Mr. Kanumuru Raghu Rama Krishna ... vs M/S. Rec Limited
2022 Latest Caselaw 5046 Tel

     THE HONOURABLE SRI JUSTICE K. LAKSHMAN

             WRIT PETITION No.26813 OF 2022
                           &
             WRIT PETITION No.26815 OF 2022

COMMON ORDER:

      Heard Sri Vikram Posarla learned      Counsel for the

petitioners in W.P.No.26815 of 2022 and learned Counsel

representing M.Abhinay Reddy, learned Counsel for the

petitioner in W.P.No.26813 of 2022 and Sri Amir Bavani,

learned Counsel for the respondents in both the Writ

Petitions.

2. Lis involved and parties in both the writ petitions are

one and the same, therefore, they were heard together and

are being disposed of by way of this common order.

3. Petitioners in both the writ petitions sought to quash

the orders passed by the First Level Committee of the

respondent dated 16.06.2022 by declaring it as illegal and

contrary to the procedure laid down in Master circular

dated 01.07.2015 issued by the Reserve Bank of India.

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

4. Petitioners in both the writ petitions are claiming that

they are the members of the suspended Board of Directors

of M/s. Ind Bharath Power (Madras) Ltd., (hereinafter

referred to as "IBPML"). The petitioners in Writ Petition

No.23815/2022 are claiming that they were appointed on

24.06.2006 and 05.11.2007 respectively and the petitioner

in W.P.No.24813/2022 was appointed on 24.06.2006.

According to them, they were suspended due to initiation

of Corporate Insolvency Resolution Process against the

aforesaid company by National Company Law Tribunal,

Hyderabad, with effect from 14.08.2017. According to

them the said company is under liquidation.

For the purpose of implementation of 660 MW Coal

Based Thermal Power Project at Sasthavinallur and

Pallakkurichi villages, Sattankulam Taluq, Tuticorin

District of Tamilnadu State, loan was sanctioned by the

respondent as part of total financial assistance of

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

Rs.2,655 Crores, sanctioned by REC, PFC and Axis Bank to

IBPML. The respondent is one of the core lenders of

consortium of lenders. Subsequently, a Novation Notice

was issued by Axis Bank to PFC with a copy to IBPML. By

virtue of the said novation, all the rights of Axis Bank Ltd.,

stood transferred to Infrastructure Finance Company Ltd

(IIFCL). IBPML obtained disbursement to a tune of

Rs.947.71 Crores from the respondent-PFC, REC and

IIFCL. At the relevant time, the management of the

aforesaid company was in the hands of the petitioners,

being the directors of the company.

Pending utilization of funds disbursed for the project,

Axis Bank was authorized to invest the surplus funds

available in the TRA Account in certain permitted

investments. The said investments were to be made upon

the request, if any, by IBPML and liquidation/realization

value of investment were to be remitted in the TRA Account

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

in order to protect the interests of the Lenders. IBPML

made investments in the form of Fixed Deposits with Bank

of India to a tune of Rs.569.43 Crores and to a tune of

Rs.8.46 crores with UCO Bank. Fixed deposits were

utilized/leveraged to obtain loans for other group of

companies of the borrower/company and the FDs were

liquidated to pay off the debt of the group companies of

IBPML.

The company entered into an EPC contract with M/s.

Sokeo Power Private Limited (SPPL) and an amount of

Rs.370.86 Crores was given to the said company as EPC

advance. The FDs were lien marked by SPPL for granting

loans to the related parties of IBPML. The said FDs were

created and loans against them were made based on the

request letters of SPPL as well as the request letters of the

corresponding beneficiary related parties of IBPML and the

remaining amount against advances to SPPL was directly

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

transferred from SPPL bank account to the related of

IBPML.

Thus, the funds, advanced to SPPL by IBMPL for

project execution, were the Lenders' monies and have been

misutilized by IBPML and it Ex-Directors to meet the

liabilities/obligations of other group companies in

contravention of the terms of Amended FA. Therefore, the

respondent had issued show-cause notice dated

09.01.2019 as to why the petitioners should not be

declared as 'willful defaulters' on account of diversion and

misutilization of funds to meet the liability/obligations of

other group companies in contravention of the terms of

Amended FA and the Amended TA agreement.

The petitioners herein filed Writ Petitions vide

W.P.Nos.1420, 1421 and 1428 of 2019 challenging the

aforesaid show-cause notice. This Court, vide order dated

12.07.2019 dismissed the said writ petitions with certain

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

observations viz., further proceedings pursuant to

impugned show-cause notice may be kept on hold till

criminal proceedings are concluded, and if criminal

proceedings initiated are likely to be unduly delayed, it is

open for the respondent to proceed in the matter by

granting sufficient time, not less than four weeks to file

explanation to the above show cause notice by the

petitioners, in such an event all the contentions are kept

open to the petitioners.

In compliance of the said order, the respondent had

issued notice on 25.11.2019 seeking response/explanation

from the petitioners to the show-cause notice dated

09.01.2019. On receipt of the same, the petitioners sought

certain documents and the same were furnished to the

petitioners by the respondent.

The petitioners filed Contempt Case vide CC No.265

of 2020 alleging willful disobedience of the aforesaid order

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

of this Court dated12.07.2019 in W.P.Nos.1420, 1421 and

1428 of 2019. The said Contempt Case is pending.

Another follow-up notice was issued to the petitioners

on 01.04.2022. The petitioners herein have submitted

their response/explanation dated 03.05.2022. Again the

petitioners have sought certain documents and the same

was replied vide letter dated 18.05.2022 stating that it has

already furnished the documents. However, the petitioners

have replied vide letter dated 26.05.2022 reiterating the

earlier position and sought certain material/documents

relied upon by the First level Committee for arriving at a

conclusion.

The First Level Committee met on 08.06.2022 and

14.06.2022 and found that there is delay in conclusion of

criminal proceedings and the material/documents being

relied upon by the First Level Committee have already been

provided in the Annexure of Show-cause notice dated

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

09.01.2019 and notice dated 01.04.2022. Considering the

entire facts and also relying upon certain documents, by

following the procedure laid down in the RBI circular dated

01.07.2015, the First Level Committee found that the

petitioners are the willful defaulters. The same was

informed to the petitioners on 16.06.2022. I

In the said order it is specifically mentioned that in

terms of RBI circular dated 01.07.2015, petitioners were

given opportunity to represent within 15 days from the

date of receipt of said order, so that, representation , if any,

can be placed before the Review Committee. After receipt

of reprentation, if any, from the petitioners along with the

order of the First Level Committee, will be put up to

Review Committee for confirmation and for issuance of

final orders. The order of the First Level Committee

become finial only after it is confirmed by the Review

committee. Challenging the said order dated 16.06.2022

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

issued by the respondent; the petitioners have filed the

present Writ Petitions.

5. Sri Vikram Pooserla, learned Counsel appearing in

both the petition would submit that the order dated

16.06.2022 is contrary to the procedure laid down in RBI

Master Circular dated 01.07.2015. As per clause (3) (a) of

the said Circular, the First Level Committee should be

headed by an Executive Director or equivalent and

consisting of two other Senior Officers of the rank of

GM/DGM, but the impugned order does not disclose

formation of such committee. The impugned order dated

16.06.2022 is signed by CGM (Law), for and on behalf of

REC Limited and the CGM, is not authorized to sign the

said order. As per the RBI Master Circular dated

01.07.2015 the First Level Committee has no power to

delegate power to any official including the CGM (Law).

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

The impugned order is contrary to clause 3 (b)(c) of RBI

Master Circular dated 01.07.2015. The impugned order is

also contrary to the findings given by this court in

W.P.Nos.1420, 1421 and 1428 of 2019.

A case in Crime N.196 of 2018 was registered by

Economic Offences Wing of Delhi Police against the

petitioners herein. Investigation in the said crime is at

advance stage. There is delay of about three years. Even

then the respondent has passed the impugned order

without following the procedure laid down in the RBI

master circular dated 01.07.2015. With the said

submissions he sought to quash the aforesaid order dated

16.06.2022.

6. The respondent had filed counter, contending as

follows:

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

This Court vide common order dated 12.07.2019,

granted liberty to the respondent to proceed in the matter

by granting sufficient time in the event of unduly delay in

concluding the criminal proceedings. Therefore, as a

follow-up action, after issuing notice and giving sufficient

opportunity, on receipt of response, on consideration of

the same and also documents, the First Level Committee

had passed the order dated 16.06.2022 declaring the

petitioners as willful defaulters. If the petitioners are

aggrieved of the same, they have to approach the review

committee in terms of the very same RBI Master Circular

dated 01.07.2015. Instead of approaching the review

committee, the petitioners have filed the present Writ

petitions. The petitioners are trying to stall the

proceedings contemplated in the aforesaid circular at every

stage. The First Level Committee authorized the CGM to

sign and issue the order. The composition of the

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

committee need not be motioned in the impugned order

dated 16.06.2022. The petitioners filed the present writ

petitions with a mala fide intention to drag on the

proceedings. With the said submissions he sought to

dimiss both the writ petitions.

7. The aforesaid facts would reveal that the respondent

had issued show cause notice on 09.01.2019 to all the

three petitioners in the above writ petitions as to why they

should not be declared as willful defaulters on account of

diversion and misutilization of loan availed from the

respondent and be subjected to further civil and criminal

proceedings in term of applicable laws. The petitioners

herein instead of submitting reply/explanation to the said

show-cause notice, have filed aforesaid three Writ petitions

viz., 1420, 1421 and 1428 of 2019 challenging the said

show-cause notice on several grounds. On hearing the

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

petitioners, as well as the respondent, this court vide order

dated 12.07.2019 dismissed three writ petitions holding

that the show-cause notice cannot be quashed on any of

the grounds raised in the writ petitions. Para No.22 of the

above said order is relevant, and the same is extracted

below:

"On the above analysis of the matter, the impugned show-cause notice cannot be quashed on any of the grounds raised in the writ petitions and the writ pettitions fails and are accordingly dismissed. However, in the light of the admission by the respondent at para No.16 of the impugned show-cause notice that on the same set of allegations criminal proceedings are imitated and pending adjudication, in the light of the observations of the Hon'ble Supreme Court in M.S.SHERIFF'S case (6 supra) and in view of the facts and circumstances of the case, further proceedings pursuant to the impugned show-cause notice may be kept on hold till he

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

criminal proceedings are concluded and if criminal proceedings initiated are likely to be unduly delayed, it is open for the respondent to proceed in the mater by granting sufficient time, not less than four weeks to file explanation to the show-cause notice by the petitioners, in such an event all contentions are kept open to the petitioners. It is needless to observe that the observations made hereinabove are only for the purpose of adjudication of the writ petitions and may not be construed as contentious issues raised by the petitioners; as what is impugned in these writ petitions is only show-cause notices under the Master Circular. Consequently the connected miscellaneous petitions, if any, pending, are also disposed of. There shall be no order as to costs"

8. As stated above, Economic Offences Wing of Delhi

Police, have registered a case vide Crime No.196 of 2018

against the petitioners. Though the crime was registered in

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

the year 2018, there was delay in concluding the

investigation and filing charge sheet. However, in view of

the liberty grated by this court vide common order

12.07.2019 in the aforesaid writ petitions and also

considering that there is delay in concluding the

proceedings, the respondent had issued follow-up notice on

25.11.2019 asking the petitioners to submit the

explanation to the show-cause notice dated 09.01.2019.

Vide letter dated 14.12.2019 the petitioners requested the

respondent to furnish copy of minutes of the meeting of the

First Level Committee held on 15.11.2019 and copies of

documents etc.. The same was replied by the respondent

vide letter dated 21.09.2020 granting 15 days time to

submit explanation.

9. It is relevant to note that the petitioners herein filed

Content Case vide CC No.267 of 2020 alleging willful and

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

deliberate violation of the aforesaid common order passed

by this Court by the respondent and the said Contempt

case is pending. The respondent had also filed counter in

the said Contempt Case.

10. The respondent had issued follow-up notice on

25.11.2019 and anther notice on 01.04.2022. Vide letter

dated 03.05.2022 the petitioners again requested the

respondent to furnish the material/documents relied upon

by the First Level Committee for arriving at a decision. Vide

letter dated 18.05.2022 the respondent had reiterated that

the documents were already provided along with the

show-cause notice dated 09.01.2019. However, 14 days

time was granted to the petitioners to submit the written

response. Vide letter dated 26.05.2022 again the

petitioners requested the respondent to furnish the

aforesaid documents.

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

11. The First Level Committee met on 08.06.2022 and

14.06.2022 and on examination of the entire material, it

has found that there is delay in conclusion of the criminal

proceedings and the material documents relied upon by the

First Level Committee were already been furnished to the

petitioners herein. Therefore, the allegation made by the

petitioners that the respondent has not furnished

documents as sought by them is untenable.

12. Notices dated 25.11.2019, 01.04.2022 and

18.05.2022 were issued to the petitioners to furnish the

written responses to the show-cause notice dated

09.01.2019. On consideration of the entire material

including the documents mentioned in Para No.12 (a to j)

of the impugned order dated 16.06.2022, the First Level

committee concluded that the debt was sanctioned and

disbursed for the purpose of development and

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

implementation of 660 MW Coal Based Thermal Power

Project at the aforesaid site. IBPML, to which the

petitioners, being the Directors, defaulted in repayment of

loan advanced advanced by the lenders and the account

became NPA as on 31.12.2016. The petitioners, being the

Ex-Directors of IBMPL, were directly responsible for the

diversion and siphoning of funds to the group companies.

Due to siphoning of funds the project could not be

constructed and the debt given by the lenders became NPA.

The loan was given to the borrower company for

construction and implementation of the Project and not for

meeting short fall of cash flows of the group companies of

IBMPL. There are multiple transactions of diversion and

siphoning of the borrowed funds and the modus operandi of

the transactions clearly shows diversion and siphoning of

borrowed funds and resultant willful default is intentional,

deliberate and calculated. Therefore, such transactions

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

clearly constitute 'willful default' as per RBI Master

Circular dated 01.07.2015. Thus vide order dated

16.06.2022, the First Level Committee had declared the

petitioners as 'willful defaulters'.

13. To address the contentions raised by the petitioners,

it is relevant to extract clause (3) (a) of RBI Master Circular

dated 01.07.2015, which deals with mechanism for

identification of Willful Defaulters.

"3 (a) The evidence of willful default on the part of the borrowing company and its promoter/whole-time director at the relevant time should be examined by a Committee headed by an Executive or Equivalent and consisting of two other senior officers of the rank of GM/DGM"

14. In the impugned order there is specific reference with

regard to the opportunity given to the petitioners and also

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

furnishing of documents by the respondent as sought by

the petitioners. The First Level Committee had also

considered the documents (i.e. a to j in the impugned

order), and came to conclusion that there is siphoning and

diversion of funds by the petitioners to the group

companies and also modus operandi of the transactions.

15. As per Clause (3) (a) of the aforesaid Master Circular

of RBI, the First Level Committee shall be headed by an

Executive Director or equivalent and consisting of two

other Senior Officers of the rank of GM/DGM. It does not

say that the impugned order shall contain the composition

and formation of such committee. However, in the

impugned order dated 16.06.2022 there is specific mention

about the meetings held by First Level Committee on

08.06.2022 and 14.06.2022. The reasons were specifically

assigned in the impugned order. Thus, there is no

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

mention in the aforesaid clause (3) (a) that the order shall

refer formation and composition of the said committee.

Therefore, the said contention of the petitioners is

unsustainable.

16. The impugned order was signed by the CGM (Law).

In the said order itself it is specially mentioned that "the

committee has authorized the undersigned to sign and

issue this order". Therefore, the CGM (Law) signed the

order for and on behalf of the respondent. As per master

Circular of RBI dt.01.07.2015 there is no bar or

prohibition authorizing CGM(Law) of respondent, so sign

and issue said order.

17. As discussed supra, First Level Committee met on

08.06.2022 and 14.06.2022 and after examination, has

found the petitioners guilty of willful default and this order

is being served on the petitioners accordingly. There is no

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

delegation of power by the committee as alleged.

Committee met, examined the whole issue including the

documents and found the petitioners are 'willful

defaulters'. Committee then authorized CGM (law) to sign

and issue order. Therefore, the Committee had authorized

the CGM (Law) of respondent to sign and issue the said

order. Therefore, there is no irregularity in signing the

impugned order by the CGM (Law) of the respondent.

18. There is no dispute with regard legal position that the

Master Circular dated.01.07.2015 is applicable and

binding on the Banks.

19. Sri Vikram Poserla, learned Counsel for the

petitioners relied upon the principle laid down by the Apex

Court in State Bank of India vs. Jah Developers Private

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

Limited1. In the said judgment, at para No.24, the Apex

Court held as follows:

"This being so, and given the fact that paragraph 3 of the Master Circular dated 01.07.2013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Committee, we are of the view that first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following paragraph 3(b) of the Revised Circular dated 01.07.2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full representation on facts and law (if any). The Review Committee must then pass a reasoned order on such representation which must then be served on the borrower. Given the fact that the earlier Master Circular dated 01.07.2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 01.07.2015. The impugned judgment is, therefore, set aside, and the appeals are allowed in terms of our judgment".

1 (2019) 6 SCC 787

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

20. In the aforesaid judgment, the Apex Court held that

the First Level Committee after following clause 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.

21. As discussed supra, in the present case, the

respondent passed the order after giving sufficient

opportunity to the petitioners. Therefore, there is no

violation of aforesaid principle laid down by the Apex Cuort

by the respondent while passing the impugned order

dated16.06.2022.

22. Referring to the principle laid down by the Apex

Court in Shani Silk Mills (P) Ltd., Vs. Employees State

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

Insurance Corporation2, the learned Counsel for the

petitioners would submit that statutory power cannot be

sub-delegated. In the aforesaid judgment the Director

General of Employees State Insurance Corporation

authorized the other officers to exercise power conferred

under Section 94 (a) of Employees Insurance Act, was

found fault with, whereas in the present case, the First

Level Committee has authorized the CGM (law) by the

respondent only to sign and issue the order. It has not

authorized the CGM (law) to consider the material and

pass the orders. It is the committee which passed the

order and decided that the petitioners are the willful

defaulters. It is only authorization that was given by the

respondent to the CGM (law) to sign and issue such order.

Therefore, the facts in the aforesaid judgment are different

2 (1994) 5 SCC 346

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

to that of the facts present case. Therefore, the said

judgment is not helpful to the case of the petitioners.

23. The learned Counsel for the petitioners has also

relied upon another judgment of the Apex Court in

Maratwada University vs. Seshrao Balwant Rao Chavan

3, wherein also power was deligated. In the present case

there is no delegation of power, and it was only an

authorization given to the CGM (Law) of the respondent

only to sign and issue the order. Therefore, the said

judgment is also not helpful to the petitioners.

24. It is relevant to note that that during the course of

arguments, the learned Counsel for the petitioners

submitted that the petitioners have requested the

respondent to furnish the legible copies of documents,

3 (1989) 3 SCC 132

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

however, he is not in a position to show the copy of letter

or communication sent by the petitioners requesting the

respondent to furnish the legible copies of documents.

Therefore, the said contention of the petitioners is

untenable.

25. As stated above, a crime was registered in 2018

against the petitioiners by the Economic Offices Wing of

Delhi Police and though four years have elapsed, the

criminal proceedings were not concluded. Therefore, in

view of the liberty granted by this court in the aforesaid

order, the respondent, after giving sufficient opportunity to

the petitioners had passed the impugned order dated

16.06.2022.

26. It is apt to note that as per clause 3 (c) of Master

Circular daed.01.07.2015, the order passed by the First

Level committee 'should' be reviewed by another

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

Committee headed by the Chairman/Chairman &

Managing Director or the Managing Director and Chief

Executive Officer/CEOs and consisting, in addition, to two

independent directors of the Bank and the Order shall

become final only after it is confirmed by the said Review

Committee.

27. Thus, if the petitioners are aggrieved by the

impugned order passed by the First Level Committee,

declaring the petitioners as willful defaulters, they shall

approach the Review Committee seeking to review the

order passed by the Fist Level Committee. In Clause 3 (c)

the word "should" is mentioned. The orders passed by

the First Level Committee shall become final only after it is

confirmed by the review committee. Thus the petitioners

herein, instead of approaching the review committee, filed

the present petitions.

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

27. The aforesaid facts would reveal that the petitioners

are trying to stall the proceedings initiated by the

respondent in terms of RBI Master circular dated

01.07.2015 at every stage, as rightly contended by the

learnred Counsel for the respondent.

28. Viewed from any angle, petitioners failed to make out

any case to interfere with the impugned order dated

6.06.2022 passed by the respondent and both the writ

petitions are liable to be dismissed, and accordingly

dismissed.

29. It is relevant to note that vide order dated 24.06.2022

this court granted interim stay of further proceedings

pursuant to order dated 16.062022. In view of the same,

the petitioners failed to approach the review committee

within 15 days time granted by the respondent in the

impugned order. Therefore, 15 days time is granted to the

KL,J WP No.26813 of 2022 & W.P.No.26815 of 2022

petitioners to approach the review committee in terms of

clause (3) (c) of the Master Circular of R.B.I dated

01.07.2015.

Miscellaneous petitions, pending, if any, shall stand

closed.

__________________ K. LAKSHMAN, J Date:12.10.2022 trr