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Issues involved: Interpretation of Reserve Bank Master Circular on willful defaulters by a nationalized bank.
Summary: The judgment deals with the misinterpretation of the Reserve Bank Master Circular on willful defaulters by a nationalized bank. The Master Circular outlines a fair procedure before classifying a person as a willful defaulter, emphasizing the importance of providing a reasonable opportunity for the borrower to defend against such classification. The Circular mandates the formation of a committee comprising high functionaries to make the preliminary decision on classifying a borrower as a willful defaulter. The court highlighted the significance of following the procedure outlined in the Master Circular, which includes providing the borrower with reasons for the proposed classification and allowing them to make representations to a Grievance Redressal Committee. The Grievance Redressal Committee, headed by the Chairman and Managing Director, is responsible for considering the borrower's defense and weighing it against the evidence presented by the preliminary committee. Furthermore, the judgment emphasizes the distinction between a defaulter and a willful defaulter, stating that only those defaulters who have diverted funds or have the ability to repay but choose not to pay should be classified as willful defaulters. In this case, the court set aside the preliminary opinion to classify the petitioners as willful defaulters due to the lack of reasons or evidence provided. The bank was directed to proceed afresh in accordance with the Master Circular. The court clarified that its decision should not be seen as a certificate in favor of the petitioners, allowing the bank to gather the necessary evidence to classify them as willful defaulters and take appropriate action in line with the Master Circular. The writ petition was allowed without any order as to costs, and certified copies of the order were to be provided to the parties upon request.
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