2022 (7) TMI 245 - HC - Companies Law

Wilful Defaulters - Validity of action of the respondent No.2-Bank classifying the petitioners as willful defaulters and publishing their names in the CIBIL list of Willful Defaulters - violation of Section 2(60) of Companies Act, 2013 contrary to the terms of RBI Circular 2015-16/100/DBR No.CID.bc.22/ 20.16.003/2015-16 dt.1.7.2015 - HELD THAT - Admittedly, no show cause notice was served on the petitioners. The Respondent No. 2 was acknowledging the fact that the notices were undelivered though he was contending that he issued notices to the addresses available with them and throwing the blame on the petitioners that it was the petitioners who were required to update their communication address with respondent No.2 from time to time. The learned counsel for the petitioners contended that the respondent banks were regularly in touch with the petitioners and they had the petitioners contact numbers and email addresses but they chose not to resort to any other option in serving the notices and trying to shift the blame on to the petitioners for their non compliance - In order to comply principles of Natural Justice, it was proposed to provide a final opportunity to submit their further representation, if any on the classification as Willful Defaulter and asked them to send their further submission/representation in writing, if any, for consideration by the Review Committee on Willful Defaulters within the 15 days from the date of the letter. Thus it was a notice of information that the matter was sent to the Review Committee but not an opportunity for personal hearing before the Identification Committee. The Hon ble Apex Court in State Bank of India Vs. M/s Jah Developers Private Limited and others 2019 (5) TMI 862 - SUPREME COURT stated the necessity to follow the procedure mandatorily as per the Master Circular dated 1-7-2013 which was revised by the Circular dated 1-7-2015 and that the order of the first Committee after para 3(b) of the revised circular 1-7-2015 must be given to the borrower as soon as it was made so that the borrower could then represent against such order within a period of 15 days to the Review Committee and the Review Committee must then pass a reasoned order on such representation and it should be served on the borrower. The above procedure as mandated under the RBI guidelines as well as the Hon ble Apex Court in Jah Developers case was not followed by the respondent No.2. As per the respondent No.2, the petitioners shared their updated communication address during the lenders meeting held on 7-2-2020. But subsequent to that day also, the previous communications were not shared with the petitioners and the respondent No.2 had not sought any reply/action on the previous actions. Instead of choosing to do so, the respondent No.2 directly jumped on to declare the petitioners as Willful Defaulters without there being any reply from the petitioners - Hence it is considered fit to set aside the action of respondent No. 2 in classifying the petitioners as Willful Defaulters and publishing their names in CIBIL dated 30-9-2020 as violative of Section 2(60) of Companies Act, 2013, contrary to the terms of RBI Circular dated 1-7-2015 and against the law laid down by the Hon ble Apex in State Bank of India Vs. M/s Jah Developers Private Limited and others, and in violation of Principles of Natural Justice and directed to follow the Circular instructions afresh from the beginning. Writ petition disposed off.

Issues Involved:
1. Classification of petitioners as willful defaulters.
2. Publication of petitioners' names and photographs in newspapers/magazines.
3. Compliance with RBI Circular guidelines.
4. Violation of principles of natural justice.
5. Impact on petitioners' rights under Article 19(1)(g) of the Constitution of India.

Detailed Analysis:

1. Classification of Petitioners as Willful Defaulters:
The petitioners challenged the action of respondent No.2-Bank in classifying them as willful defaulters and publishing their names in the CIBIL list of Willful Defaulters on 30.09.2020. The petitioners contended that they were not served with any show cause notice or given an opportunity for a personal hearing before the Identification Committee for Willful Defaulters, as mandated by the RBI guidelines.

2. Publication of Petitioners' Names and Photographs:
The petitioners argued that the notice dated 13.08.2021 proposing to publish their names and photographs in newspapers/magazines was illegal and arbitrary. They claimed that no prior notice was received before the classification as willful defaulters, and the address used by the bank was incorrect. The petitioners feared that such publication would cause irreparable damage to their reputation and business.

3. Compliance with RBI Circular Guidelines:
The RBI Master Circular dated 01.07.2015 outlines the procedure for identifying willful defaulters. The evidence of willful default must be examined by a committee, which should issue a show cause notice and provide an opportunity for a personal hearing. The order of the committee must be reviewed by another committee before becoming final. The petitioners argued that these procedures were not followed, as no show cause notice was served, and the identification committee's order was not communicated to them.

4. Violation of Principles of Natural Justice:
The petitioners contended that the bank's actions violated the principles of natural justice, as they were not given a proper hearing or an opportunity to respond to the allegations. The court noted that the show cause notice dated 02.01.2019 was not served on the petitioners, and the subsequent actions by the bank were in violation of the principles of natural justice.

5. Impact on Petitioners' Rights under Article 19(1)(g):
The petitioners argued that the classification as willful defaulters had severe consequences on their fundamental right to carry on business under Article 19(1)(g) of the Constitution of India. The Supreme Court in State Bank of India Vs. M/s Jah Developers Private Limited emphasized the need for strict adherence to the RBI guidelines due to the significant impact on the borrowers' rights.

Court's Findings:
The court found that the respondent No.2-Bank failed to follow the RBI guidelines and the principles of natural justice. The show cause notice was not served on the petitioners, and the identification committee's order was not communicated to them. The court also noted that the bank did not use alternative means to serve the notice, despite having the petitioners' contact information.

Conclusion:
The court set aside the action of respondent No.2 in classifying the petitioners as willful defaulters and publishing their names in CIBIL dated 30.09.2020. The court directed the bank to follow the RBI Circular instructions afresh from the beginning, ensuring compliance with the principles of natural justice and the guidelines laid down by the Supreme Court in the Jah Developers case.

Order:
The writ petition was disposed of with directions to follow the RBI Circular instructions afresh, and no costs were awarded. All miscellaneous petitions pending were also closed.

← Previous Next →