceedings continued pursuant to the issuance of show cause notice is
null and void.
7. Learned Senior Counsel appearing for the appellant having
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
reiterated the contentions raised in the appeal memorandum has also
elaborated his submissions by contending inter alia:
(a) Master Circular of the RBI dated 01.07.2015 does not contemplate
that Committee alone should issue show cause notice;
(b) even otherwise, sub-clause (b) of Clause 3 of the Master Circular
does not suggest that issuance of show cause notice by any other
authority or officer of the bank would vitiate the very issuance of the
show cause notice or proceedings continued thereto;
(c) even otherwise, sum and substance of the decision of the
Committee was communicated to the respondents by extracting the same
in the show cause notice itself, which had already been duly replied to by
the respondents and, as such, there is no prejudice caused to respondents.
Hence, he has sought for the appeal being allowed.
8. Per contra, Mr. Motiramani, learned counsel appearing for the
respondents would support the impugned order of the learned Single
Judge and would vehemently contend that on account of non-furnishing
the order passed by WDB same had prejudiced the right of the
respondents and, as such, learned Single Judge has rightly held that show
cause notice which had been issued by an incompetent person is liable to
be quashed. He would further contend that on account of the order
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
declaring the respondents as willful defaulters as contemplated under
Clause 3(a) having not been furnished to the respondents, any further
proceedings initiated thereto, that too by a person who is not competent to
issue show cause notice would be void and hence, he prays for dismissing
the appeal by affirming the order of the learned Single Judge.
9. Having heard learned counsel for the parties and after bestowing
our careful and anxious consideration to the rival contentions raised at the
bar, we are of the considered view that in the instant case, undisputedly
show cause notice dated 05.10.2018 was issued to the respondents herein
and it has been duly replied to by the respondents on 09.10.2018. A
perusal of the said reply would clearly indicate that neither contention
regarding the competency of the person who issued the show cause notice
had been raised nor it was contended that on account of non-furnishing of
the order passed by the WDC it has prejudiced their rights. In the
absence of any foundation being laid at the first instance, the respondents
cannot be allowed to raise such a ground or in other words, they cannot
improvise their case stage-by-stage and step-by-step and such futile
attempt made will have to be brushed aside.
10. In the light of the learned Single Judge having referred to sub-
clause (b) of Clause 3 of the Master Circular dated 01.07.2015, extracting
the said clause in this order would only be repetitive and as such we
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
desist from doing so. A plain reading of sub-clause (b) of Clause 3 would
clearly indicate that where the Committee concludes that in the event, a
willful default has occurred on the part of debtor, it mandates issuance of
a show cause notice to the concerned borrower. It is no doubt true that
show cause notice has been issued by the General Manager of the bank
and not by the Committee itself. There being no embargo placed under
sub-clause (b) of Clause 3 for an officer of the bank being authorised to
issue such show cause notice, we are of the considered and firm view that
learned Single Judge erred in arriving at a conclusion that issuance of
show cause notice should have been by the Committee only and on
account of General Manager having issued the show cause notice it has
vitiated further proceedings. We say for reasons more than one. Firstly,
a holistic reading of sub-clause (b) of Clause 3 of Master Circular would
indicate that in the interest of compliance of principles of natural justice,
issuance of show cause notice to debtor is contemplated or in other words
to comply with principles of natural justice. Secondly, when an
opportunity is being extended to the proposed willful defaulter to have
his/her/their say as to why he/they/she should not be declared as willful
defaulter that would meet the principles of natural justice. If by way of a
reply the defaulter is able to establish that the borrower cannot be
declared as defaulter, then in such an event, the burden is cast upon the
borrower to establish as to why it should not be declared as a willful
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
defaulter. If this is adhered to, it would be substantial compliance of the
principles of natural justice. It is in this background that sub-clause (b) of
Clause 3 will have to be looked into and any other interpretation if sought
to be made would only amount to doing violence to the said clause. In
fact, the very nomenclature of the circular dated 01.07.2015 would
indicate that it is for the purposes of declaring a borrower as defaulter, the
requisite steps will have to be taken by a financial institution. In other
words, when technicalities are pitted against the substantial justice,
naturally such technicalities will have to be kneel down before substantial
justice.
11. In the instant case, as already noticed hereinabove and at the cost
of repetition, we notice that show cause notice came to be issued by
creditor to debtor and it was duly replied to by the borrower whereunder
each point raised in the show cause notice has been traversed and there
being no plea with regard to competency of the authority which issued the
show cause notice raised at the first instance which would be the
foundation for raising such a claim, we are of the considered view that
such issue could not have raised or urged in a petition filed under Article
226 of the Constitution of India.
12. Learned counsel appearing for the respondents has relied upon the
judgment of the Apex Court in the case of State Bank of India vs. Jah
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
Developers Pvt. Ltd. & Others, reported in (2019) 6 SCC 787
whereunder the Apex Court in the background of the facts obtained in the
said case has held that borrower therein had to make a representation
within 15 days of the preliminary decision of the First Committee after
following paragraph 3(b) which was not done in the said case and, as
such, the principle enunciated therein, for which there cannot be any
second opinion, has to be necessarily followed, could not be pressed into
service by the respondents herein and it would not come to their help. In
the instant case, respondents have received the show cause notice, duly
replied to the same and had not raised any plea with regard to
competency of the authority who issued show cause notice and as such,
contention raised by learned counsel appearing for the respondents
requires to be considered for the purpose of rejection and accordingly we
do so.
13. For the reasons aforestated, we proceed to pass following
ORDER
(i) Appeal is allowed and order dated 24.12.2019 passed in
Special Civil Application No.11572 of 2019 is set aside and
Special Civil Application No.11572 of 2019 stands dismissed.
C/LPA/605/2021 JUDGMENT DATED: 13/10/2021
(ii) Costs made easy.
Sd/-
(ARAVIND KUMAR,CJ)
Sd/-
(R.M.CHHAYA,J)
Bharat
