Sree Metaliks Ltd. vs Punjab National Bank
2023 Latest Caselaw 5195 Ori

         IN THE HIGH COURT OF ORISSA AT CUTTACK
                       W.P.(C) No.32768 of 2022
     (In the matter of an application under Articles 226 and 227 of
     the Constitution of India, 1950)

     Sree Metaliks Ltd., Keonjhar              ....            Petitioner

                                  -versus-

     Punjab National Bank, Jagamara,           ....         Opp. Parties
     Bhubaneswar and Anr..

     Advocates appeared in the case:
     For Petitioner            :               Mr. Sidhartha Ray, Adv.

                                  -versus-



     For Opp. Parties             :                 Mr. B. K., Rao, Adv.



                 CORAM:
                 DR. JUSTICE S.K. PANIGRAHI
                   DATE OF HEARING:-09.02.2023
                  DATE OF JUDGMENT:-05.05.2023

       Dr. S.K. Panigrahi, J.

1. The Petitioner/ Company through this Writ Petition assails

the rejection of its application to remove its name from the list

of "Wilful Defaulter" by the Opposite Party No.1/ Punjab

National Bank, Zonal Sastra Centre, Pokhariput, Jagamara,

Bhubaneswar. The application was rejected without

pg. 1 considering the observation made by this in W.P(C) No.21430

of 2022 vide order dated 29.09.2022.

I. FACTUAL MATRIX OF THE CASE:

2. The facts leading to filing of this Writ Petition briefly are that

the Petitioner/ Company is engaged in manufacturing of Iron

Billet, TMT Bar, Sponge Iron and has its factory at Loidapara

and Anara in the District of Keonjhar. The Petitioner had

taken a Loan of Rs.60.91 Crores which includes Term Loan of

Rs.34.16 Crores, Cash Credit of Rs.26.75 Crores which

included interest up to 28th February 2014. In 2014 as the

Petitioner was sick, it approached the Board for Industrial and

Financial Reconstruction, Ministry of Finance, Jawahar

Vyapar Bhavan, New Delhi (hereinafter referred to as "the

BIFR" for brevity) who permitted the Petitioner to be

registered under Section 15(1) of the Sick Industrial

Companies (Special Provisions) Act, 1985 vide order dated

18.11.2014.

3. At that relevant point of time, as the Petitioner was not able to

pay the Secured Creditors due, a show cause notice was

issued on 31.3.2014 by the Opposite Party No.1 which reads

as follows:

"Xx xx xx xx

Dear Sir,

pg. 2 REG: NOTICE FOR DECLARING THE ACCOUNT M/S SREE METALIKS LIMITED AS WILFUL DEFAULTER Your account balance shows an outstanding of Rs.60.91 Crore (TL-Rs 34.16 Cr. + GC Rs.

26.75 Cr.) inclusive of interest up to 28.02.2014. The branch has observed certain irregularities in your account and found that your account is not being operated in proper banking norms and the following are the observations for declaring your account in the category of wilful defaulters, as per the norms of the RBI as well as Bank guidelines.

1.The Unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations.

2. The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilised the finance from the financer for the specific purposes for which finance was availed of but has diverted the funds for other purposes.

3. 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.

In case, if you have any grievance in regard to declaring you as Wilful Defaulter, against such decision you may represent within 15 days of receipt of this letter/ personal hearing, to the Grievances Redressal Committee, Recovery & Law Department, Oriental Bank of Commerce, pg. 3 Corporate Office, Plot No.5, Sector-32, Institutional Area, Gurgaon-122001.

Xx xx xx xx xx"

4. Being aggrieved of the show cause notice, the Petitioner filed

W.P(C) No.12151 of 2015, which was disposed of on

21.07.2015. While disposing of the said Writ Petition, this

Court has observed as follows:

"xx xx xx xx Considering the limited grievance of the petitioner that he has made a representation against notifying the present petitioner as wilful defaulter in the list prepared by the Reserve Bank of India appearing at Annexure-1 and the said representation may be directed to be disposed of, we dispose of this writ petition directing the Branch Manager, Oriental Bank of Commerce, Jiaswal Commercial Complex, Barbil to look into the grievance of the petitioner and pass order as appropriate within a period of three months from the date of communication of this order.

Since the matter is disposed of at the admission stage, Petitioner is directed to serve a copy of this order along with a copy of the writ petition on the opposite party named above within a period of one week."

5. As the matter stood thus, the Petitioner approached the BIFR

for Financial Rehabilitation and the BIFR admitted the

pg. 4 application of the Petitioner vide order dated 18.11.2014.

Thereafter, the Insolvency and Bankruptcy Code came into

force in the year 2016 with the main objective to revive the

sick unit. This Act repealed the Sick Industrial Companies Act

(SICA) Act, 1985. A Corporate Resolution process was filed

under Section 7 of the Insolvency and Bankruptcy Code 2016

(hereinafter referred to as "the IBC" for brevity) by one Srei

Equipment Finance Limited. The adjudicating authority i.e.

National Company Law Tribunal, Kolkata Bench, Kolkata on

30.01.2017 admitted the application in Company Petition

No.16 of 2017 and declared a moratorium and appointed one

Interim Resolution Professional on whom the management

was vested. The Interim Resolution Professional carried on his

duties as cast upon him by the IBC by making a paper

publication inviting claim and forming a Committee of

Creditors.

6. The Opposite Party No.1 previously Oriental Bank of

Commerce was a member of that Committee along with

Edelwelss Asset Reconstruction Company Limited, Srei

Equipment Finance Limited, IFCI Limited, JM Financial Asset

Reconstruction Company Limited, Oriental Bank of

Commerce, ICICI Bank Limited, Srei Infrastructure Finance

Limited, Pegasus Asset Reconstruction Private Limited and

Kotak Mahindra Bank Limited.

pg. 5

7. After formation of the Committee of Creditors, the Petitioner

submitted its Resolution Plan as per Section 30 of the I.B.C.

The Resolution Plan of the Petitioner was approved by a vote

of 78.5%. The National Company Law Tribunal, Kolkata

Bench, Kolkata (hereinafter referred to as "the NCLT" for

brevity) vide its judgment dated 07.11.2017 passed the award

in favour of the successful applicant i.e. the Petitioner. The

aforesaid judgment was challenged by one Srei Equipment

Finance Ltd. before the National Company Law Appellate

Tribunal, Delhi (hereinafter referred to as "the NCLAT" for

brevity) in Company Appeal (AT)(Insolvency) No.289 of 2017.

The National Company Law Appellate Tribunal, Delhi

dismissed the said appeal vide order dated 13.12.2018.

Immediately after the order of the NCLAT, the Petitioner as

per the Resolution Plan started payment to the Opposite Party

No.1.

8. The Petitioner made representations dated 01.12.2017,

27.07.2021 and 06.08.2022 to the Opposite Party No.1 which

was previously Oriental Bank of Commerce and got merged

with Punjab National Bank with effect from 01.04.2021.

Considering the non-removal of the Petitioner's name from

"Wilful Defaulter" even though the Opposite Party No.1

regularly receiving the payment as resolved in the Resolution

pg. 6 Plan, the Petitioner approached this Court by filing W.P(C)

No.21430 of 2022.

9. A Bench of this Court issued notice and Counter affidavit was

filed by the Opposite Party. In the said Counter Affidavit,

stand was taken by the Opposite Party that "neither in the

Resolution Plan approved by learned NCLT, Kolkata nor

Revised Resolution Plan approved by learned NCLAT, New

Delhi, there is any stipulation regarding deletion of

Petitioner's name from the list of wilful defaulters. In other

words, the Resolution Plan approved by majority of

Committee of Creditors /CoCs including erstwhile OBC does

not speak of deletion or withdrawal of Petitioner's name from

the list of wilful defaulters in as much as such plan is binding

on the Petitioner as well as on the bank.

10. This Court vide order dated 29.09.2022 disposed of the

W.P.(C) No.21430 of 2022 with the following observation and

direction:

"5. xx xx xx xx xx. It is undisputed that the bank was member of the committee of creditors, which participated in making and approval of the Resolution plan for revival of petitioner. It is also undisputed that under the plan there has been repayment as per schedule. These circumstances mitigate against the account being declared wilful defaulters, simply because where there is repayment it cannot be said here is wilful defaulter. Mere so, when the

pg. 7 repayment is in terms of a plan put in place by operation of law.

6. The bank, if it has already issued order declaring petitioner's account as wilful defaulter, will either reconsider its position or communicate the same to petitioner, upon receipt of which the petitioner may seek remedy. In event no order has been issued except impugned notice, the bank will allow petitioner to make representation to it, to highlight aforesaid circumstances, the bank is already aware of, to proceed and decide on the issue. Either way there must be action taken on above applicable communication.

Xx xx xx xx xx"

11. The Opposite Party No.1 being a member of the Committee of

Creditors in approving the plan and continued to receive the

amount as per the Resolution Plan, without considering the

observation made by this in W.P(C) No.21430 of 2022 vide

order dated 29.09.2022, rejected the application of the

Petitioner for removal its name from the list of "Wilful

Defaulter" vide order/ letter dated 21.11.2022. Therefore, the

Petitioner has been compelled to file this Writ Petition.

II. PETITIONER'S SUBMISSIONS:

12. Learned counsel for the Petitioner earnestly made the

following submissions in support of its contentions:

13. The Opposite Party No.1 was a member of the Committee of

Creditors and admittedly has voted in favour of the

pg. 8 Resolution Plan and has approved the same. Moreover, the

Opposite Party is receiving the amount as per the Resolution

Plan. The Opposite Party being a member of the Committee of

Creditors in approving the plan and continued to receive the

amount as per the Resolution Plan, cannot deny to remove the

name of the Petitioner from the wilful defaulter. Such plea

taken in the letter of rejection dated 21.11.2022 is illegal on the

face of it. The I.B.C. is a mechanism for revival of the Unit and

not to sink the Unit. Therefore, the rejection of the Petitioner's

application for removal from the "Wilful Defaulter" being

vexatious and malicious and is liable to be quashed.

14. The show cause notice dated 31.03.2014 issued by the

erstwhile Oriental Bank of Commerce suffers from serious

vices. The allegations contained in the said show cause notice

are as follows:

"(1) The Unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations.

(2) The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilized the finance from the lender for the specific purpose for which finance was availed of but has diverted the funds for other purposes.

(3) The unit has defaulted in meeting its payment/ repayment obligations to the lender and has siphoned off the funds so that the funds

pg. 9 have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets."

15. No specific instance was given by the erstwhile Oriental Bank

of Commerce that the unit has defaulted in meeting its

payment/repayment to the lender Bank. No instance has also

been cited that the Unit has not utilized the funds for the

specific purposes for which finance was availed up but has

diverted the funds for other purposes. Also, no specific

instance has been cited that the unit has siphoned off the

funds. The alleged show cause notice itself shows that in the

guise of show cause the erstwhile bank i.e Oriental Bank of

Commerce has already declared the Petitioner Unit to be a

"Wilful Defaulter".

16. The comparison of the allegation contained in the show cause

notice dated 31.03.2014 and the rejection of the application for

removal of the Petitioner's Unit from "Wilful Defaulter show

that the Opposite Party No.1 bent upon in continuing to name

the Petitioner Unit as "Wilful Defaulter", which is totally

illegal.

17. The application of the Petitioner was rejected without

considering the observation made by this Court vide order

dated 29.09.2022 passed in W.P(C) No.21430 of 2022 , wherein

in Paragraph-5 it has been observed that:

pg. 10 "xx xx xx xx It is undisputed that the bank was member of the committee of creditors, which participated in making and approval of the Resolution plan for revival of petitioner. It is also undisputed that under the plan there has been repayment as per schedule. These circumstances mitigate against the account being declared wilful defaulters, simply because where there is repayment it cannot be said here is wilful defaulter. Mere so, when the repayment is in terms of a plan put in place by operation of law."

18. The Bank/ Opposite Party No.1 previously Oriental Bank of

Commerce was a Member of the Committee of Creditors and

voted in favour of the Resolution Plan submitted a margin of

7.24% and because of which the Resolution Plan submitted by

the Promoter of the Company was endorsed and accepted by

the NCLT.

19. The Bank while rejecting the Petitioner's application was

totally oblivious of the fact that he was a member of the

Committee of Creditors which was formed to examine the

Resolution Plan. Further, the Bank was oblivious of the fact

that this Court while disposing of the W.P(C) No.21430 of

2022 vide order dated 29.09.2022 had observed that the

Opposite Party was a Member of the Committee of Creditors

and participated in making approval of the Resolution Plan

pg. 11 for revival of the Petitioner Company and also receiving the

amount as per the Resolution Plan.

III. SUBMISSIONS BY OPPOSITE PARTY NO.1:

20. Per contra, learned counsel for the Opp. Party No.1 intently

made the following submissions:

21. Perusal of Loan Summary would indicate the fact that the

loan liability of the Petitioner/Company as per approved

Resolution Plan is more than Rs.25 Lakhs and it has not fully

paid the amounts as per Resolution Plan, which is in the

nature of compromise settlement.

22. The plea of the Petitioner/Company is that since it is

honouring the Resolution Plan which has been duly approved

by the learned NCLT, Kolkata vide its judgment dated

07.11.2017 which has been affirmed by learned NCLAT, New

Delhi vide its Order dated 13.12.2018, its name should be

removed from the list of wilful defaulters of the bank as it is

coming in its way to repay its loan liability under the

Resolution Plan. This stand of the Petitioner is untenable for

the reason that Resolution Plan does not contain any

stipulation for removal of Company's name from the list of

wilful defaulters.

23. The Resolution Plan did not contain any such removal clause

although under the Heading-Legal Suits against Clause-8, it

was agreed to withdraw pending litigations but not the relief

pg. 12 now claimed by the Petitioner before this Court. Besides,

under Clause-8.7 under the Heading- Funds Infusion, it has

been clearly mentioned that the promoters shall bring in long

term contractors/buyers for rehabilitation of the Company

apart from making own investment in as much as the

Company has been able to fulfil its commitments under the

Resolution Plan from 2018 till date would negate its plea that

it is facing difficulties in hounouring repayment schedule as

envisaged under the Resolution Plan.

24. The Petitioner has not been able to demonstrate any statutory

violations by the bank while issuing the impugned letter for

claiming relief under writ jurisdiction of this Court. On the

other hand, the bank has acted in terms of RBI

guidelines/directives governing the field. The bank has not

acted in violation of approved Resolution Plan as well.

25. It is further submitted that neither in the Resolution Plan

approved by learned NCLT Kolkata nor Revised Resolution

Plan approved by learned NCLAT, New Delhi, there is any

stipulation regarding deletion of Petitioner's name from the

list of wilful defaulters.

26. The Resolution Plan approved by majority of Committee of

Creditors/COCs including erstwhile OBC does not suggest

deletion or withdrawal of petitioner's name from the list of

pg. 13 wilful defaulters inasmuch as such plan is binding on the

petitioner as well as on the bank.

27. The order declaring the Petitioner as wilful defaulter is not

under challenge in the Writ Petition and, thus, the same is

binding on it. The Petitioner has not been able to demonstrate

any statutory violation in support of plea to delete its name

from the list of wilful defaulters.

28. The declaration of loan account as wilful defaulter is not a

recovery demand from the bank inasmuch as bank is not in

non-compliance of the kind orders passed by the NCLT or the

NCLAT. Moreover, the declaration of wilful defaulter by

bank is prior to the proceedings before BIFR, NCLT and

NCLAT and such declaration is not in contravention to the

definition of moratorium under Section 14 of the I.B.C.

29. The Petitioner's loan accounts still continue to be under NPA

status in bank's books of accounts. As per resolution plan,

final repayments to the bank would come to an end in

2026-27. Moreover, nowhere in the order dated 13.12.2018, the

NCLAT has directed the lenders for removal of the name of

the Company from the list of the wilful defaulters. Hence, the

bank is not in non-compliance of the order of NCLAT.

30. In such view of the matter, the impugned letter dated

21.11.2022 is just, proper and reasonable in the circumstances

of the case and does not suffer from illegalities as alleged.

pg. 14 Therefore, the Writ Petition filed by the Petitioner is liable to

be dismissed.

IV. COURT'S REASONING AND ANALYSIS:

31. A bare perusal of the Reserve Bank Master Circular No.DBR

No.CID.BC.57/20.16.003/2014-15 dated 01.07.2015 is pertinent,

wherein the Reserve Bank of India/Opposite Party No.2 has

given the guidelines as to who was the person to be declared

as "Wilful Defaulter". It is relevant to quote Para 2.1.3 of the

Reserve Bank Master Circular No.DBR No.CID.BC.57/

20.16.003/2014-15 dated 01.07.2015 in which "Wilful Default"

has been defined as follows:

"2.1.3 Wilfull Default: A 'wilful 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 utilised the 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

pg. 15 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 wilful 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 wilful must be intentional, deliberate and calculated."

32. Moreover, this Court while disposing of the W.P.(C) No.21430

of 2022 vide order dated 29.09.2022 had made the

observations and directions as follows:

"5. Xx xx xx xx It is undisputed that the bank was member of the committee of creditors, which participated in making and approval of the Resolution plan for revival of petitioner. It is also undisputed that under the plan there has been repayment as per schedule. These circumstances mitigate against the account being declared wilful defaulters, simply because where there is repayment it cannot be said here is wilful defaulter. Mere so, when the repayment is in terms of a plan put in place by operation of law.

6. The bank, if it has already issued order declaring petitioner's account as wilful defaulter, will either reconsider its position or

pg. 16 communicate the same to petitioner, upon receipt of which the petitioner may seek remedy. In event no order has been issued except impugned notice, the bank will allow petitioner to make representation to it, to highlight aforesaid circumstances, the bank is already aware of, to proceed and decide on the issue. Either way there must be action taken on above applicable communication.

Xx xx xx x"

33. A reading of the aforesaid Clause with the order of this Court

complete contradicts the stand taken by the Opposite Party

No.1 who by rejecting the application of the Petitioner from

removing its name from the list of "Wilful Defaulter" did not

venture to go through the Reserve Bank Master Circular

No.DBR No.CID.BC.57/20.16.003/2014-15 dated 01.07.2015.

Therefore, the Opposite Party No.1 who in spite of the fact

that he was a member of the Committee of Creditors and is

receiving the amount as per the Resolution Plan and the same

is not disputed, acted in violation of the Resolution Plan and

also in violation of the Reserve Bank Master Circular No.DBR

No.CID.BC.57/20.16.003/2014-15 dated 01.07.2015. Therefore,

the said letter of rejection dated 21.11.2022 is liable to be

quashed.

34. Additionally, in such a case where the Directors are

guarantors and fails and neglects to fulfill their financial

obligation of repayment, they can be classified as wilful pg. 17 defaulters as has been held by a Division Bench of the High

Court at Calcutta in Axis Bank Limited vs. Gourav Dalmia &

Ors1. However, in the said judgment the Division Bench held

that the Writ Petitioners therein stood rid of their burden as

wilful defaulters and their names were liable to be removed

from the list of wilful defaulters the moment the money due

to the bank was paid in the full or was agreed to be received

by way of a compromise since no personal guarantee was

furnished by any of the Writ Petitioners therein.

35. In light of the aforesaid discussion and having regard to the

present position of law, this Court comes to the conclusion

that the Writ Petition should be allowed. Accordingly, this

Court directs the Opposite Party No.1 to remove the name of

the Petitioner from the list of "Wilful Defaulter".

36. This Writ Petition is disposed of being allowed.

( Dr. S.K. Panigrahi ) Judge Orissa High Court, Cuttack, Dated the 5th May, 2023/ B. Jhankar

BHABAGRA Digitally signed by BHABAGRAHI JHANKAR

HI JHANKAR 17:28:01 +05'30' Date: 2023.05.10

FMA 906 of 2020

pg. 18