Madhya Pradesh High Court
Mr. Gulab Agrawal vs Idbi Bank Limited on 17 May, 2025
Author: Vivek Agarwal
Bench: Vivek Agarwal
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IN THE HIGH COURT OF MADHYA PRADESH
AT JABALPUR
BEFORE
HON'BLE SHRI JUSTICE VIVEK AGARWAL
ON THE 17th OF MAY, 2025
WRIT PETITION No. 25641 of 2021
MR. GULAB AGRAWAL AND OTHERS
Versus
IDBI BANK LIMITED AND OTHERS
Appearance:
Shri Satish Agrawal - Advocate for the petitioners.
Shri Bhavil Pandey - Advocate for respondent no. 1.
.......................................................................................................................................................
Reserved on :- 01/04/2025
Pronounced on :- 17/05/2025
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ORDER
This writ petition is filed being aggrieved of communication dated
23/08/2021 sent by the first respondent informing that second respondent has
passed the order dated 21/08/2021 to declare the petitioners as wilful
defaulter.
2. Petitioner is also challenging the communication dated 30/09/2021
issued by the first respondent along with the order dated 30/09/2021 passed
by the third respondent approving the order dated 21/08/2021 declaring the
petitioners to be wilful defaulters.
3. Learned counsel for the petitioners submits that all the actions of the
respondents are arbitrary, illegal and amounts to denying fair representation
to the petitioners before Wilful Default Committee, the Review Committee.
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4. It is submitted that M/s Sanwaria Consumer Limited is a company
incorporated with the object of manufacturing and trading of edible oil etc.
It is engaged in manufacturing of Soya De-oiled Cake (DOC), solvent oil
and refined oil, Soya lecithin and Acid oil.
5. Petitioner nos. 1 to 3 are Directors of Sanwaria Consumer Limited and
petitioner no. 4 is a Guarantor to the said company.
6. Shri Satish Agrawal, learned counsel for the petitioners submits that
allegation on the petitioners is that they have defaulted in making its
payment and repayment obligations to the lender and diverted financial
assistance taken by IDBI. It is submitted that one of the Directors namely
Shri Anil Agrawal died on 29/05/2021, therefore, he is not made a party.
7. Shri Satish Agrawal submits that chronology of events is that petitioners
were given a show-cause notice dated 7/05/2021 alleging diversion of funds
without there being any evidence or documents supporting such claim.
8. On 24/05/2021, petitioners submitted a reply and raised several
objections to oppose the show-cause notice. They demanded documents
relied on by the respondent Wilful Defaulters Committee (WDC) and
evidence to classify the petitioners as wilful defaulters. They also demanded
personal hearing in terms of guidelines of RBI dated 1/07/2015.
9. Respondents rejected all the contentions raised in the representation
dated 24/05/2021 vide communication dated 14/06/2021 and provided some
extracts of Forensic Audit report.
10. On 25/06/2021, petitioners protested against the rejection of their
representation dated 24/05/2021 and submitted that representation is by an
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officer not competent in law to do so.
11. Vide communication dated 6/07/2021, first respondent rejected the
protest filed by the petitioners alleging that personal hearing was not
attended. Thereafter, vide communication dated 17/07/2021, first respondent
informed that hearing is scheduled on 29/07/2021. Petitioners sought time
due to demise of one of their Directors in view of Covid-19 but it is
submitted that vide communication dated 23/08/2021, first respondent
communicated the order dated 21/08/2021 passed by the second respondent
and directed the petitioners to submit representation before the review
committee within fifteen days.
12. On 2/09/2021, petitioners submitted their representation before the
review committee. Vide communication dated 30/09/2021, first respondent
communicated the order passed by the third respondent approving the order
dated 21/08/2021 passed by the second respondent.
13. Thus, it is submitted that whole proceedings were fraught with lack of
transparency.
14. Learned counsel for the petitioners submits that in terms of the
judgment of the Supreme Court in State Bank of India Vs. Jah Developers
Private Limited and others (2019) 6 SCC 787, the Hon'ble Supreme Court
has held that firstly, the In-House Committees are not vested with any
judicial power at all. Their powers being administrative powers given to In-
House Committees to gather facts and then arrive at a result and secondly, it
cannot be said that the circulars in any manner vests the State's judicial
power (i.e. the power to decide a lis between the parties after gathering
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evidence and applying the law, as a result of which, a binding decision is
reached) in such In-House Committees.
15. It is thus submitted that the Supreme Court has held that RBI Master
Circular on Wilful Defaulters i.e. Revised Circular dated 1/07/2015 is to be
read with RBI Circular dated 1/07/2013. It is pointed out that mechanism for
identification/declaration of wilful defaulters as provided in Revised Circular
dated 1/07/2015 is to necessarily incorporate the steps from the earlier
Master Circular dated 1/07/2013.
16. It is submitted that Article 19(1)(g) of the Constitution is attracted in
the facts, 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.
Further, given the drastic consequences involved, the Revised Circular, being
in public interest, must be construed reasonably. Thus, it is held that as per
para 3 of the Master Circular dated 1/07/2013, permitted the borrower, to
make a representation within fifteen days of the preliminary decision of the
First Committee. It is held that first and foremost, the Committee comprised
of the Executive Director and two other senior officials, being the First
Committee, after following para 3(b) of the revised RBI circular dated
1/07/2015.
17. The order passed in terms of this clause, should be given to the
borrower as soon as it is made. The borrower can then represent against such
order within a period of fifteen 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
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which must be then served on the borrower.
18. Thus, it is submitted that there are twin requirements incorporated in
the Master Circular dated 1/07/2013 i.e. granting a hearing before the
grievance redressal committee headed by the Chairman/Managing Director
and also provided that the borrower should be provided fifteen days time of
making a representation against the preliminary decision of the First
Committee. It is submitted that these conditions are not fulfilled and,
therefore, the decision of the committee is defective.
19. Shri Satish Agrawal, learned counsel for the petitioners places reliance
on the judgment of the Delhi High Court in Ratul Puri Vs. Punjab National
Bank 2024 SCC Online Del 1412 and submits that in para 83 and 84, the
Delhi High Court has mentioned as under :-
"83. The Review Committee in the impugned order has recorded
that the forensic auditor concluded that the lease agreements
between MBIL and MBSL were created for diverting banks funds.
The learned Senior Counsel for the petitioner has taken this Court
through the forensic audit report to show that no such observation
is made in the forensic audit report. The Review Committee has
attempted to add words to the forensic auditor, which is non-
existent in the report.
84. When the petitioner made the aforesaid submissions before
the Review Committee, the Review Committee, instead of dealing
with each of them on merits, again rejected them by relying on the
observations made in the forensic audit report. Thus, there appears
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to be no independent application of mind by the respondent
Bank."
20. Thus, it is submitted that when complete forensic report was not
provided to the petitioners and only extracts were given, then no reliance can
be placed on such report. It is further submitted that if the findings of the
First Review Committee have not correctly referred to Forensic Audit
report, then it cannot be taken into consideration.
21. Reliance is also placed on the judgment of the Calcutta High Court in
Suresh Kumar Patni and others Vs. Punjab National Bank and another AIR
ONLINE 2020 CAL 678 , referring to this judgment, it is pointed out that in
paragraphs 48, 49 and 50, it is held that mere reference to the forensic report
in the orders of the committees is not enough, in the absence of any
opportunity of rebuttal being given to the petitioners, as no copy of the
report was served on the petitioners at any point of time.
22. Thus, it is submitted that non-service of the forensic report on the
petitioners at the relevant juncture assumes fatal propositions, vitiating the
sanctity and legality of the orders of both the committees.
23. Reliance is also placed on the judgment of the High Court of Bombay
i n Finolex Industries Limited and another Vs. Reserve Bank of India and
others 2011 SCC Online Bom 1781 wherein placing reliance on paragraphs
41 and 42, it is held that "consistent with the principles of natural justice, it
would be impermissible to accept the submission which has been urged on
behalf of the third respondent that the minutes of the meeting of the Willful
Defaulters' Committee of 18 March 2010 were not required to be submitted
to the borrower."
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24. It is submitted that the Bombay High Court has held that the minutes
which are relied upon in the notice to the show-cause to the borrower should
therefore have been disclosed consistent with the principles of natural justice
and thus, it is submitted that non-disclosure will vitiate the proceedings.
25. It is submitted that the decision of the Supreme Court in Kotak
Mahindra Bank Limited Vs. Hindustan National Glass & Industries Limited
and others (2013)7 SCC 369 has affirmed the decision of the Bombay High
Court in Finolex Industries Limited (supra).
26. Reliance is also placed on the decision of the Kerala High Court in
Ravis Exports and others Vs. Union of India, Represented by its Secretary
and others 2022 SCC Online Ker 2488. Referring to para 20 of the said
judgment, it is submitted that "In the absence of serving the order of COE on
the petitioners, there could never have been a declaration of the petitioners as
wilful defaulters since the Master Circular as directed by the Supreme Court
contemplates declaration as wilful defaulter only after serving the copy of
the order of COE and the consequent decision of the Review Committee."
27. Thus, it is submitted that in the absence of the compliance, impugned
orders cannot be sustained in the eyes of law.
28. Reliance is also placed on the judgment of the Bombay High Court in
Milind Patel Vs. Union Bank of India and others 2024 SCC Online Bom
745 . Referring to para 22 and 23, it is submitted that the Bombay High
Court has noted that "It is now trite law that in proceedings that can inflict
serious civil consequences on any citizen, the noticee should be able to
appreciate the case made out against him so that he may deal with the
allegations to the best of his ability. The only means of doing so is to
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provide detailed proper notice of the reasons for having formed a prima facie
view when calling upon the noticee to show cause why such prima facie
view must not translate into a final view. Such an approach would enable the
noticee to understand in a cogent manner the case that he is supposed to
meet."
29. Shri Satish Agrawal submits that it is evident from Annexure P-4 dated
June 14th, 2021 that the only relevant objects of forensic audit report was
given and not complete forensic report, therefore, injustice has been done
and there is violation of the principles of natural justice calling for
interference.
30. It is also submitted that communications made by Deputy General
Manager or any officer who was not forming part of the committee will not
be relevant because there is no provision in the RBI circular for transmission
of information through a delegatee.
31. Shri Bhavil Pandey, learned counsel for respondent no. 1 Bank submits
that all the allegations made by the petitioners are wild and baseless. It is a
feeble attempt to wriggle out of the clutches of the proceedings which have
been undertaken in just and legal manner to declare the petitioners as wilful
defaulter. It is pointed out that Annexure R-1 dated 5/01/2019 deals with
constitution of Wilful Defaulter's Committee (WDC) and Non-Cooperative
Borrower's Committee (NCBC). The committee constitutes the Deputy
Managing Director handling corporate as Chairman and DMD handling retail
vertical as Alternate Chairman. It also constitutes of the Executive Director-
LCG as Member and provides for Executive Director-MCG as Alternate
Member. Third Member is ED-NMG or in the Alternate ED-Compliance.
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The Quorum will be one DMD and two EDs as specified in RBI Master
Circular.
32. It is pointed out that the scope of work of WDC is to consider all
proposals regarding identifying/declaring the Company/Directors/Guarantors
as Wilful Defaulters. It is submitted that vide Annexure P-9 which is the
notice dated 21st August, 2021 in regard to declaration of
Directors/Promoters/Guarantors of Sanwaria Consumers Limited as Wilful
Defaulters and opportunity for representation there against, it is evident that
it is signed by DMD, ED-LCG and ED-NMG and, therefore, requirements of
constitution of WDC is properly made.
33. It is also submitted that the committee clearly noted all the incidences
of wilful default and the communication was merely made by the Deputy
General Manager NPA management group. Making of communication by
any officer of the bank, once a decision was taken by the properly constituted
WDC cannot be said to have vitiated because it is not the requirement of law
that the committee should send a communication on its own.
34. It is also submitted that the petitioners were given clear fifteen days
time to send their further submission/representation in writing for
consideration by the review committee on wilful defaulters.
35. It is further submitted that Annexure R-2 considered petitioner's
financial position, defaults and noted in point no. 2 and 3 the aspect of
diversion of funds, routing of funds through other bank other than lender
bank or members of lender consortium without prior permission of the
lender. It also considered investment in other companies by way of
acquiring equities, debt instruments without approval of lenders.
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36. Thus, it is noted that since HDFC was not part of the seven bank
consortium, the allegation of routing money, maintaining bank accounts
outside the consortium stood proved. Petitioners also acquired the company
without the permission of the lenders and on said basis, a show-cause notice
was issued.
37. Shri Bhavil Pandey further submits that in Annexure P-3, reply
furnished by learned counsel for the petitioners, there is an admission of
holding an account outside the consortium. It is pointed out that in para 78
of this reply, there is an admission before FAR was given that "Since the
freezing of account by Punjab National Bank on 6/08/2019, SCL has
requested number of times to Punjab National Bank and other consortium
member banks to allow SCL "Holding on Account" to run the business and
to keep the company as going concern but unfortunately no bank or any
consortium member banks allowed SCL to run any bank account without
understanding the fact that the business of the company became standstill
due to freezing of account first by PNB then all consortium member Banks.
It means that SCL was forced to make transaction through a Bank Account,
out of consortium to run the business and keep the company as a going
concern. SCL has written a letter to this effect also (letter dated 09.11.2019
attached)." It is pointed out in para 79 that "maintaining of this current
account was within the knowledge of Punjab National Bank and other
consortium member banks, they had written several letters to HDFC Bank to
close account."
38. Similarly, in para 82, it is accepted that petitioners had acquired
Sawaria Energy Limited (SEL) and then in para 85 accepts the knowledge of
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observations of the forensic auditor by saying that
"85. The company has not diverted/siphoned any Bank funds and
has always used fund for manufacturing/trading purposes, which
can be duly verified from the available records and infact forensic
auditor has verified and checked all the transactions and use of
funds."
39. It is submitted that Annexure P-4 page 214 gives the list of the Banks
namely Axis Bank Bhopal, HDFC Bank Bhopal, HDFC Bank Ltd. Itarsi,
IndusInd Bank Bhopal, Ing Vysya Bank and Yes Bank Itarsi where the funds
were diverted and accounts were maintained outside the consortium. From
page 215 to 217 enclosed with the petition are the copy of the invoices
showing the petitioner company was using HDFC account for payment of
invoices.
40. It is submitted that the allegation of representation being not considered
is incorrect and first opportunity was given on 30/06/2021 for personal
hearing. It is clearly mentioned in the communication Annexure P-4 dated
June 14th, 2021 "Since you have sought personal hearing in the matter, bank
is aggreable to give you personal hearing on June 30, 2021. Accordingly, if
you would like to avail the said opportunity, you may remain present in
person at the venues :: at 10:30 A.M. To avail this facility you are requested
to submit your self-attested copy of Aadhar Card, Pan Card or Passport to
confirm your identity prior to attending the proceedings and position in the
Company. The details can be submitted to :: on or before June 28, 2021
(10:00 A.M) along with your email ids as well as mobile number on which
you want to receive the link of aforementioned meeting.
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41. The second opportunity was granted vide communication dated July 6,
2021 in terms of petitioners' representation dated June 25, 2021 asking the
petitioners to appear for personal hearing on July 15, 2021.
42. Annexure P-7 is the communication dated July 17, 2021 offering third
and final opportunity for personal hearing before the Wilful Defaulters'
Committee asking the petitioners to appear on July 29, 2021. Since,
petitioners did not appear, thus committee passed the order. Since, the show-
cause notice was issued at the instance of the qualified committee and it was
merely dispatched by the DGM, it will not vitiate the notice.
43. It is pointed out that vide Annexure P-9, the Wilful Defaulter's
Committee (WDC) in para 5 noted its deliberations which are as under :-
5. The Committee deliberated on the memorandum submitted by
the Dealing Group in its meeting held on 29/07/2021 and noted the
following:
The Promoters/Directors/Guarantors of the Company could not provide
satisfactory reply of the wilful default charges in their reply dated May
24, 2021.
The Promoters/Directors/Guarantors of Sanwaria Consumers Limited
[Shri Gulab Chand Agrawal, Shri Satish Kumar Agrawal, Shri Ashok
Agrawal and Smt. Geeta Devi Agrawal] did not appear for personal
hearing despite providing three opportunities of personal hearing on
30/06/2021, 15/07/2021 and 29/07/2021 respectively.
Sanwaria Consumers Limited was admitted in to NCLT. Hence, it was
excluded from Wilful Defaulter declaration proceedings.
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Shri Anil Kumar Agrawal, Promoter/Director/Guarantor of SCL, passed
away on 29/05/2021. Hence, he may be excluded from declaring as
Wilful Defaulter.
Based on un-audited results as on September 30, 2019, SCL has
registered revenue of Rs. 2239.43 crore from operations. However,
SCL has stopped routing transactions through PNB led consortium,
after lead bank's query about debtors anomalies to the extent of Rs.239
crore as on June 30, 2019 and reduction in DP to the tune of Rs.164.59
crore.
During joint visit of IDBI & SBI to the company's plant at Mandideep
on September 25, 2019, it was noticed by the officers that in few
invoices, HDFC Bank's account number [a non lender bank] was
provided for payment for dispatches from the plant.
It was mentioned in the Forensic Audit Report that SCL has been
maintaining 8 current accounts with outside consortium banks and in
some of these accounts, debtors have been realized and payments were
made directly to suppliers. As per the statement of account from HDFC
Bank provided in the Forensic Audit Report for the period Aug-Oct
2019, it was observed that total debit credit summation during that
period was about Rs.29.58 crore.
The borrower company had sold six Wind Electric Generator having
WDV of Rs.31.07 crore in FY 2013-14 to its group company namely
Sanwaria Energy Limited (SEL). In consideration of the same, 3.11
crore shares of Rs.10 each were allotted to Sanwaria Consumers Ltd.
(SCL) as a result of which the SEL became the wholly owned
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subsidiary of SCL. This was done without the approval of lenders.
44. Thus, it is pointed out that there is complete deliberation on the
submissions made by the petitioners and further vide Annexure P-11,
grievance of the petitioners was considered in totality by the Wilful
Defaulter's Committee in its meeting held on September 16, 2021 at 11:00
A.M. It has considered replies/written representation dated September 2,
2019 received on September 13, 2021 from Promoters/Directors/Guarantors
of the company and also considered the observations of WDRC. It also
noted that petitioners while filing their representation before WDRC had not
filed any documents.
45. It it also submitted that this High Court while dealing with Writ
Petition No. 13194/2022 M/s RiteBanc Green Agro Solutions Pvt. Ltd. and
others Vs. Central Bank of India in para 76 has dealt with the issue of show-
cause notice and referring to the judgment of Calcutta High Court in Union
Bank of India and others Vs. Sudhir Kumar Patodia and others 2020 SCC
Online Cal 3259 has held that the omission referred to the decision taken by
the Committee neither invalidates the show-cause notice nor it is that only
because the master circular does not express to provide for delegation of
power to issue the show-cause notice to any other Officer of the Bank.
Therefore, in the absence of any prejudice being shown to the petitioners,
judgment of the Hon'ble Supreme Court in Central Bank of India Vs.
Ravindra and others (2002) 1 SCC 367 will not have any assistance to them
so to assail the proceedings undertaken by the respondents merely on the
ground that notice was issued by any subordinate officer. In para 84, this
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court had an occasion to deal with the objections contained in the Master
Circular and it is held by this court that mere some technicalities will not be
sufficient to defeat the purpose and set aside the decision of the committee
which otherwise does not suffer from any vice of malafides or arbitrariness.
46. It is pointed out that the judgment in the case of Finolex Industries
Limited (supra) will not be applicable because it was dealing with derivative
transactions which is not the case in present. It is also pointed out that in the
case of Finolex Industries Limited (supra), the Bombay High Court observed
in para 37 that Bank had refused to supply the material but it is not the case
in present. It is in para 46, 47 and 48, the issue of Advocates not given a
hearing is dealt with and also that no personal hearing was given but in the
present case, that too is not available.
47. In the case of Jagdish Prasad Saboo Vs. IDBI Bank Limited decided by
the High Court of Gujarat at Ahmedabad in R/Special Civil Application No.
19261/2022 vide order dated 27/03/2023, it is held that when the show-cause
notice itself incorporates the details of diversion, routing and siphoning of
funds by the petitioner and the petitioner accordingly responded to the
aforesaid show-cause notice, then petitioner was again given opportunity of
explanation and he was informed that the respondent does not concur with
the stand taken by him, then the Bank having forwarded the report of WDIC
declaring the petitioner as a Wilful Defaulter. Besides, petitioner was also
afforded a personal hearing, then mere non-supply of forensic science report
in toto will not adversely affect the case of the Bank establishment when the
Wilful Defaulter was aware about all the two irregularities levelled against
him.
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48. It is submitted that since facts are similar, no indulgence is called for in
this behalf.
49. Reliance is also placed on the judgment of the High Court of Gujarat at
Ahmedabad in R/Letters Patent Appeal No. 596/2022 in R/Special Civil
Application No. 2518/2022 Kirtilal RavchandBhai Sanghavi Vs. Reserve
Bank of India that if the borrower was aware of the alleged irregularities,
then non-supply of forensic audit report cannot be said to have caused
prejudice. In para 23, the Gujarat High Court observed that "Firstly, the
copies of the audit reports were very much available with the petitioners and
petitioners themselves delved upon these reports in the reply submitted to the
show cause notice and such bogie of violation of principles of natural justice
raised by the petitioners on the ground of non-furnishing of copies referred
to in the impugned order has resulted in great prejudice is liable to be
considered only for the purpose of outright rejection and we do so. It is
observed that when petitioners had themselves delved with diversion of
funds and opening of account in another bank which was not part of the
consortium, then no indulgence can be shown.
50. It is submitted that it is also a settled principle of law that the matter
which was left to the experts should be left to them as courts are not sitting
as an appellate authority.
51. At this stage, Shri Satish Agrawal makes a submission that Annexure
R-3 says that the minutes of the First Committee are affirmed but vide
Annexure P-11, details are given which means that Annexure R-3 is forged.
This argument raised by Shri Satish Agrawal needs to be discarded at the
threshold because it is outrageous. Fact of the matter is that Annexure P-11
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contains details whereas Annexure R-3 is the summary. Therefore, both are
co-relatable.
52. After having heard learned counsel for the parties and going through
the record, the issues which have been raised by learned counsel for the
petitioners are :-
(i). That notice issued by WDC was not served by WDC but by
the subordinate officer to whom, the authority of serving notice
has not delegated.
(ii). The second issue is that Forensic Audit Report was not
made available to the petitioners.
(iii). Thirdly, petitioners were not given proper opportunity of
hearing.
53. Therefore, it is submitted that great prejudice has been caused to the
petitioners and a prayer is made to quash the notices initiating proceedings to
declare the petitioners as Wilful Defaulter and, thereafter, the decision of the
review committee.
54. As far as first aspect is concerned, this court had an occasion to deal
with the aspect of service of notice in W.P. No. 13194/2022 M/s RiteBanc
Green Agro Solutions Pvt. Ltd. (supra).
55. This court had an occasion to deal with this very specific aspect and
having noted the judgment of the Calcutta High Court in Sudhir Kumar
Patodia (supra), in para 17 to 20, it is held as under :-
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"17. Having regard to the scheme enshrined in the master circular
as well as the object and purpose which is sought to be achieved
by enforcement of the provisions thereof, in our considered view,
the omission of the appellant No. 2 to refer to the decision taken
by the committee neither invalidates the show-cause notice nor is
it bad only because the master circular does not expressly provide
for delegation of power to issue the show-cause notice to any
other officer of the bank.
18. There can be no doubt that the master circular has been
introduced to check siphoning of public funds by borrowers who,
in the opinion of the lender bank, despite having resources to
discharge their debt, neglect or omit to do so with a view to
defraud the lender. While it is true that declaring a borrower as a
willful defaulter may result in evil/civil consequences, there are
adequate safeguards provided in the master circular which are
conceived in the interest of the borrower.
19. In paragraph 3 of the master circular, one would find a
reference to the pronoun 'it'. Such pronoun ordinarily has to be
read keeping in mind the noun preceding it, i.e., the Committee.
The learned Judge literally read the provision and held that the
identification committee is the sole repository of power to issue a
show-cause notice. As can be discerned from the master circular, it
is the primary duty of the identification committee to identify
willful defaulters and power in that behalf has been conferred on
it. If indeed the power of the identification committee to identify
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and then declare a borrower as a willful defaulter is delegated to
some officer, such action would incur the wrath of the Court and
not withstand judicial scrutiny.
20. However, in the instant case, the power has been exercised by
the identification committee to prima facie identify the company
as a willful defaulter and such committee also retained the power
to consider the objection that might be raised by the company
and/or its directors as to why it/they should not be declared as
willful defaulters, prior to a final order being made in this behalf
in accordance with the master circular by the review committee.
What the identification committee has delegated to the regional
office of the appellant No. 1 is the issuance of the show-cause
notice indicating the grounds on which the identification
committee, prima facie, is of the view that there has been an
occasion of willful default on the part of the company and/or its
directors."
56. Thus, the issue of issuance of notice in the hands of a person not
constituting the WDC stands concluded and admittedly, since it has not
caused prejudice to the case of the petitioners, it cannot be used to defeat the
notices etc. in the name of technicalities.
57. As far as second issue is concerned, as held by the Hon'ble Gujarat
High Court at Kirtilal RavchandBhai Sanghavi (supra) and Jagdish Prasad
Saboo (supra) infact admitted position is that petitioners were aware of the
contents of the forensic audit report and they had complete knowledge about
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the findings recorded in forensic audit report. Rather, petitioners admitted
both the aspects of maintenance of accounts with banks outside the
consortium and also admitted acquiring of a company without the consent of
financial consortium.
58. Therefore, once these facts are admitted, then only supplying selective
portions of forensic audit report dealing with the petitioners cannot be said to
have caused prejudice to their interest or that principles of natural justice
have been violated. This principle is now well settled as held by the Gujarat
High Court in Jagdish Prasad Saboo (supra) and Kirtilal RavchandBhai
Sanghavi (supra) which has been crystallized in final.
59. In the case of Suresh Kumar Patni and others Vs. State Bank of India,
Industrial Finance Branch and another AIR 2021 Cal 249 , the Calcutta High
Court has held that :-
22. A Writ Court cannot go into weigh the sufficiency of reasons
given by an administrative or quasi judicial authority. What is
seen, is whether there are some reasons, however small, in support
of the findings. This is so as it is only a bank and the lender, given
their special relations that can assess whether any default on the
part of a borrower is wilful or not. A writ Court does not possess
such expertise.
60. The Calcutta High Court in Suresh Kumar Patni (supra) further
observed that "the writ petitioners have not been able to demonstrate as to
how they have been prejudiced by any of the alleged acts or omissions on
the part of the respondent. Assuming for the sake of argument that there is
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some infraction of procedure on the part of the bank (although the Court
does not find any) it is now well settled that every infraction of the principle
of natural justice would not ipso facto vitiate proceedings. The petitioner
must be able to demonstrate clearly the prejudice suffered by the reason of
such infraction. Hence even if one accepts the submission of Mr. Saha that
there has been some minor infractions of natural justice or procedure, no
prejudice appears to have been caused to the petitioners, by such infraction."
61. In the case of Jah Developers Private Limited (supra), the Supreme
Court has observed that "there is no right to be represented by a lawyer in the
in-house proceedings contained in Para 3 of the Revised Circular dated 1-7-
2015, as it is clear that the events of wilful default as mentioned in Para 2.1.3
would only relate to the individual facts of each case." The Supreme Court
further observed that "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."
62. Thus, it has been concluded that if the procedure provided in the
Master Circular is followed, then that will be sufficient compliance and it
does not call for any interference.
63. The High Court of Judicature at Bombay in W.P. No. 1825/2019 in
Nitin S/o Mansukhlal Shah and others Vs. IDBI Bank Limited and others
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held that "Like every decision of the experts, even in this case, the
parameters for interference therewith in writ jurisdiction are too well-settled
to require any reiteration. The decision ought to be demonstrably
unreasonable and perverse. The decision ought to be tested on the
touchstone that no reasonable person in the position of the lender, the first
respondent in this case, would arrive at the conclusion that the party before it
is a wilful defaulter. That the default is not wilful has to be established by
those who are charged with the same. The explanation in this case is not
trustworthy, honest and reliable."
64. In the case of Adarsh Jhunjhunjwala Vs. State Bank of India and
another 2021 SCC Online Cal 3351, the High Court of Calcutta has held that
the "the willful defaulter proceedings only aims at dissemination of
information. The bank's responsibility to institute criminal proceedings
would also be interfered with if the arguments of the petitioners are
accepted." It is held that the "the object and purpose of the Master Circular
for willful default is dissemination credit information of the willful defaulter
so that other lenders are cautioned and do not lend any further money. It is
also aim 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. Like a moratorium is under the IBC is not aimed at
letting a wrong doer to get away as held by the Supreme Court in the case
of Manish Kumar v. Union of India reported in 2021 SCC OnLine SC 30."
65. Thus, it is evident that the purpose of proceedings to declare a person
as Wilful Defaulter is to prevent and save loss of further public money.
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66. The Calcutta High Court in the case of Sandip Kumar Bajaj and
another Vs. State Bank of India and another 2020 SCC Online Cal 1659 held
that "the Regional Office of the appellant/respondent being delegated the task
of issuing the Show Cause Notice would not by itself invalidate the
proceedings which had been initiated under the Master Circular for declaring
the petitioners as wilful defaulters. Relying on The Secretary, Ministry of
Defence v. Prabhash Chandra Mirdha ; (2012) 11 SCC 565 , it was
additionally held that a Show Cause Notice does not give rise to a cause of
action unless a strong case of abuse of process is made out."
67. Thus, it is clear that the process of issuance of notice by a person not
forming part of WDC will not adversely affect the case of the respondents.
68. In the case of M/s Sanwaria Consumer Limited and others Vs. Central
Bank of India decided by a coordinate Bench vide order dated 18 th January,
2023 in W.P. No. 8606/2022, matter was remitted to the Bank as
representation was rejected by Advocate of Bank whereas it is held that as
per Clause 3(B), it is to be considered by the Committee and not by an
Advocate, therefore, mechanism under Clause 3 (B) was held to be violated.
In the present case, there being no such violation, the impugned judgment
cannot be faulted with.
69. As far as reliance on different judgments placed by learned counsel for
the petitioners is concerned, in Ravis Exports (supra), the High Court of
Kerala in para 20 has held that "In the absence of serving the order of COE
on the petitioners, there could never have been a declaration of the
petitioners as wilful defaulters since the Master Circular as directed by the
Supreme Court contemplates declaration as wilful defaulter only after
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serving the copy of the order of COE and the consequent decision of the
Review Committee." In the present case, both the documents are served i.e.
the order of COE and the consequent decision of the Review Committee.
Therefore, this judgment will not have any application on its own facts and is
distinguishable.
70. As far as the decision of Bombay High Court in Finolex Industries
Limited (supra) is concerned, in para 41 and 42, the principle which is laid
down is that the material which is considered against the petitioners should
be disclosed to them and that will be consistent with the principles of natural
justice but at the same time, the law is also well settled as held by the Gujarat
High Court that the material on the basis of which declaring a party to be a
Wilful Defaulter, are, already within the knowledge of those parties, then
there is no need for any additional material to be supplied and that will not
be a ground for violation of principles of natural justice.
71. Therefore, decision in the case of Finolex Industries Limited (supra)
will have a limited application in the light of the judgments of Gujarat High
Court in Jagdish Prasad Saboo (supra) and Kirtilal RavchandBhai Sanghavi
(supra).
72. As far as the judgment of Bombay High Court in Milind Patel (supra)
is concerned, the ratio is that proceedings that can inflict serious civil
consequences on any citizen, appropriate material should be provided so that
noticee should be able to appreciate the case made out against him. In the
present case, there is an admission that sufficient material was available to
the petitioners in regard to diversion, routing etc. of funds and also in regard
to acquiring of a company without consent of the financial consortium.
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Therefore, this judgment too will not be of assistance to the petitioners.
73. As far as the law laid down by the Calcutta High Court in Suresh
Kumar Vs. Punjab National Bank (supra) is concerned, the ratio is that not
only the forensic report be referred to in the orders of the committee but
petitioner should have an opportunity of rebuttal. In the present case,
admittedly extracts of forensic audit report was provided and admittedly,
petitioners were aware of the act of siphoning of funds, diversion, routing
etc. and, therefore, this judgment too will not be of assistance to the
petitioners.
74. In the case of Ratul Puri (supra), the ratio is that the Review Committee
in the impugned order has recorded that the forensic auditor concluded that
the lease agreements between MBIL and MBSL were created for diverting
bank's funds but the forensic audit report did not show that any such
observation, therefore, it was held that the Review Committee has attempted
to add words to the forensic auditor, which is non-existent in the report but in
the present case, there is no such attempt on the part of the respondents to
tamper with the forensic audit report. Therefore, this judgment will not have
any application.
75. As far as reliance of the petitioners on the judgment in Kotak Mahindra
Bank Limited (supra) is concerned, as already submitted by Shri Bhavil
Pandey discussed above, it deals with derivatives and not diversion of funds
etc. which is the case in present.
76. Therefore, we are of the view that complete procedure is followed in
terms of Clause 3 of Master Circular, namely, Wilful Defaulter's Committee,
was formed as per the requirement of Master Circular. It issued a show-
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cause notice and afforded an opportunity of hearing in terms of Clause 3 (B)
of the Master Circular and, thereafter, matter was referred to the Review
Committee in terms of Clause 3 (C) of the Master Circular and the Review
Committee after giving opportunity of hearing, decided the matter and
declared the petitioners to be Wilful Defaulters.
77. It is evident that a show-cause notice was issued to the petitioners on
7/05/2021 Annexure P-2. Time was granted to the petitioners to make their
submissions. Thereafter, opportunity of hearing was granted to the
petitioners by issuing letter dated 14/06/2021, Annexure P-4 asking the
petitioners to appear on 30/06/2021. The second opportunity was given by
issuing a letter dated 6/07/2021 to appear on 15/07/2021 as is evident from
Annexure P-6. Thereafter, third and final opportunity was given by WDC
vide their letter dated 17/07/2021 to appear on 29/07/2021 vide Annexure P-
7. Thus, opportunities of hearing have been observed in the order dated
21/08/2021, Annexure P-9 passed by the WDC. It is also an admitted fact
that petitioners failed to appear on the aforesaid dates and non-appearance of
the petitioners were observed in the order dated 21/08/2021 Annexure P-9.
78. Thereafter, matter was referred to the Review Committee for
affirmation of the decision of WDC. Thus, proceedings were undertaken by
WDRC in its meeting dated 16/09/2021. Quorum of the committee was
complete as per RBI circular. Deliberations on the committee order (WDC)
dated 21/08/2021 were considered and it was observed that petitioners did
not appear for three opportunities of hearing. Third reply dated 2/09/2021
was considered and it was also observed that borrowers had not submitted
any new documents.
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79. Thereafter, resolution was passed declaring the petitioners as Wilful
Defaulters. It was duly communicated to the petitioners and, thereafter,
name of the petitioners as Wilful Defaulters were duly published in the
newspapers on 10/12/2021 Annexure R-4. In the aforesaid backdrop, it is
evident that the committee in its meeting dated 11/06/2021 deliberated on the
memorandum submitted by the petitioners and even noted the contents of the
reply submitted by the borrowers. The committee had agreed to provide
personal hearing to the petitioners. Petitioner did not appear for final hearing
despite deletion of name of Shri Anil Kumar Agrawal from the proceedings
in view of his demise. Petitioners' representation Annexure P-10 was
properly considered and, therefore, I am of the opinion that neither there is
any violation of the principles of natural justice nor the impugned orders
have been passed by an incompetent authority and issuance of show-cause
notice by DGM has not caused any prejudice to the petitioners.
80. Petitioners were already having the knowledge of the forensic audit
report and also the facts mentioned therein in regard to diversion, siphoning
and routing of funds to non-consortium banks and, therefore, when all these
facts are taken into consideration, then respondents having acted in
accordance with the RBI circular and there being no infraction of any of the
terms of the said circular, the impugned orders of declaring the petitioners to
be Wilful Defaulters cannot be faulted with.
81. Accordingly, the petition fails and is dismissed.
(VIVEK AGARWAL)
JUDGE
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vy
