2019 (5) TMI 862 - SC - Indian Laws

Representation by a lawyer of own choice - Wilful Defaulter - whether when a person is declared to be a wilful defaulter under the Circulars of the Reserve Bank of India, such person is entitled to be represented by a lawyer of its choice before such declaration is made? HELD THAT - The in-house committees are not vested with any judicial power at all, their powers being administrative powers given to inhouse committees to gather facts and then arrive at a result. Secondly, it cannot be said that the Circulars in any manner vests the State s judicial power in such in-house committees - No lawyer has any right under Section 30 of the Advocates Act to appear before the in-house committees so mentioned. Further, the said committees are also not persons legally authorised to take evidence by statute or subordinate legislation, and on this score also, no lawyer would have any right under Section 30 of the Advocates Act to appear before the same. Whether an oral hearing is required under the Revised Circular dated 01.07.2015? - HELD THAT - The said Circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. There is no right to be represented by a lawyer in the in-house proceedings contained in paragraph 3 of the Revised Circular dated 01.07.2015, as it is clear that the events of wilful default as mentioned in paragraph 2.1.3 would only relate to the individual facts of each case. What has typically to be discovered is whether a unit has defaulted in making its payment obligations even when it has the capacity to honour the said obligations; or that it has borrowed funds which are diverted for other purposes, or siphoned off funds so that the funds have not been utilised for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show cause notice to elicit the borrower s submissions on the same. Article 19(1)(g) is attracted in the facts of the present case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate. This is for the reason that no additional facilities can be granted by any bank/financial institutions, and entrepreneurs/promoters would be barred from institutional finance for five years. Banks/financial institutions can even change the management of the wilful defaulter, and a promoter/director of a wilful defaulter cannot be made promoter or director of any other borrower company. Equally, under Section 29A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot even apply to be a resolution applicant. Given these drastic consequences, it is clear that the Revised Circular, being in public interest, must be construed reasonably. The Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following paragraph 3(b) of the Revised Circular dated 01.07.2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full representation on facts and law (if any). The Review Committee must then pass a reasoned order on such representation which must then be served on the borrower. Appeal allowed.

Summary

Issues Involved:
1. Whether a person declared as a wilful defaulter under RBI Circulars is entitled to legal representation before such declaration.
2. Whether the in-house committees constituted under RBI Circulars can be considered as tribunals.
3. Whether an oral hearing is mandatory under the Revised Circular dated 01.07.2015.
4. Whether the right to legal representation is part of natural justice.

Issue-wise Detailed Analysis:

1. Legal Representation for Wilful Defaulters:
The primary question addressed was whether a person declared as a wilful defaulter under the RBI Circulars is entitled to be represented by a lawyer before such a declaration is made. The court examined Section 30 of the Advocates Act, 1961, which grants advocates the right to practice before any tribunal or person legally authorized to take evidence. The court also considered the consequences of being classified as a wilful defaulter, including civil and criminal repercussions, and the impact on the fundamental right to carry on business under Article 19(1)(g) of the Constitution. Despite these serious consequences, the court concluded that there is no unconditional right to legal representation in such in-house proceedings, as the Revised Circular dated 01.07.2015 does not mandate it.

2. In-house Committees as Tribunals:
The court analyzed whether the in-house committees constituted under the RBI Circulars could be considered as tribunals. It was determined that for a body to be considered a tribunal, it must be invested with the judicial power of the State to decide a lis (dispute) between parties after gathering evidence and applying the law. The court held that the in-house committees under the Revised Circular do not possess such judicial power and are instead administrative bodies tasked with gathering facts and arriving at a result. Therefore, these committees cannot be considered tribunals, and advocates do not have the right to appear before them under Section 30 of the Advocates Act.

3. Mandatory Oral Hearing:
The court examined whether an oral hearing is required under the Revised Circular dated 01.07.2015. It was noted that the Revised Circular departs from the earlier Master Circular by allowing the First Committee discretion to grant or deny a personal hearing. The court concluded that oral hearings are not mandatory in all cases and that natural justice can be satisfied through written representations. The court referenced previous judgments stating that natural justice is a flexible tool and does not always require oral hearings.

4. Right to Legal Representation as Part of Natural Justice:
The court reviewed various judgments on whether the right to legal representation is part of natural justice. It was determined that there is no absolute right to legal representation in administrative or domestic proceedings unless specifically provided by statute or rules. The court emphasized that the right to be represented by a lawyer depends on the facts and circumstances of each case and the governing rules. In the context of wilful default, the court found that the issues typically involve factual determinations that do not necessitate legal representation.

Conclusion:
The court held that there is no right to legal representation before the in-house committees constituted under the Revised Circular dated 01.07.2015. The committees are not tribunals, and oral hearings are not mandatory. The borrower can make a written representation within 15 days of the First Committee's order, and the Review Committee must pass a reasoned order on such representation. The impugned judgment of the Delhi High Court was set aside, and the appeals were allowed.