Gujarat High Court
Dnp Foods Limited vs Bank Of Maharashtra on 10 January, 2024
Author: Sangeeta K. Vishen
Bench: Sangeeta K. Vishen
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 14528 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE SANGEETA K. VISHEN Sd/-
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? No
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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DNP FOODS LIMITED
Versus
BANK OF MAHARASHTRA
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Appearance:
MR. JAIMIN R DAVE(7022) for the Petitioner(s) No. 1,2,3
MS ABHINEETA B CHATURVEDI(5419) for the Respondent(s) No. 1
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CORAM:HONOURABLE MS. JUSTICE SANGEETA K. VISHEN
Date : 10/01/2024
ORAL JUDGMENT
With the consent of learned advocates appearing for the
respective parties, the captioned writ petition is taken up for final
disposal.
2. Issue rule, returnable forthwith. Ms Abhineeta B. Chaturvedi,
learned advocate waives service of notice of rule on behalf of the
respondent.
3. The grievance raised in the captioned writ petition is against
the communications dated 24.09.2021 and 05.01.2022,
communicating the decision of the Wilful Defaulters Identification
Committee (hereinafter referred to as the 'Identification
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Committee') and the Review Committee respectively whereby, the
names of the petitioners have been included in the list of wilful
defaulters.
4. The facts, as can be culled out from the record, are that
somewhere in the year 2017 the respondent has classified the
account of the petitioner no.1 as a non performing asset. Pursuant
thereto, various coercive measures were taken against the
petitioners coupled with the multiple legal proceedings. Apropos
which, a show cause notice dated 17.02.2020 was issued by the
respondent, requiring the petitioners to show cause as to why the
petitioners, should not be declared as wilful defaulters within the
meaning of the Master Circular no. DBR.No.CID.BC.57/ 20.16.003/
2014-15 dated July 1, 2014 (hereinafter referred to as the 'Master
Circular, 2015'). Immediately thereafter, vide e-mail dated
28.02.2020, the petitioner no.1 requested the respondent to provide
legible copies of the annexures attached to the show cause notice
and grant some time to respond to the show cause notice.
According to the petitioners, the reason for seeking sufficient time,
was the ailment of their mother, who was unwell and had to be
hospitalized time and again for constant medical attention on
account of she being at advanced stage of Alzheimer.
4.1 According to the petitioner, the request was not acceded to
and the petitioners, were compelled to respond within the stipulated
time. Scanned copies of the documents, as prayed for, were
provided; however, according to the petitioners, the same were not
legible. Further request was made for extending the time for
responding the show cause notice, followed by e-mail. Since no
response was available from the respondent, that the petitioners
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were compelled to submit their reply dated 07.03.2020 with the
limited material available. Another e-mail dated 09.03.2020 was
addressed to the respondent, inter alia, opposing and resisting the
threat posed by the respondent in the show cause notice regarding
publication of the photographs of the petitioners.
4.2 In the interregnum, communications were exchanged and
close to ten months, acceding to the request, the respondent has
addressed a communication dated 14.01.2021, offering the
petitioner personal hearing before the Identification Committee on
09.02.2021. Vide said letter, the respondent has informed about the
personal hearing to be through video conferencing and failing to
attend the same, would be assumed as the petitioners having
nothing to submit. Another notice of personal hearing was sent by
the respondent to the petitioner on 01.02.2021, which was
responded to by the petitioner vide e-mail dated 04.02.2021,
acknowledging the opportunity granted for personal hearing and
request that hearing date, be adjourned to any date between 03 rd
March to 10th March, 2021 in view of the medical difficulties faced by
the family of the petitioners. Not acceding to the request and to the
surprise of the petitioners, by addressing a letter dated 06.02.2021,
the respondent called upon the petitioners to attend the hearing on
09.02.2021. Request was once again made by the petitioners for an
adjournment, but the said e-mail was not replied. In absence of any
response from the respondent, the petitioners remained under a
bona fide belief that their request for an adjournment would be
accepted.
4.3 After almost a gap of 7 months, the respondent addressed a
communication dated 24.09.2021, inter alia, informing that the
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Identification Committee has ordered for inclusion of the names of
the petitioners in the list of wilful defaulters on the basis of the
internal meeting held by the Committee. Detailed reasoning with
documentary proofs were provided by the petitioners on 18.10.2021
to the Review Committee; with a request to provide an opportunity
of hearing; however, request was not accepted. The respondent
addressed an e-mail dated 22.10.2021 to the petitioners, reiterating
the contents of the communication dated 24.09.2021 and calling
upon the petitioners to provide their response to the Review
Committee within 15 days.
4.4 Petitioner no.1, issued an e-mail dated 27.11.2021 to the
respondent, drawing attention to the letter dated 18.10.2021;
providing necessary reasoning and justification and pleaded the
Review Committee, to consider the same positively and quash and
set aside the decision taken by the Identification Committee,
communicated vide letter dated 24.09.2021. It is the case of the
petitioners that they have received the impugned communication
dated 05.01.2022 informing, inter alia, that the Review Committee
has rejected the justification provided by the petitioners and had
confirmed the decision of the Identification Committee. Being
aggrieved that the captioned writ petition.
5. Mr Jaimin R. Dave, learned advocate for the petitioners
submitted that the orders, both passed by the Identification
Committee, so also the Review Committee are in breach of
principles of natural justice as much as, no opportunity of hearing
was provided to the petitioners. So far as the order of the
Identification Committee is concerned, no hearing was provided and
so far as the order of the Review Committee is concerned, it clearly
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suggests that it is not a reasoned order. It is submitted that the
chain of events indicated in the writ petition, clearly demonstrate
that the respondent, acting in highhanded and arbitrary manner,
issued the impugned communications without having regard to the
principles of natural justice. Show cause notice was issued and
hence, numerous requests were made by the petitioners to extend
the time limit, as the mother of the petitioner no.3 was hospitalized,
being at the advanced stage of Alzheimer. Since there was no
response; again a request was made to grant extension of time on
humanitarian ground, followed by a point-wise reply dated
07.03.2020 to the show cause notice rebutting the allegations of the
respondent. But the respondent chose not to accede to the request
of the petitioners.
6. It is next submitted that after almost a period of eight months,
during the pandemic-induced pause, the respondent has granted a
personal hearing through video-conferencing on 09.02.2021 for
making submissions. Requests were made by the petitioners for
adjournment indicating their willingness to appear between first
week of March before the Identification Committee; however,
thereafter no steps were taken and the petitioners were then faced
with the communication dated 24.09.2021, informing that the
Identification Committee in its meeting dated 15.09.2021 has
decided to include the names of the petitioners in the list of wilful
defaulters. Petitioners thereafter, submitted their representation to
the Review Committee on 18.10.2021, followed by another response
on 27.11.2021; however, the Review Committee disregarding the
response; totally on a different ground, confirmed the decision of
the Identification Committee.
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6.1 It is submitted that as per the mandate of the Master Circular,
2015, Identification Committee is required to pass a reasoned order
recording the fact of the wilful default, after considering the
submissions of the borrowers. The respondent miserably failed to
consider the representation dated 07.03.2020. It is submitted that
when the respondent has exercised the discretion and offered a
personal hearing to the petitioners, the respondent ought to have
shown indulgence and accorded sufficient time to the petitioners,
more particularly when the petitioners, citing substantial ground,
requested for an adjournment. Without informing the petitioners,
and in the month of September, 2021, that the decision has been
taken. Therefore, the order of the Identification Committee would be
in the breach of principles of natural justice. So far as the
proceeding before the Review Committee is concerned, replies were
filed providing detailed reasoning with documentary proofs and
evidence; however, if one is to see the order of the Review
Committee, the same, except briefly touching the merits, has not
dealt with the reasoning indicated by the petitioners.
6.2 Reliance is placed on the judgment of the Apex Court in the
case of State Bank of India v. Jah Developers Pvt. Ltd. reported in
(2019) 6 SCC 787. Apex Court while considering the Master Circular,
2015, held and observed that the moment a person is declared to
be a wilful defaulter, the impact on its fundamental right to carry on
business is direct and immediate for, no additional facilities can be
granted by any bank/financial institutions, and
entrepreneurs/promoters would be barred from institutional finance
for five years. It has been further held and observed that 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
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is made, so as to enable the borrower to represent against such
order within a period of 15 days to the Review Committee. Such
representation can be on facts and law and the Review Committee
must then pass a reasoned order on such representation which
must then be served on the borrower. It is therefore, submitted that
what is envisaged is passing of the reasoned order on
representation.
6.3 Reliance is placed on the judgment of this Court in the case of
M/s. Raghav Madhav Filaments Pvt. Ltd. vs. Bank of Baroda reported
in 2022 (0) AIJEL-HC 244039 wherein this Court, when found the
action of the Identification Committee not in sync with the
provisions of the Master Circular, 2015, action of the respondent
bank, identifying the account of the petitioners as wilful defaulters
was quashed and set aside. Further reliance is placed on the
judgment in the case of Jagdish Prasad Saboo vs. Bank of Baroda
passed in Special Civil Application no.16546 of 2022. It is therefore,
submitted that clearly, the action of the Identification Committee, so
also the Review Committee, would be in violation of principles of
natural justice, and on this limited ground, it deserves to be
quashed and set aside and the matter be remitted to the
respondent authority.
7. On the other hand Ms Abhineeta B. Chaturvedi, learned
advocate for the respondent submitted that the show cause notice
was issued requiring the response of the petitioners and the
petitioners, have submitted their response. It is submitted that
observations recorded in paragraph (f) of the minutes of the
meeting dated 15.09.2021, clearly suggests that the case of the
petitioners has been considered. Even personal hearing was
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accorded on more than two occasions; however, it is the petitioners,
who chose not to avail of the said hearing. Further, petitioners were
required to remain present; however, they chose not to do so and
therefore, the Identification Committee, in its meeting held on
15.09.2021, took a decision to include the name of the petitioners in
the list of wilful defaulters.
7.1 It is next submitted that the petitioners furnished the copy of
decision vide communication dated 24.09.2021, requiring them to
make representation before the Review Committee, to which the
petitioners have also submitted their replies dated 07.03.2020 and
18.10.2021 before the Identification Committee and Review
Committee which were running into more than 32 pages and 67
pages respectively. The Review Committee has considered the
aspect and given its decision point-wise which was communicated
to the petitioners vide communication dated 05.01.2021. Therefore,
it cannot be said that the action of the respondent, was in violation
of principles of natural justice.
7. Heard the learned advocates appearing for the respective
parties and perused the material available on record.
8. As a result of the proceedings for declaring the petitioners as
wilful defaulters, the respondent has issued a show cause notice
dated 17.02.2020, requiring the petitioners to show cause as to why
the names of the petitioners, be not included in the list of wilful
defaulters in terms of the Master Circular, 2015. Petitioners, vide e-
mail dated 24.02.2020, requested time upto 15.04.2020 for reasons
indicated therein. One of the reasons cited, was the illness of the
mother as she was not keeping well and was hospitalized.
Petitioners also requested for the legible copies of certain
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documents, and the respondent bank, had provided the same
stating that in case further clarification regarding the annexure is
required, the recipient, may get in touch with the branch. Petitioners
sent another e-mail dated 04.03.2020, seeking extension on the
ground of mother's deteriorating health, followed by another e-mail
dated 07.03.2020. Detailed reply dated 07.03.2020 was also filed
with the Deputy General Manager of the respondent bank with a
request that one-sided decision may not be taken without hearing
the petitioners.
9. Additional submissions came to be filed on 09.03.2020
justifying the issues raised in the show cause notice, namely, default
in making the payment/repayment obligation to the lenders and not
utilizing the finance from the lender for the specific purposes for
which finance was availed and routing of the funds to any bank
other than the lender bank or members of consortium without prior
permission of the lender. Nothing was heard in the meantime and it
is only on 14.01.2021 the petitioners received notice offering them
virtual hearing through video conference on 09.02.2021, followed by
another notice for personal hearing on 01.02.2021. The petitioners
had requested extension and also to fix the hearing on any date
during the first week of March, 2021. It appears that the said
request of the petitioners was not acceded to and what came was
the decision taken on 15.09.2021 in the meeting of the
Identification Committee, declaring the petitioners as wilful
defaulters. Two notices were issued, one on 14.01.2021 and another
on 01.02.2021; whereas, the decision was taken in the meeting
convened on 15.09.2021. The time lag between the second notice
and the decision was substantial. The petitioners, remained under
an impression that they would receive the response and did not
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take any steps.
10. It is not in dispute that the discretion was exercised by the
respondent of granting personal hearing and therefore, when it had
offered the personal hearing, it while not accepting the request of
petitioners to grant further time, ought to have issued a final notice,
cautioning the petitioners that if the petitioners fails to attend the
hearing, final order would be passed. However, the same, was not
done by the Identification Committee, leaving the petitioners
clueless. It is not in dispute that declaring the petitioners as wilful
defaulters, would entail serious consequences. It is by now settled
that fundamental right to carry on business of the party is affected
for, no additional facilities then would be granted by any bank or
financial institutions for a period of five years. Therefore, the least
the respondent could have done at the stage of the proceedings
before the Identification Committee was to have issued a final
notice to the petitioner more particularly, when there was a gap of
almost 8 months. Therefore, the action on the part of the
Identification Committee, i.e. the respondent would be in breach of
principles of natural justice.
11. Adverting to the order of the Review Committee, it is required
to be mentioned that after the decision was communicated vide
communication dated 24.09.2021, the petitioners submitted
responses dated 18.10.2021, so also 27.11.2021. One can discern
out that numerous justifications have been offered in the reply.
Against this, if one is to see the order passed by the Review
Committee, the same cannot be said to be a reasoned order. To
illustrate, in item no.3 of the tabular form the views of the Review
Committee are set out dealing with the contention of the
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petitioners. The same is reproduced herein below, which suggest
that they are incomplete and not reasoned one.
Early in 2016 our Sanctioned Sanction and disbursing the loans
limit was Rs.22/- Crore [Rs. 12 depends upon various documents
Cr as Packing Credit and Rs. submitted by borrower and after
10/- Cr. as FOBN] as per banks proper assessment disbursement
own Sanction letter/ document taken place. It is mentioned in
# AQ17/SANT/DNPFOODS/2012 borrower representation itself that
Dtd. 27/03/2012. However, the two packing credits are overdue in
bank/ bank official then in 2016 itself. The release of new
charge cheated us by not PC's instead the borrower
disbursing timely requested company itself accepted the
credit though sanctioned limit sanction dated 23.03.2016
was available to us i.e. Rs. 12/- wherein the limit of PC is reduced.
+ Rs.10/- Cr. We had made a This shows the Borrower was well
request for PC of Rs. 1.30 Cr. aware of the reduced limit of PC
However, even when we made and accepted the changes in limit.
exports nearly of Rs.5.51 Cr. Further working capital limit
Export proceeds/foreign is subject to renewal every
remittance of our business we year.
did it beginning of 2016 was
siphoned off by the bank,
thereby cheated us by
siphoning off nearly Rs.5.51/-
Cr. of Exports proceeds/ foreign
remittance earned on the other
hand not disbursing further PC.
12. Review Committee has given its view by stating that two
packing credits are overdue in 2016 itself. The reference is also
made of sanction letter dated 23.03.2016; however, it is not clear as
to whether the sanction letter dated 23.03.2016, is with respect to
what. Though Ms Abhineeta B. Chaturvedi, learned advocate, has
tried to explain the observations made in the said column, by
making submissions, referring to various documents, the oral
submissions are not reflected in the observations of the Committee.
Therefore, Mr Jaimin Dave, learned advocate is right in pointing out
that the justification provided in the replies, are not considered and
had it been considered, the decision would have changed.
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13. One more aspect which goes to the root of the grievance is
that the petitioners have raised a specific contention before the
Review Committee of Identification Committee not granting
personal hearing and the decision being against the principles of
natural justice. The Review Committee, did not accept the said
submissions. In a cryptic manner it has merely stated that the
personal hearing was through virtual mode and the petitioners could
have joined from any place of their choice. The Review Committee,
in the opinion of this Court, has not passed a reasoned order which
otherwise, is a mandate as enunciated by the Apex Court in the
case of State Bank of India v. Jah Developers Pvt. Ltd. (supra). Para
24 would be relevant and reads thus:-
"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 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 anybank/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
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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."
The Apex Court has held and observed that the order of the
first committee is to be handed over to the borrower and the
borrower can then represent against such order within a period of
fifteen days before the Review Committee. The representation can
be full representation on facts and law, if any. The Apex Court has
then held and observed that the "Review Committee must then
pass a reasoned order on such representation which must be served
on the borrower". Therefore, what is required, is passing of a
reasoned order.
14. In the present case, the communication dated 05.01.2022
accompanies the minutes of the meeting dated 24.12.2021.
Contents of the representation, has been extracted and the views of
the Committee. Such views are halfhearted, not dealing with the
representations of the petitioners in right perspective. Hence, the
order cannot be construed to be a reasoned order and therefore,
only on this limited ground, the petition deserves to be allowed.
15. In view of the above discussion, views of the Review
Committee in its meeting dated 24.12.2021 and of the Identification
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Committee offered in the meeting dated 15.09.2021, deserve to be
quashed and set aside and are hereby quashed and set aside. The
matter, is remitted to the Identification Committee. Let the
Identification Committee take steps from the stage the infraction
has crept in. Concern was also raised by Ms Abhineeta B.
Chaturvedi, learned advocate that the representation of the
petitioners are running into more than 67 pages before the Review
Committee and 32 pages before the Identification Committee, and
are only with a view to seeing that the petitioners delay the hearing
and are avoiding the declaration of wilful defaulters. To which, Mr
Jaimin R. Dave, learned advocate, states that he will not press the
said representations and shall file a fresh brief representation, which
would not be running into more than fifteen pages. Let the
representation as declared before this Court, be made within a
period of fifteen days from the date of receipt of copy of this order.
Exercise before the Identification Committee, so also Review
Committee shall be completed within a period of six months.
16. In view of the above discussion, the petition is partly allowed.
Rule is made absolute to the aforesaid extent. No order as to costs.
Sd/-
(SANGEETA K. VISHEN,J)
BINOY B PILLAI
