M/S Sanwaria Consumer Limited vs Central Bank Of India
2023 Latest Caselaw 1047 MP

                             1
 IN    THE     HIGH COURT OF MADHYA PRADESH
                    AT JABALPUR
                          BEFORE
            HON'BLE SHRI JUSTICE VISHAL DHAGAT
                 ON THE 18 th OF JANUARY, 2023
                 WRIT PETITION No. 8606 of 2022

BETWEEN:-
1.    M/S SANWARIA CONSUMER LIMITED (EARLIER
      KNOWN AS M/S SANWARIA AGRO OILS LIMITED)
      REGISTERED OFFICE: FIRST FLOOR METRO
      WALK BITTAN MARKET, BHOPAL, MP 462010
      THROUGH ITS SHARE HOLDER.

2.    MR. GULAB CHAND AGRAWAL S/O LATE SHRI R
      N AGRAWAL, AGED ABOUT 61 YEARS,
      OCCUPATION: NIL SANWARIA HOUSE. 9 TH LINE,
      ITARSI,(MADHYA      PRADESH)        461111
      HOSHANGABAD, MP

3.    MR. SATISH AGRAWAL S/O LATE SHRI R N
      AGRAWAL,    AGED    ABOUT    59    YEARS,
      OCCUPATION: NIL SANWARIA HOUSE. 9 TH LINE,
      ITARSI   (MADHYA      PRADESH)      461111,
      HOSHANGABAD, MP

4.    MR. ASHOK AGRAWAL S/O LATE SHRI R N
      AGRAWAL,    AGED    ABOUT    57    YEARS,
      OCCUPATION: NIL SANWARIA HOUSE. 9 TH LINE,
      ITARSI     (MADHYA        PRADESH) 461111,
      HOSHANGABAD, MP

5.    GEETA DEVI AGRAWAL W/O LATE SHRI R N
      AGRAWAL, AGED ABOUT 78 YEARS, SANWARIA
      HOUSE. 9 TH LINE (MADHYA PRADESH) 461111,
      HOSHANGABAD, MP

                                                    .....PETITIONERS
(BY SHRI SATISH AGRAWAL - ADVOCATE)

AND
1.    CENTRAL        BANK OF   INDIA,    BHOPAL
      REGION/BHOPAL ZONE, ZONAL OFFICE 9, ARERA
      HILLS BHOPAL, 462011 (MADHYA PRADESH)
      THROUGH THE DEPUTY GENERAL MANAGER
      (DGM)/ SENIOR REGIONAL MANAGER
                                    2

2.    WILLFUL DEFAULTER COMMITTEE, CENTRAL
      BANK OF INDIA BHOPAL REGION/BHOPAL ZONE,
      ZONAL OFFICE 9, ARERA HILLS BHOPAL, 462011
      (MADHYA PRADESH) THROUGH THE DEPUTY
      GENERAL MANAGER (DGM)/ SENIOR REGIONAL
      MANAGER

3.    WILLFUL    DEFAULTER REVIEW COMMITTEE,
      CENTRAL      BANK    OF     INDIA, BHOPAL
      REGION/BHOPAL ZONE, ZONAL OFFICE 9, ARERA
      HILLS BHOPAL, 462011 (MADHYA PRADESH)
      THROUGH THE DEPUTY GENERAL MANAGER
      (DGM)/ SENIOR REGIONAL MANAGER

                                                              .....RESPONDENTS
(BY SHRI ABHINAV SUNIL KHERDIKAR - ADVOCATE FOR RESPONDENT
NO.1)

      Th is petition coming on for hearing this day, th e court passed the

following:
                                    ORDER

Petitioners have filed this writ petition under Article 226 of the Constitution of India challenging orders dated 12.08.2021, 08.10.2021, 22.03.2022 and 04.08.2021 and prayer is also made for quashing of said orders.

2. By communication dated 12.08.2021, petitioners were directed for repayment of overdue amount of M/s Sanwaria Agro Oils Limited (Company changed to Sanwaria Consumer Limited). It was also informed that Bank may classify petitioners as willful defaulter. By said communication, petitioners were declared as willful defaulter. It is also mentioned in said communication that there is no provision for review as envisaged by RBI. Further by communication dated 22.03.2022, petitioners were declared as willful defaulter. By order dated 12.08.2021, name of petitioners was included in list of willful defaulter and same was forwarded to RBI because unit has defaulted in meeting, repayment obligation to lander and fund has not been utilized for purpose of finance for which loan was availed but funds has been diverted.

Company has also siphoned off funds.

3. Learned counsel appearing for petitioners submitted that respondents had not complied with Master Circular of RBI dated 01.07.2015 for declaring petitioners as willful defaulter. It is submitted that mechanism for identification of willful defaulter is provided in Clause-3 of said Master Circular. Respondents in violation of said circular did not examine the evidence. Petitioners were not issued show cause notice and evidence available against petitioners was not brought to their notice, therefore, appropriate opportunity of hearing was not provided to them and further order passed by Committee should have been reviewed by another Committee headed by Chairman and Managing Director or by other independent Directors, non-Executive Directors of the Bank. Order of willful defaulter will become final after it has been confirmed by Review Committee. It is submitted that respondents has refused to consider the representation of petitioners as per communication dated 08.10.2021 stating therein that there is no provision for review envisaged by RBI. Procedure adopted for identification and declaration of petitioner as willful defaulter is violation of Master Circular of 2015. In view of same, impugned orders be set aside passed by respondents-Bank as same are contrary to Master Circular dated 01.07.2015 issued by RBI.

4. Learned counsel appearing for respondents has filed reply and also an

application IA No.15842/2022 for taking additional document on record.

5. IA No.15842/2022 is allowed. Documents are taken on record.

6. It is submitted by counsel for respondents that minutes of meeting is placed on record as Ex.D/1. Ex.D/1 shows that evidence was considered by Committee for identification of petitioners as willful defaulter. Petitioners were

identified as willful defaulter as petitioners failed to meet payment/repayment obligation and further had not utilized the funds for purpose for which finance was availed and had diverted the funds for other purpose. Second reason given for identification of petitioner as willful defaulter, was that funds were siphoned off and it was not utilized for specific purpose for which finance was availed nor funds were available in the unit in form of other assets. It is submitted that minutes of meeting shows that as per Clause-3(A) of mechanism for identification of willful defaulter, has been complied with. It is further submitted that show cause notice was issued to petitioners on 04.07.2020. Petitioners submitted their reply on 09.07.2020 and Bank's counsel decided the representation on 16.07.2020. Petitioners had submitted representation on 08.08.2020 and they were apprised to appear before Review Committee. Show cause notice and copy of proceedings were provided to petitioner. Review Committee considered representation and communicated the outcome to petitioners on 08.10.2021. In view of aforesaid facts, Clause-3(B) and 3(C) have also been complied with and no irregularities or fault of procedure can be found while arriving at a decision by respondents. Petitioners were declared willful defaulter in accordance with RBI Master Circular dated 01.07.2015. Respondents have placed reliance on judgment passed by State Bank of India Vs. Jah Developers Private Limited and Others reported in (2019) 6 SCC

787. On basis of aforesaid arguments, counsel appearing for respondents prays for dismissal of writ petition.

7. Heard the counsel for petitioners as well as respondents.

8. Apex Court in case of State Bank of India Vs. Jah Developers Private Limited and Others (supra) in paragraph-24 has held as under:-

"24. ....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 willful defaulter, and a promoter/director of a willful 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."

9. Mechanism of identification of willful defaulter and declaration is provided in Master Circular dated 01.07.2015 of RBI.

10. On going though the documents which have been filed along with reply and writ petition, it is found that Committee has taken into consideration

the evidence available on record for identification of petitioners as willful defaulter. Show cause notice was issued to petitioners on 04.07.2020. On going through the said notice, it is found that evidence, facts and other material which is available against petitioners have not been referred to in the notice and only reasons are given for identification of petitioners as willful defaulter. In show cause notice evidence and facts which were considered by Committee for identification was not supplied to petitioners. Since, material available with the Bank and facts relied upon by Bank for identification of petitioner as willful defaulter has not been supplied to petitioners, therefore, petitioners do not have adequate and proper opportunity of hearing. Mechanism provided by RBI in Master Circular dated 01.07.2015 in Clause-3(B) has not been followed.

11. Bank considered representation of petitioners through its Advocate and same was communicated on 16.07.2022 to petitioners. Representation of petitioners was rejected on ground that powers for identification of a person or company as willful defaulter is administrative in nature. Lawyer has no right to

appear before said Committee and reliance was placed on State Bank of India (supra) and representation was rejected by Advocate of Bank. Representation of petitioners as per Clasue-3(B) is to be considered by Committee and not by an Advocate, therefore, mechanism under Clause-3(B) was violated.

12. On going through communication dated 08.10.2021, it is found that in paragraph-16 it is mentioned by respondents that there is no provision of review as envisaged by RBI, therefore, decision on representation is to be treated as a letter and not a decision in review. Further considering the minutes of meeting dated 09.03.2022, it is found that 14 accounts were submitted for review to Review Committee of willful defaulters which included the case of petitioners company i.e. M/s Sanwaria Consumer Limited but Review Committee has only

considered the case of seven companies for review i.e. (i) M/s Unity Infra Projects Limited, (ii) M/s Transstroy India Limited, (iii) M/s Indu Projects Limited (iv) M/s Sri Rajarajeswari Raw and Boiled Rice Mill, (v) M/s Rialto Exim Private Limited, (vi) M/s S L Consumer Products Limited, (vii) M/s Siddhi Industries.

13. Case of petitioners for review was not considered by Review Committee. In view of aforesaid facts and circumstances of the case, there is violation of RBI Master Circular dated 01.07.2015.

14. Orders dated 12.08.2021, 08.10.2021, 22.03.2022 and 04.08.2021, are quashed.

15. Respondents-Bank is directed to issue show cause notice to petitioners along with material which was considered in minutes of meeting for identification of petitioners as willful defaulter. Thereafter, petitioners' representation shall be considered by the Committee in accordance with Master Circular of RBI dated 01.07.2015 and also opportunity of personal hearing be provided to Director, Borrower or Promoter before Committee and further order passed by Committee shall be supplied to petitioner and representation, if any, be considered by Review Committee in accordance with Master Circular of RBI dated 01.07.2015 and procedure as envisaged in Jah Developers (supra).

16. With aforesaid direction, writ petition filed by petitioner is disposed of.

(VISHAL DHAGAT) JUDGE shabana SHABANA ANSARI Digitally signed by SHABANA ANSARI DN: c=IN, o=HIGH COURT OF MADHYA PRADESH, ou=HIGH COURT OF MADHYA PRADESH, postalCode=482001, st=Madhya Pradesh, 2.5.4.20=4bc06f2e678b75148b60bb7947ee9ffc5ed27ef1f43a5d4d93d2d13dda510735, pseudonym=B646F86821C200C9792A53984F1D0790135DE39A, serialNumber=8A5E15A33816E651B4DB52BF3225281EF6C191F68E5EBE90A6E101CF42422711, cn=SHABANA ANSARI Date: 2023.01.24 10:30:13 +05'30'