2020 (12) TMI 1395 - HC - Companies Law

Wilful defaulter - appellants contend that although a demand for payment was made against the borrower company no demand was made against them - HELD THAT - The right of a borrower on review is very fundamental and extensive. It is not the type of review on the narrow grounds conceived of by Order 47 Rule 1 of the Code of Civil Procedure. When the representation is required to be full on facts and law the consideration is also required to be detailed with reasons on each and every point raised. The question whether a copy of the order of the identification committee was served on the appellants or whether upon service the appellants did not make any representation before the review committee, not gone into. These are questions of fact, not discussed by the review committee. There is no scope to enter into this controversy at the appellate stage. The records as shown to us are silent on this point. The communication dated 4th January, 2017 only tell us that the review committee had declined to review the order of the decision of the identification committee. When a relevant fact is not considered while exercising this discretion, the considerations are different and the appeal court has the jurisdiction to set aside or modify the interim order appealed against - It is true that this order of the NCLT was not in existence at the time the review was made by the said committee. It is in existence now. For doing complete justice to the case, it is important that this development is also considered by the review committee. Fresh opportunity granted to the appellants to approach the review committee - application disposed off.

Summary

Issues Involved:
1. Declaration as wilful defaulters.
2. Compliance with RBI Master Circular.
3. Service of adjudication order and opportunity for review.
4. Impact of NCLT resolution plan approval on wilful defaulter status.
5. Delay in filing the writ application and interim order considerations.

Detailed Analysis:

Declaration as Wilful Defaulters:
The appellants, who were directors of a borrower company, were declared wilful defaulters by Vijaya Bank. The bank cited that the company had the capacity to repay but intentionally defaulted. This classification was based on the Master Circular of the Reserve Bank of India dated 1st July 2015. The appellants contested this classification, arguing that their track record was not properly assessed as required by Clause 2.1.3(a) of the Circular, which mandates considering the borrower's track record before declaring them wilful defaulters.

Compliance with RBI Master Circular:
The court scrutinized the adherence to the RBI Master Circular, particularly Clause 2.1.3(a), which defines wilful default as a deliberate and intentional default despite having the capacity to pay. The court found no evidence in the bank's communication that the appellants' track record was considered. The reasoning provided by the bank, that the company was paying other consortium members but not Vijaya Bank, was deemed insufficient. The court emphasized the need for detailed, fact-based reasons to justify the wilful defaulter classification.

Service of Adjudication Order and Opportunity for Review:
The appellants argued that they were not served with the adjudication order, thus preventing them from applying for a review. The court noted that the review committee's decision lacked detailed reasoning and did not discuss whether the appellants had been given an opportunity to represent their case. The Supreme Court's judgment in State Bank of India Vs. Jah Developers Pvt. Ltd. mandates that the identification committee's order be served to the borrower, allowing them to make a full representation to the review committee, which must then pass a reasoned order.

Impact of NCLT Resolution Plan Approval:
A significant development was the approval of a resolution plan by the NCLT under Section 31(1) of the Insolvency and Bankruptcy Code, 2016. The court highlighted the Supreme Court's judgment in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta, which states that once a resolution plan is approved, all claims against the corporate debtor are settled, and the debtor starts with a "fresh slate." The court also referenced a Division Bench judgment which held that upon resolution plan approval, the appellants' names should be removed from the wilful defaulters list if there was no personal guarantee.

Delay in Filing the Writ Application and Interim Order Considerations:
The bank argued that the writ application was delayed and should be dismissed. However, the court found that the approval of the resolution plan by NCLT in 2020 gave rise to a fresh cause of action, making the writ application timely. The court also reconsidered the case for an interim order, noting that the learned single judge did not consider the NCLT order, a relevant fact that warranted appellate intervention.

Conclusion:
The court granted the appellants a fresh opportunity to approach the review committee, directing that the application be considered in light of the principles and observations made in the judgment. The review committee was instructed to provide a reasoned order within eight weeks of the application. The appeal and writ application were disposed of, superseding the impugned order dated 4th September 2020.