2019 (2) TMI 1674 - HC - Indian Laws

Master Circular dated July 1, 2015 - Identification of Wilful Defaulter - HELD THAT - The power given to the Wilful Defaulter's Committee to issue the show-cause notice and decide on the issue cannot be delegated. It is so, not only because of the language used in the provisions of the Wilful Defaulter Master Circular but also by reason of the mechanism provided in the Master Circular for identification of a wilful default, the requirement to have a decision informed with reasons taken by a Committee constituted by the persons designated in the Master Circular - The Master Circular requires adherence to the principles of natural justice by the Wilful Defaulter's Committee. It requires the Committee to issue the show cause notice, allow a reply to be filed and then take a decision thereon. Upon the Wilful Defaulter's Committee identifying an event of default, an opportunity is granted to the person concerned to explain itself by issuance of the show- cause notice. Therefore, the persons who issue the show-cause notice, must be the persons who are authorised by the Master Circular to form the opinion that an event of wilful default within the meaning of the Master Circular has occurred. Formation of opinion cannot be delegated. Any policy of a Bank, which is in deviation of the Master Circular, will not help the Bank, in allowing a person other than the Committee formulated under the Master Circular to assume jurisdiction to discharge functions specifically vested upon the Committee conceived by paragraph 3 of the Master Circular. A policy of the Bank cannot be placed at a higher pedestal than the Master Circular of the Reserve Bank of India. It must be subservient to the Master Circular - The impugned actions taken by the Bank does not meet the test laid down under the Master Circular. The impugned notice has not been issued by the persons required to do so under the Master Circular. The impugned notice is, therefore, quashed. Petition disposed off.

Summary

Issues: Challenge to show-cause notice under Master Circular on Wilful Defaulter dated July 1, 2015; Jurisdiction of the person issuing notice; Compliance with Master Circular by Bank; Delegation of power by Wilful Defaulter's Committee; Adherence to principles of natural justice; Review of Wilful Defaulter's Committee's order; Validity of Bank policy in deviation from Master Circular.

The judgment pertains to a challenge against a show-cause notice issued under the Master Circular on Wilful Defaulter dated July 1, 2015. The petitioner argues that the notice is void as the person issuing it lacks jurisdiction, as per paragraph 3 of the Master Circular. The Wilful Defaulters Committee, as outlined in the Circular, must form an opinion on wilful default before issuing a notice. However, in this case, a Regional Manager issued the notice without proper authority, leading to the petition for quashing the notice.

On the other hand, the Bank contends that it has a policy for Non-Cooperative Borrowers and Wilful Defaulters 2018-19, under which the Wilful Defaulters Committee identifies defaulters, and the branch managers issue notices. They argue that the Committee's direct involvement in issuing notices is not mandatory, and hence, the Court should not interfere in this matter.

The Master Circular by the Reserve Bank of India mandates the formation of a Wilful Defaulter's Committee by the Bank, comprising specific designated individuals. This Committee, consisting of three members led by an Executive Director or equivalent, must examine evidence of wilful default and issue show-cause notices to defaulters. The Circular emphasizes the Committee's role in decision-making and the necessity of providing reasons for their decisions.

The judgment clarifies that the power to issue show-cause notices and make decisions cannot be delegated by the Wilful Defaulter's Committee, as per the language and mechanism outlined in the Master Circular. The Committee must adhere to principles of natural justice, issue notices, allow responses, and make decisions based on the Circular's requirements. Any deviation from these procedures, including delegation of authority, renders the process invalid.

Moreover, the judgment highlights that the Bank's policy cannot override the Master Circular's provisions, and any deviation from the Circular's requirements is not permissible. The actions taken by the Bank, not in line with the Circular, are deemed inadequate, and the notice issued without proper authority is quashed. The judgment emphasizes that the Bank must follow the Master Circular in taking further steps against the petitioner, ensuring compliance with the law and established procedures.

In conclusion, the writ petition challenging the show-cause notice is allowed, and the notice is quashed. The Bank is directed to proceed in accordance with the Master Circular and legal requirements. The judgment is disposed of without costs, with provisions for urgent certified copies to be provided to the parties upon request.