2015 (12) TMI 1381 - HC - Indian Laws

Whether Loan defaulters have Right of representation though an advocate before the Grievance Redressal Committee (GRC) of the Bank - willful defaulter - The appellant Punjab National Bank (PNB) in LPA No.589/2014 proposed to so classify the respondents No.1 to 3 i.e. Kingfisher Airlines Limited, United Breweries (Holdings) Ltd. and Dr. Vijay Mallya as wilful defaulters and gave an opportunity to the said respondents to represent thereagainst; the respondents, besides representing, sought a hearing - Held that - The restriction placed by the Grievance Redressal Committee (GRC) of the appellant banks to appearance on behalf of borrowers of advocates before it, not by any law but otherwise, cannot be sustained and has to be held to be bad. We are also of the view that the entire opposition of the GRC of the appellant banks to appearance of is based on an illogical presumption of the same delaying the proceedings before it. We do not find any basis for such apprehension. There is no basis for the Bank / FIs to form an opinion that while the defaulting borrower and / or his representatives would not delay the proceedings, an advocate appearing for them would. Moreover the members of GRC can always control and guide the proceedings before it and as per the exigencies limit the time of hearing. We therefore conclude that the GRC of the appellant banks erred in denying representation through the advocates to the respondent. We further hold that the borrowers or the Banks/FIs who are proposed to be classified/ declared as wilful defaulters and are given an opportunity of hearing before the GRC are entitled to be represented therein through advocates. We however hasten to clarify that the GRC would be fully empowered to control including as to the duration and guide the hearing and if finds dilatory and vexatious tactics being adopted, to take suitable consequential actions. The appeals are accordingly dismissed. The appellant banks to proceed to fix a date of hearing before their GRC, to proceed with their proposal for declaring the respondents as wilful defaulters

Issues Involved:
1. Whether a person proposed to be classified as a wilful defaulter by a Bank/Financial Institution (FI) has a right to be represented by an Advocate in the hearing before the Grievance Redressal Committee (GRC).

Detailed Analysis:

1. Background and RBI Circular:
The Reserve Bank of India (RBI) issued a Master Circular on 1st July 2013, consolidating instructions on wilful defaulters. This Circular mandates banks/FIs to identify wilful defaulters, notify them, and provide an opportunity for representation and hearing before a GRC. The GRC is to be headed by the Chairman and Managing Director and include two senior officials.

2. Case Context:
The appellant, Punjab National Bank (PNB), proposed to classify certain respondents as wilful defaulters. The respondents sought representation by a Senior Advocate during the GRC hearing, which PNB objected to, leading to the filing of a writ petition.

3. Single Judge's Findings:
The Single Judge held that:
(i) Denial of legal representation violates natural justice when pitted against legally trained minds.
(ii) Adverse decisions by the GRC significantly impact the respondents.
(iii) Adequate representation is necessary for fairness.
(iv) Representation by an Advocate is not integral to natural justice but may be necessary to avoid handicap.
(v) Serious civil and pecuniary consequences necessitate legal representation.
(vi) The respondents should be allowed legal representation with time-bound submissions.

4. Appeal and Arguments:
PNB argued that allowing legal representation would delay proceedings and cited several Supreme Court judgments to support their stance. Conversely, the respondents argued that:
(i) The RBI Circular's interpretation necessitates RBI's involvement.
(ii) Serious consequences of being declared a wilful defaulter justify legal representation.
(iii) The absence of an express prohibition in the Circular implies no bar on legal representation.
(iv) The complexity of financial transactions warrants professional legal assistance.

5. Legal Precedents and Analysis:
The Court reviewed various judgments and legal principles, including:
(i) The right to legal representation in quasi-judicial proceedings.
(ii) The nature of the GRC as a Tribunal under Section 30 of the Advocates Act, 1961.
(iii) The severe consequences of being declared a wilful defaulter, impacting commercial reputation and operations.
(iv) The necessity of fairness and transparency in the GRC proceedings.

6. Conclusion:
The Court concluded that:
(A) The ramifications of being labeled a wilful defaulter are severe, impacting credit facilities and commercial reputation.
(B) The GRC's proceedings are adversarial, requiring the borrower to rebut evidence and arguments presented by the bank.
(C) The complexity of financial transactions necessitates professional legal assistance for fairness.
(D) The GRC qualifies as a Tribunal under Section 30 of the Advocates Act, entitling advocates to practice before it.
(E) Denial of legal representation would result in discrimination and undermine the fairness of the process.

7. Final Judgment:
The appeals were dismissed, and it was held that borrowers proposed to be classified as wilful defaulters are entitled to legal representation before the GRC. The banks were directed to proceed with the hearings, allowing advocate representation, with the GRC empowered to control the proceedings and prevent dilatory tactics.

Summary:
The High Court held that individuals proposed to be classified as wilful defaulters by banks/FIs have the right to legal representation during GRC hearings. The Court emphasized the severe consequences of such classification and the necessity for fairness and transparency, concluding that the GRC qualifies as a Tribunal under the Advocates Act, thus entitling advocates to practice before it. The appeals were dismissed, and banks were directed to proceed with hearings, allowing advocate representation.

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