Gujarat High Court
Shankarlal Sitaram Somani vs Idbi Bank Limited on 16 April, 2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 4017 of 2024
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE HEMANT M. PRACHCHHAK
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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SHANKARLAL SITARAM SOMANI & ANR.
Versus
IDBI BANK LIMITED
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Appearance:
MR SAURABH SOPARKAR SR.ADV. WITH RAVI PAHWA FOR THAKKAR
AND PAHWA ADVOCATES(1357) for the Petitioner(s) No. 1,2
MR BH BHAGAT(153) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE HEMANT M.
PRACHCHHAK
Date : 16/04/2024
ORAL JUDGMENT
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1. Today, Mr. Saurabh Soparkar, learned Senior Counsel
assisted by Mr. Ravi Pahwa, learned Counsel for the petitioners
has tendered the draft amendment. The said draft amendment is
not objected by Mr. Bhagat, learned Counsel for the respondent.
With broad consensus, the draft amendment is allowed.
Amendment to be carried out within period of one week from the
date of receipt of copy of the order.
2. Present petition is filed by the petitioners under Article 226
of the Constitution of India with the following reliefs:-
"(A) YOUR LORDSHIPS may be pleased to issue a writ of
mandamus, or any other appropriate writ order or
direction, quashing and setting aside the decision of
Review Committee for Identification of Willful Defaulter
taken in Minutes of Meeting dated 12.2.2024 as well as
decision of Willful Defaulter Identification Committee of the
respondent bank taken in purported Minutes of Meeting
dated 5.10.2023 and the subsequent action of respondent
bank in reporting of the name of petitioners to Reserve
Bank of India / CIBIL as a willful defaulter, as being illegal,
unreasonable, unjustified, arbitrary as also violative of Art.
14 and 19(1)(g) of the Constitution of India;
(AA) YOUR LORDSHIPS may be pleased to issue a writ of
mandamus or any other appropriate writ, order or direction
quashing and setting aside the impugned notice dated
9.4.2024 issued by respondent bank as being illegal and
bad in law.
(B) YOUR LORDSHIPS may be pleased to stay the
implementation, operation and execution of impugned
decision of Review Committee for Identification of Willful
Defaulter taken in Minutes of Meeting dated 12.2.2024 as
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well as decision of Willful Defaulter Identification
Committee of the respondent bank taken in purported
Minutes of Meeting dated 5.10.2023 and the subsequent
action of respondent bank in reporting of the name of
petitioners to Reserve Bank of India / CIBIL as a willful
defaulter pending the admission, hearing and final disposal
of this petition.
(BB) YOUR LORDSHIPS may be pleased to restrain the
respondent bank from taking any action in pursuance to
the impugned notice dated 9.4.2024 pending the hearing
and final disposal of this petition.
(C) YOUR LORDSHIPS be pleased to grant such other and
further reliefs as may be deemed fit by this Hon'ble Court
in the interest of justice;"
3. Brief facts of the present case are in nutshell as under:-
3.1 It is the case of the petitioners that they are the erstwhile
Directors of the Corporate Debtor. The respondent bank
addressed a letter dated 11.2.2022 to the Corporate Debtor inter
alia advising the Corporate Debtor to pay the entire outstanding
of Rs. 133.60 Crores with unpaid interest immediately. The
Corporate Debtor informed the respondent bank that no
transactions have been undertaken by the Corporate Debtor
which would attract the ingredients for examining the accounts
of the Corporate Debtor as Willful defaulter account. The
respondent bank addressed letter requiring the Corporate Debtor
to pay the entire outstanding of Rs. 133.60 Crores. The
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Corporate Debtor explained that the Company was using non-
fund based working capital facilities by issuing letter of credit
from the respondent bank for sourcing raw materials from
various suppliers. It was further explained that in the year 2018,
the Corporate Debtor faced severe cash crunch and the financial
position of the Corporate Debtor was worsened. It was further
stated that the account of Corporate Debtor was declared as
Non- Performing Asset (NPA) on 14.10.2018. It was further stated
that Bank of Baroda being the lead bank of consortium of lenders
directed the Corporate Debtor to route all banking transactions
through Bank of Baroda. In the consortium meeting held on
17.10.2018, the respondent bank also agreed that all
transactions undertaken by the Corporate Debtor should be
routed through Bank of Baroda only. It was further stated that
the Bank of Baroda did not allow the Corporate Debtor to make
payments to any other Banks including the respondent bank. It
was further stated that the Corporate Debtor had addressed
letter to respondent bank requesting the respondent bank to
handle all the transactions through the account of Corporate
Debtor maintained with respondent bank. However, there was no
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response to said letter. It was stated that the Corporate Debtor
therefore could not make payment to the respondent bank and
this transaction cannot be termed as "willful defaulter". The
respondent called upon Corporate Debtor to explain the present
arrangement with DGVCL. The Corporate Debtor addressed letter
to respondent that Corporate Debtor is sourcing power from
DGVCL every month and paying amount of electricity bills. It was
stated that DGVCL was the sole supplier of electricity power to
the Industries situated in and around Surat City regions. The
Corporate Debtor confirmed that the Bank Guarantee amount
which was revoked by DGVCL was kept as security deposit with
DGVCI, and it was never utilized by the Corporate Debtor for
paying electricity bills. The Corporate Debtor enclosed five
electricity bills of DGVCL which showed that an amount of Rs.
8,30,25,606/- was still lying with DGVCL as security deposit. The
respondent bank addressed letter to the Corporate Debtor inter
alia stating that though it is true that all members had agreed at
the JLM held on 17.10.2018 that all the financial transactions of
the Corporate Debtor shall be routed through Bank of Baroda
only and the same shall operate as per agreed Waterfall
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Mechanism, but the repayment of the devolved letter of credit
ought to have been done through that Escrow Account. The
Corporate Debtor informed the respondent that the financial
position of the Corporate Debtor was gradually falling and was in
distress and cash flows of the Corporate Debtor were disturbed
since 2018. Due to distress financial health and mismatch in
cash flows, some letter of credits with the consortium members
got devolved including the respondent bank. It was further
stated that it was true that the Escrow Account opened with
Bank of Baroda was to be operated as per the agreed waterfall
mechanism, however, the Corporate Debtor utilized funds only
for plant operations and only as allowed by Bank of Baroda being
the lead bank. All payments were made after due verification of
the lead bank. It was further stated that the consortium
members retained 5% of the inflows in the escrow account and
the remaining amount was utilized by the Corporate Debtor for
its working capital purposes. The petitioner requested
Respondent Bank vide letter dated 29.11.2018 to allow to
provide Hand Holding facility to start the operations through
Respondent Bank on the same terms and conditions as Bank of
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Baroda but the same were unanswered by Respondent bank. The
respondent bank informed Corporate Debtor that the Corporate
Debtor was availing the benefits of continuous electricity supply
from DGVCL on the basis of security deposit of Rs.8,30,25,606/-
out of which Rs. 6,00,00,000/- is paid by the respondent bank as
invoked Bank Guarantee amount.
3.2 The Corporate Debtor informed respondent that as per the
profit/loss statement of the Corporate Debtor, there is no cash
surplus with the Corporate Debtor and therefore, the Corporate
Debtor is not in a position to repay the amount of revoked letter
of credit of DGVCL. It was stated that the Corporate Debtor is not
in a position to arrange fresh Bank Guarantee from other
sources. It was therefore reiterated that this transaction would
not attract the ingredients to treat the Corporate Debtor as a
wilful defaulter as per the circular of RBI. The respondent bank
issued a show cause notice to the Corporate Debtor and its
directors including the petitioners requesting the Corporate
Debtor and the petitioners to show cause as to why the account
of the Corporate Debtor and the petitioners should not be
declared as willful defaulters account as per the guidelines of
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RBI. The Corporate Debtor explained each and every
transactions. The Corporate Debtor stated that all the
transactions undertaken by the Corporate Debtor were for day to
day operations of the Corporate Debtor. The Corporate Debtor
explained as to why letter of credits were devolved. The
Corporate Debtor also explained the transaction with DGVCL. It
was further stated that there was no diversion of funds. The
Corporate Debtor therefore requested the respondent bank not
to treat the account of Corporate Debtor and its directors
including the petitioners as willful defaulters account. The
respondent bank addressed email inter alia requesting the
Corporate Debtor to provide certain clarifications on the reply of
Corporate Debtor dated 24.8.2022. The Corporate Debtor
submitted clarification and enclosed detailed working on facts
and figures along with auditor's certificate. The Corporate Debtor
also enclosed detailed working treatments of investment in
Sumicot Limited. The respondent bank addressed a
communication to the Corporate Debtor inter alia stating that a
perusal of the statement of accounts of the Corporate Debtor's
Escrow Account would reveal that the Corporate Debtor's
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revenue from operations is continuously rising from Rs. 204.45
Crores to Rs.282.62 Crores and further upto Rs.295 58 crores as
on 30.6.2022. It was therefore stated that the step decline of
funds through the escrow account does not commensurate the
increased revenue from operations and there appears to be
suspected diversion of funds. Therefore, the Corporate Debtor
was called upon to make submissions in this behalf. The
Corporate Debtor gave response stating that the Corporate
Debtor was exclusively maintaining its account with the Bank of
Baroda. It was further explained that previously Reliance
Industries Limited was the main raw material supplier of
Corporate Debtor. When Reliance Industries Limited came to
know that restructuring plan given by the Corporate Debtor to
the consortium lenders including respondent bank was not
progressing well, then Reliance Industries Limited started
insisting for advance payment of Bank Guarantee before supply
of raw material. It was further stated that Corporate Debtor did
not have liquidity to manage such advance amount and
therefore, Reliance Industries Limited agreed to supply goods to
other parties for final sale to Corporate Debtor. Because of this
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transaction, there was debit and credit of Rs. 75 Crores in the
accounts of Corporate Debtor. It was therefore stated that this
transaction also cannot be considered to treat the Corporate
Debtor as a wilful defaulter as per the circular of RBI. The
respondent bank called upon the Corporate Debtor to explain as
to the reason for difference between closing balance of debtors
as on 31.10.2022 both in debtors realization certificate and latest
quarterly reports. The Corporate Debtor replied that the CA
certificate issued by the statutory auditor of the Corporate
Debtor reveals that the debtors balance as on 30.9.2022 is Rs.
9801.87 Lakhs as net debtors after adjusting credit balance of
some receivable parties. It was further stated that whereas in
quarterly results, the Corporate Debtor has shown debit balance
of receivables under the head "current assets trade receivables
and therefore, if the figure is netted out, then there will be no
difference between the CA certificates and the quarterly results.
So far as the second clarification was concerned, it was stated
that as per the policy of Corporate Debtor, upto the quarter of
June 2022, the Corporate Debtor has debited interest from the
cut back to the extent of proposed interest payment on
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sustainable debt as per the resolution plan submitted to the
respondent bank for restructuring of debts.
3.3 It is the case of the petitioners that the Hon'ble
Adjudicating Authority, National Company Law Tribunal,
Ahmedabad Bench initiated Corporate Insolvency Resolution
Process against the Corporate Debtor on an application u/s. 7 of
Insolvency and Bankruptcy Code 2016 by respondent bank. The
petitioner no.1 then attended the personal hearing through video
conference before the Willful Defaulter Identification Committee
of respondent bank. The petitioner no.1 also represented the
petitioner no.2. In spite of number of detailed replies explaining
all the transactions, the Willful Defaulter Identification
Committee of respondent hank vide impugned order dated
5.10.2023 declared the petitioners as willful defaulters. The
petitioners made a detailed representation to the Willful
Defaulter Review Committee of respondent bank. The petitioners
pointed out the lacunas in the decision of Willful Defaulter
Identification Committee and gave clarifications to all the
findings of the Identification Committee. Though the petitioners
had requested the Review Committee to give an opportunity of
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personal hearing, the same was not afforded to the petitioners
and instead, without appreciating the contentions raised by the
petitioners in the representation or giving an opportunity of
personal hearing to the petitioners, the Willful Defaulter Review
Committee of respondent bank by impugned decision confirmed
the decision of Willful Defaulter Identification Committee of
respondent bank declaring the petitioners as willful defaulters.
The respondent bank has not followed the guidelines issued by
the Hon'ble Supreme Court in the case of State Bank of India vs.
Jha Developers before taking the impugned decisions. The
impugned decision are contrary to facts and law, as
demonstrated in the petition.
4. Heard Mr.Saurabh Soparkar, learned senior counsel with
Mr.Ravi Pahwa, learned counsel appearing for the petitioners and
Mr.B. H. Bhagat, learned counsel appearing for the respondent -
Bank. Perused the material on record.
5. Mr.Saurabh Soparkar, learned senior counsel with Mr.Ravi
Pahwa, learned counsel appearing for the petitioners has
submitted that the impugned order passed by the Willful
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Defaulter Review Committee (WDRC) of respondent bank is a
non-speaking order and without giving an opportunity of
personal hearing and thus the same is against the settled
principles of law and violative of principles of natural justice. He
has submitted that the request was made by the petitioners to
afford an opportunity of personal hearing, however, except for
considering the representation, no opportunity of hearing was
given to the petitioners. He has submitted that the WDIC after
considering the written submissions made on behalf of the
petitioners passed the detailed reasoned order, but while
confirming the said order, the Willful Defaulter Review
Committee (WDRC) has not given an opportunity of persoal
hearing as per the decision of the Hon'ble Supreme Court in the
case of State Bank of India Vs. Jah Developers Private
Limited and others reported in (2019) 6 SCC 787 wherein the
Hon'ble Supreme Court has held and observed in para - 24 as
under:-
"24. Given the above conspectus of case law, we are of the
view that there is no right to be represented by a lawyer in
the in-house proceedings contained in paragraph 3 of the
Revised Circular dated 01.07.2015, as it is clear that the
events of wilful default as mentioned in paragraph 2.1.3
would only relate to the individual facts of each case. What
has typically to be discovered is whether a unit has defaulted
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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 29A 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, 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. The impugned judgment is, therefore, set aside,
and the appeals are allowed in terms of our judgment. We
thank the learned Amicus Curiae, Shri Parag Tripathi, for his
valuable assistance to this Court."
5.1 Mr.Soparkar, learned senior counsel has submitted that the
WDRC while passing the order has not given any reason except
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making the observation that the justification provided by
Promoters / Erstwhile Directors / Guarantors of SIL are not
acceptable and are rejected. He has submitted that there is no
independent reasons given by the WDRC in the order and
therefore the same is non-speaking order. He has submitted that
let the impugned orders be quashed and set aside and the
matter may be remanded back to the WDRC for its decision
afresh after giving full opportunity of hearing to the petitioners.
He has referred to and relied upon the decision of the Hon'ble
Supreme Court in the case of Oryx Fisheries Private Limited
Vs. Union of India and others reported in (2010) 13 SCC
427 and submitted that in the said decision the Hon'ble
Supreme Court has formulated the principles by following its
earlier decision as enumerated in para 40 and in the present
case there is breach of the principles enumerated by the Hon'ble
Supreme Court.
5.2 Mr.Soparkar, learned senior counsel appearing for the
petitioners has urged that the impugned orders may be quashed
and set aside and the matter may be remanded back to the
WDRC for its fresh decision after giving the full opportunity of
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personal hearing to the petitioners.
6. Mr.B. H. Bhagat, learned counsel appearing for the
respondent - bank has opposed the present petition and has
submitted that the petition deserves to be dismissed. He has
submitted that the petitioners had given an opportunity of
hearing at the time of first decision taken by the WDC and,
thereafter, at the second stage i.e. before WDRC, there is no
need to given personal hearing to the petitioners. He has
submitted that the petition is filed by the petitioners with mala
fide intention and oblique object and the same is nothing but an
abuse of the process of law. He has submitted that as per the
directions of the WDC / WDRC, the respondent - bank has passed
such order and, there is no violation of the guidelines issued by
the Reserve Bank of India. He has submitted that the WDC and
WDRC have not committed any error of facts and law in passing
the orders and both the authorities have given an opportunity of
hearing to the petitioners. He has referred to and relied upon the
affidavit-in-reply filed on behalf of the respondent - bank and
submitted that the petition is not maintainable under Article 226
of the Constitution of India as the petitioner has only prayed for
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violation of principles of natural justice while filing the petition.
The relevant paragraphs of the affidavit-in-reply reads as under:-
"6. I say and submit that the petition is frivolous,
vexatious and filed with an ulterior motive and therefore it
deserves an outright dismissal with exemplary costs. The
allegations are vague, indeterminate and without any
merits or details or particulars. I say and submit that the
object and purpose of the Master Circular for willful default
is dissemination of credit information of the willful
defaulter so that other lenders are cautioned and do not
lend any further money. It is also aimed at preventing
further fraud and loss of public money. A willful defaulter
proceeding is not for recovery of debt. The repayment of
debt will not ipso facto extinguish the default. This has to
be assist and applied in the facts of the instant case. I say
and submit that to stay willful defaulter proceedings,
criminal proceeding or quasi criminal proceeding under any
Section would defeat the object and purpose of the part III
of the IBC and RBI Master Circular. Stay of such willful
defaulter proceedings would also result in putting a
premium on the impropriety and illegality for which the
willful defaulter proceedings are initiated. I say and submit
that the respondent bank has followed the Mechanism as
provided in Clause 3 of the Master Circular. The whole
procedure has been followed in as much as that in the
instant case a well-reasoned show-cause notice is issued
dated 01.08.2022 calling for their submissions, and to
uphold the principles of natural justice, WDC of the Bank
had offered opportunities of personal hearing before WDC
and the petitioner appeared for the same and made
arguments / submissions and also filed written
representation. It would not be out of place to state that
the bank had also replied to petitioners various letters /
emails seeking clarification on certain points and clarified
on all the issues raised by petitioners after giving personal
hearing before WDC. Letter granting opportunity for
personal hearing was also issued and they had availed. I
say and submit that since the petitioner appeared for the
same and made arguments and also filed written
representation the WDC after considering their replies /
submissions and written representation passed a proper
reasoned and detailed order dated 14.09.2023 which was
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communicated vide letter dated 05.10.23 which eventually
got reviewed by another Review Committee and WDRC
after considering their replies / written representation(s)
dated 08.11.23 & 09.11.23 and submissions passed a
proper reasoned and detailed order dated 06.02.2024
which was sent vide letter dated 12.02.24. I say and
submit that the order of WDC becomes final only upon
confirmation of order by WDRC. Hence WDC order merges
in WDRC order and only upon confirmation of order by
WDRC the order becomes final and borrower is declared as
willful defaulter and in the present case that order of
WDRC is well reasoned and detailed order dealing with all
their replies and submissions and written representation. I
respectfully say and submit that the petitioner is squarely
covered by provision 2.1.3(a), 2.1.3(b) and 2.2.1(c) of the
master circular in as much as that in the instant case the
order passed by WDRC clearly culls out and refers to
breach of all the clauses of diversion of funds, transferring
of funds and default in repayment obligations even when
they have means to pay from the facts on record and
petitioner's various replies.
7. I respectfully say and submit that all the orders of the
Willful Defaulter Committee (WDC) and Identification
Committee and Willful Defaulter Review Committee
(WDRC) have been passed by the respective committees
and only the communication of such order has been done
by the concerned bank official as per directions of the WDC
/ WDRC. Therefore, there is no violation of the RBI
guidelines in this regard.
10. I say and submit that the facts of the instant case are
absolutely different from the facts of the judgements cited
by the petitioner A) The orders passed by the Willful
Defaulter Committee and the Review Committee were
passed after proper personal hearing and relying upon
their submissions / written representation and replies and
are proper reasoned orders containing reasons for arriving
at a conclusion with regard to declaration of borrowers as
willful defaulters and also the copies of the same were
provided to the petitioners. Whereas in the judgements
cited by the petitioners the bank had not passed reasoned
orders and that too without personal hearing and also had
not supplied copies to the petitioner and moreover in one
of the judgement cited by the petitioners is on declaration
of FRAID which is entirely different law and governed by
different circular of RBI. I say and submit that the facts of
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the instant case are absolutely different from the facts of
the judgement cited by the petitioners in as much as there
the joint lenders themselves had come to conclusion based
on Revised Forensic Report that the petitioners should not
be declared Fraud. Whereas in the instant case the criteria
for willful default is absolutely different and also governed
by different circular and the decision in based purely on
Internal Investigation by the Bank. The petitioner is citing
that fraud judgment which has no relevance to mislead the
Hon'ble Court to obtained Ex-Parte favourable order. B)
Internal investigation by the bank strongly suggest all the
ingredients for declaration of willful defaulter and is
entirely based on sound observations made by Internal
investigation by the bank unlike the judgements cited by
the petitioners where the petitioners therein were
exonerated of any wrong doing by observing that there
were no irregularities."
6.1 Mr.Bhagat, learned counsel appearing for the respondent
has referred to and relied upon the order dated 10.02.2022
passed by the Coordinate Bench of this Court in Kirtilal
Ravchandbhai Sanghavi Vs. Reserve Bank of India in Special
Civil Application No.2518 of 2022 with Special Civil Application
No.2943 of 2022, which came to be confirmed by the Division
Bench of this Court vide order dated 02.01.2023 passed in
Letters Patent Appeal No.596 of 2022. He has also referred to
and relied upon the judgment dated 27.03.2023 passed by the
Coordinate Bench of this Court in Jagdish Prasad Saboo Vs. IDBI
Bank Limited in Special Civil Application No.19261 of 2022 which
came to be confirmed by the Division Bench of this Court vide
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order dated 06.11.2023 passed in Letters Patent Appeal No.841
of 2023. He has submitted that there is no illegally and
perversity in the impugned orders passed by both the authorities
and both the authorities have not committed any breach of
principles of natural justice. He has submitted that the petition
being meritless deserves to be dismissed.
7. Considering the facts of the case, the issue involved in the
present case is that whether an opportunity of personal hearing
is given to the petitioners at the stage of taking the decision by
the authority or not and if it is not given, whether it is violation of
the principle of natural justice or not.
8. Considering the facts of the case and the submissions
canvassed by the learned counsel appearing for both the sides, it
is now well settled that at the time of passing the orders by the
WDC and WDRC, the petitioners have to be given opportunity of
personal hearing and after considering the representation /
written submissions canvassed by the petitioners, both the
authorities have to pass the orders by giving cogent and
substantial reasons. However, in the present case, considering
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the written submissions of the petitioners, the WDRC has not
passed any speaking or reasoned order except to agree /
disagree with the submissions made on behalf of the petitioners
which cannot be termed as speaking order in light of the
observations made in para 39, 40 and 41 by the Hon'ble
Supreme Court in the case of Oryx Fisheries Private Limited
(supra), which reads thus:-
"39. On the requirement of disclosing reasons by a quasi-
judicial authority in support of its order, this Court has
recently delivered a judgment in the case of Kranti
Associates Pvt. Ltd. & Anr. V/s. Sh. Masood Ahmed Khan &
Others on 8th September 2010.
40. In M/s Kranti Associates (supra), this Court after
considering various judgments formulated certain
principles in para 51 of the judgment which are set out
below
a. In India the judicial trend has always been to record
reasons, even in administrative decisions, if such decisions
affect anyone prejudicially.
b. A quasi-judicial authority must record reasons in support
of its conclusions.
c. Insistence on recording of reasons is meant to serve the
wider principle of justice that justice must not only be done
it must also appear to be done as well.
d. Recording of reasons also operates as a valid restraint
on any possible arbitrary exercise of judicial and quasi-
judicial or even administrative power.
e. Reasons reassure that discretion has been exercised by
the decision maker on relevant grounds and by
disregarding extraneous considerations.
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f. Reasons have virtually become as indispensable a
component of a decision making process as observing
principles of natural justice by judicial, quasi-judicial and
even by administrative bodies.
g. Reasons facilitate the process of judicial review by
superior Courts.
h. The ongoing judicial trend in all countries committed to
rule of law and constitutional governance is in favour of
reasoned decisions based on relevant facts. This is virtually
the life blood of judicial decision making justifying the
principle that reason is the soul of justice.
i. Judicial or even quasi-judicial opinions these days can be
as different as the judges and authorities who deliver
them. All these decisions serve one common purpose
which is to demonstrate by reason that the relevant factors
have been objectively considered. This is important for
sustaining the litigants' faith in the justice delivery system.
j. Insistence on reason is a requirement for both judicial
accountability and transparency.
k. If a Judge or a quasi-judicial authority is not candid
enough about his/her decision making process then it is
impossible to know whether the person deciding is faithful
to the doctrine of precedent or to principles of
incrementalism.
l. Reasons in support of decisions must be cogent, clear
and succinct. A pretence of reasons or `rubber-stamp
reasons' is not to be equated with a valid decision making
process.
m. It cannot be doubted that transparency is the sine qua
non of restraint on abuse of judicial powers. Transparency
in decision making not only makes the judges and decision
makers less prone to errors but also makes them subject to
broader scrutiny. (See David Shapiro in Defence of Judicial
Candor (1987) 100 Harward Law Review 731-737).
n. Since the requirement to record reasons emanates from
the broad doctrine of fairness in decision making, the said
requirement is now virtually a component of human rights
and was considered part of Strasbourg Jurisprudence. See
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(1994) 19 EHRR 553, at 562 para 29 and Anya V/s.
University of Oxford, 2001 EWCA Civ 405, wherein the
Court referred to Article 6 of European Convention of
Human Rights which requires, "adequate and intelligent
reasons must be given for judicial decisions".
o. In all common law jurisdictions judgments play a vital
role in setting up precedents for the future. Therefore, for
development of law, requirement of giving reasons for the
decision is of the essence and is virtually a part of "Due
Process".
41. In the instant case the appellate order contains
reasons. However, absence of reasons in the original order
cannot be compensated by disclosure of reason in the
appellate order"
9. On perusal of the record, it also appears that the
petitioners have made such request for giving an opportunity of
hearing more particularly in para - 7 of the representation, which
reads as under:-
"7. In case, you are not satisfied with the above
explanation, you are requested to please give an
opportunity of personal hearing by sending an intimation to
me in advance."
10. That though the petitioners have requested the WDRC to
give an opportunity of personal hearing, but the same was not
afforded and such aspect was not observed by the authority and
not provided an opportunity of hearing to the petitioners before
passing the order by the WDRC.
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11. In the affidavit-in-reply filed on behalf of the respondent -
bank, it is specifically stated that "the petitioner is squarely
covered by provision 2.1.3(a), 2.1.3(b) and 2.2.1(c) of the master
circular in as much as that in the instant case the order passed
by WDRC clearly culls out and refers to breach of all the clauses
of diversion of funds, transferring of funds and default in
repayment obligations even when they have means to pay from
the facts on record and petitioner's various replies." For this, the
order came to be passed by the WDC which came to be
confirmed by the WDRC and, therefore, at this stage, the
petitioners are required to be given an opportunity of hearing.
12. In view of the above facts which are emerging from the
records it would be necessary to refer to the master circular of
willful defaulter issued by the RBI on July 1, 2015 which defines
willful default as per clause 2.1.3 as under:
"2.1.3 Willful Default: A 'willful 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 utilized the
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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 willful 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 willful must be
intentional, deliberate and calculated."
Clause 2.2.1 refers to diversion of funds and reads as
under:
"2.2.1 Diversion of Funds: The term 'diversion of funds'
referred to at paragraph 2.1.3(b) above, should be
construed to include any one of the undernoted
Occurrences:
(a)utilization of short-term working capital funds for long-
term purposes not in conformity With the terms of sanction;
(b) deploying borrowed Funds for purposes/ activities or
creation of assets other than those for which the loan was
sanctioned;
(c) transferring borrowed funds to the subsidiaries Group
companies or other Cooperates by whatever modalities;
(d) routing of funds through any bank other than the lender
bank or members of Consortium without prior permission of
the lender;
(e) Investment in other companies by way of acquiring
equities/ debt instruments without approval of lenders;
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(f)Shortfall in deployment of funds vis-à-vis the amounts
disbursed/ drawn and ne difference not being accounted
for."
12. As per clause 2.2.1(c) diversion of funds includes
transferring borrowed funds to subsidiaries group
companies or other corporate by whatsoever modalities.
Similarly sub-clause (d) of clause 2.2.1 refers to routing of
funds through any bank other than the lender bank or
member of consortium without prior permission of the
lender.
13. That the judgment and orders relied upon by learned
counsel appearing for the respondents are not with regard to the
opportunity of hearing given at the time of taking the decision by
the WDRC and the said decisions are not applicable to the facts
of the present case. But since the copy of the audit report was
not provided to the petitioners and not given an opportunity of
hearing, in such circumstances, the Court had come to the
conclusion that the copy of the audit report is to be supplied
and, therefore, on that basis, the representation may be decided
by the authority.
14. The Division Bench of this Court while passing the
impugned judgment and order in Letters Patent Appeal No.841 of
2023 has observed that "the report of the Identification
Committee has been affirmed by the Review Committee after
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grant of opportunity of personal hearing to the appellant. No
infirmity in the said decision making process can be pointed out
by the learned counsel for the appellant. The only submission
that the complete copy of the Forensic Audit Report has not
been provided to the appellant before taking the impugned
decision to declare him a willful defaulter, cannot be a reason to
interfere, as according to us, no prejudice has been caused to
the appellant by non-supply of the complete copy of the Forensic
Audit Report."
15. This Court finds that there is substance in the contention. It
is well settled that a quasi-judicial authority, while acting in
exercise of its statutory power must act fairly and must act with
an open mind while initiating a show-cause proceeding. A show-
cause proceeding is meant to give the person proceeded against
a reasonable opportunity of making his objection against the
proposed charges indicated in the notice.
16. Considering the decision of the Hon'ble Supreme Court in
the case of Jah Developers Private Limited and others
(supra) as well as the judgment/s of this Court which is referred
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and relied upon on behalf of the petitioners, the petition
deserves consideration.
17. In view of the aforesaid facts, it appears that the WDRC has
not given any opportunity of personal hearing to the petitioner
and committed an error of facts and law in passing the impugned
order and, therefore, I am of the opinion that the present petition
deserves to be allowed and the impugned order deserves to be
quashed and set aside.
18. In the result, the petition is allowed. The impugned orders
passed by the authorities are hereby quashed and set aside and
the matter is remitted back to the WDRC. The WDRC is directed
to decide the case afresh after giving full opportunity of
personal hearing to the petitioners within a period of six months
from the date of receipt of the writ of this order and pass
appropriate / reasoned order. Direct service is permitted.
(HEMANT M. PRACHCHHAK,J)
V.R. PANCHAL
