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2021 (12) TMI 1489 - HC - Indian LawsViolation of principles of natural justice - impugned orders contain no reasons in support of their conclusion (non-speaking order) - Declaration of petitioners as Wilful Defaulter - Company was classified as a Non-Performing Asset (NPA) - petitioners filed their response to the show-cause notice but did not object to the issue of show-cause notice by the DGM - HELD THAT - The impugned orders in the present case have recorded conclusions without indicating the reasons in support of the same - The reasons must reflect some application of mind to the submissions made in the response to the show-cause notice failing which an impression is legitimately created that there is no consideration of such submissions. As noted even para no. 3(b) of the Master Circular provides for consideration of such submissions before making the order declaring a person or an entity as a wilful defaulter and the record of reasons in support of the conclusion - In the precise context of the Master Circular dated 01.07.2015 the Division Bench of this Court in M/S. KANCHAN MOTORS AND OTHERS VERSUS BANK OF INDIA AND OTHERS 2018 (7) TMI 1909 - BOMBAY HIGH COURT was pleased to set aside the orders made by the WDIC and the Review Committee because such orders were found to be non-reasoned or non-speaking orders. The Division Bench did not approve the practice of simply recording conclusions without any reasons to back the same. The Division Bench observed that the absence of reasons in the order of the Review Committee amounts to a denial of justice since it is now well-settled that reasons are live links between the minds of decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity for objectivity so that the affected party can know why the decision has gone against him. The impugned orders are set aside mainly on the ground that they contain no reasons in support of their conclusion and in that sense are non-speaking orders - The respondents are granted liberty to proceed from the stage of issuance of show-cause notice dated 22.10.2020 and make such orders as may be appropriate in terms of the Master Circular dated 01.07.2015 - petition allowed.
Issues Involved:
1. Validity of orders declaring petitioners as "Wilful Defaulters" under RBI's Master Circular. 2. Jurisdiction of Deputy General Manager (DGM) in issuing the show-cause notice. 3. Non-supply of the valuation report relied upon in the impugned orders. 4. Non-speaking nature and lack of reasons in the impugned orders. 5. Absence of findings on intentional, deliberate, and calculated default by the petitioners. Issue-wise Detailed Analysis: 1. Validity of Orders Declaring Petitioners as "Wilful Defaulters" under RBI's Master Circular: The petitioners challenged the orders dated 07.12.2020 and 26.03.2021 by the Wilful Defaulter Identification Committee (WDIC) and the Review Committee, respectively, declaring them as "Wilful Defaulters." The challenge was based on the RBI's Master Circular dated 01.07.2015, which governs the identification of wilful defaulters. The Master Circular outlines specific criteria and a transparent mechanism for such declarations, emphasizing that defaults must be intentional, deliberate, and calculated. The court noted that the impugned orders failed to provide adequate reasons or evidence to substantiate the conclusion that the petitioners' defaults met these criteria, rendering the orders unsustainable. 2. Jurisdiction of Deputy General Manager (DGM) in Issuing the Show-Cause Notice: The petitioners argued that the show-cause notice dated 22.10.2020 was issued by the DGM, who lacked jurisdiction. However, the court found that the DGM acted on the orders and directions of the WDIC, as indicated in the show-cause notice itself. The court concluded that the notice was effectively issued by the WDIC and that the petitioners did not raise this jurisdictional issue before the WDIC or the Review Committee. Therefore, this ground for challenge was dismissed. 3. Non-Supply of the Valuation Report Relied Upon in the Impugned Orders: The petitioners contended that the valuation report by Shri K.R. Phadke, which was relied upon in the impugned orders, was not made available to them, violating the principle of natural justice. Although the court acknowledged the importance of providing such documents to ensure fairness, it decided not to delve into this issue in detail, as the impugned orders were being set aside on other grounds. The court suggested that the valuation report should be made available to the petitioners in any future proceedings to avoid similar challenges. 4. Non-Speaking Nature and Lack of Reasons in the Impugned Orders: The court found that both the WDIC's order dated 07.12.2020 and the Review Committee's order dated 26.03.2021 were non-speaking orders, lacking adequate reasons to support their conclusions. The orders merely used expressions like "the reply given by the company is not acceptable" without explaining why. The court emphasized that recording reasons is a fundamental aspect of natural justice and good administration, as it ensures transparency and allows the affected parties to understand the basis of the decision. The absence of reasons in the impugned orders led the court to set them aside. 5. Absence of Findings on Intentional, Deliberate, and Calculated Default by the Petitioners: The court noted that the impugned orders did not contain any findings that the petitioners' defaults were intentional, deliberate, and calculated, as required by the Master Circular. The orders failed to demonstrate that the WDIC and the Review Committee had applied their minds to the petitioners' submissions and the criteria outlined in the Master Circular. This lack of specific findings further rendered the orders unsustainable. Conclusion: The court set aside the impugned orders dated 07.12.2020 and 26.03.2021, declaring the petitioners as "Wilful Defaulters," on the grounds that they were non-speaking orders lacking adequate reasons and specific findings. The court granted the respondents liberty to proceed from the stage of issuance of the show-cause notice dated 22.10.2020 and make appropriate orders in compliance with the Master Circular dated 01.07.2015. The petition was disposed of with no order as to costs.
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