2018 (5) TMI 2110 - HC - Indian Laws

Seeking Injunction restraining the respondent authorities - breach on the part of the petitioners of the terms of the loan covenants entered with the State Bank of India - threatening to publish photographs, names and addresses of the petitioners in leading newspapers - HELD THAT - From the documents annexed to the writ petition there is no doubt that the Company of which the petitioners are directors and guarantors (for the financial assistance availed of by the Company), have acknowledged and admitted their liability in respect of the credit facilities obtained from the respondent bank. The response of the Company to the notice under Section 13(2) of the SARFAESI does not dispute this liability. It is also clear from the impugned letter dated 19th November 2014, which is under challenge in this proceeding, that the Company had been advised to repay the loan amount by 10th December 2014 and that admittedly no steps have been taken by the Company thereafter to honour its financial obligations to the respondent bank. The company has instead filed a suit and an application before the Debts Recovery Tribunal in an attempt to push back their obligations to the bank. The judgement of this Court provides a window of Special Circumstances when the bank can proceed with such coercive measures against borrowers who have committed deliberate default of the RBI Guidelines with mala-fide intention. This window cannot, however, be applied in the present case since, it cannot be from the material on record said that the Company has wilfully defaulted in its financial obligation to the respondents Bank or that the petitioner as Directors and Guarantors of the Company can be held liable for the conduct complained of on the part of the Company. The decisions relied on by the Bank with regard to the limited sphere of interference of a Court in relation to show-cause notices are not applicable since the impugned letter dated 19th November, 2014 cannot be construed as a show-cause notice per-se. The interim order passed by this Court on 20th January, 2015 is confirmed.

Summary

Issues:
1. Breach of loan covenants and threat of publication of borrower's information in newspapers.
2. Interpretation of RBI Guidelines on publishing photographs of defaulting borrowers.
3. Validity of injunction against the bank's actions based on impugned communication.
4. Consideration of special circumstances for coercive measures against defaulting borrowers.

Analysis:
1. The writ petition involves directors and guarantors of a company seeking an injunction against a bank's threat to publish their information due to alleged breach of loan covenants. The petitioners challenge a letter dated 19.11.2014 claiming no specific mention of defaults except for a notice under SARFAESI Act. The petitioners argue against being declared wilful defaulters and point to pending legal actions as a response to the bank's claims.

2. The Division Bench judgment considered various High Court decisions on publishing defaulters' photographs and highlighted the absence of clear RBI Master Circular guidelines on the matter. It emphasized that publication should not be routine and must be based on special circumstances indicating wilful default. The impact on genuine borrowers and the right to dignity under Article 21 of the Constitution were key factors in the decision.

3. The Court analyzed the petitioners' liability and response to the bank's notice, noting the absence of repayment steps and reliance on legal proceedings to delay obligations. While the bank argued for the right to caution the public against defaulters through photograph publication, the Court considered the lack of wilful default declaration and pending legal actions as relevant factors in granting the injunction.

4. Despite compelling arguments from the bank based on previous judgments, the Court upheld the injunction based on the absence of wilful default by the company and the caution provided in a prior Division Bench judgment regarding the publication of defaulters' photographs. The Court highlighted the need for special circumstances justifying coercive measures against defaulting borrowers, which were not evident in the present case.

In conclusion, the Court confirmed the interim order granting the injunction, disposing of the writ petition while allowing the bank to pursue remedies under relevant laws. The judgment emphasizes the importance of considering special circumstances and wilful default before resorting to coercive measures against defaulting borrowers, safeguarding the rights and dignity of genuine borrowers.