2019 (8) TMI 1142 - HC - Insolvency and Bankruptcy

Wilful Defaulters - Master Circular on Wilful Defaulters of Reserve Bank of India dated July 1 2015 - Validity of decision of the Review Committee established under the provisions of the Master Circular on Wilful Defaulters issued by the Reserve Bank of India - HELD THAT - In neither of the two writ petitions before the Court the petitioners therein have challenged the decision of the Identification Committee or the steps and procedures taken upto the decision of the Review Committee. The Master Circular on Wilful Defaulters dated July 1 2015 contemplates two tier decision making process for the purpose of identification of a wilful defaulter. The Master Circular contemplates establishment of an Identification Committee consisting of the specified number of personnel with the requisite qualifications and the Constitution of a Review Committee again of the requisite number and qualification. Once such committees are established the Master Circular requires that a bank having material to proceed against an account to have the same declared as a wilful defaulter under such Master Circular to place such material before the Identification Committee. Upon the Identification Committee being satisfied with the sufficiency of the materials placed before it and is of the view that there are sufficient grounds to suspect that the account can be classified as a wilful defaulter then it is required to issue a show-cause notice to the account holder for such account holder to respond thereto. The response is thereafter considered by the Identification Committee. If the decision of the Identification Committee is adverse to the account holder then the account holder is at liberty to prefer an appeal before the Review Committee within the period stipulated. On such an appeal the Review Committee is to decide such appeal in accordance with law. In the present case the decision of the Review Committee under challenge is not informed with reasons. Although the Review Committee is at liberty to concur with the finding of the Identification Committee it has to deal with the representation made by the borrower before it - The challenge of the petitioners being limited to the order of the Review Committee the same is quashed. Petition disposed off.

Summary

Issues:
Challenges to decision of Review Committee under Master Circular on Wilful Defaulters; Locus standi of petitioners; Compliance with notice and hearing requirements; Applicability of judgments in similar cases.

Analysis:
The High Court of Calcutta considered two writ petitions challenging a decision of the Review Committee under the Master Circular on Wilful Defaulters issued by the Reserve Bank of India. The first petition was filed by a company receiving credit facilities from UCO Bank, which faced insolvency proceedings. The second petition was filed by guarantors of the credit facilities. The petitioners argued that they were not given a hearing by the Identification or Review Committees, as required by the Circular. They cited relevant judgments to support their contention that a notice of hearing is mandatory. The Court noted that the Review Committee's decision lacked reasoning and ordered its quashing.

The Bank, represented by an advocate, questioned the locus standi of the person verifying the first petition, arguing that since a liquidator was appointed over the company's affairs and was not prosecuting the petition, it should be held as not maintainable. The Bank's advocate also contended that since the Review Committee did not have the benefit of a specific judgment, its decision should not be faulted. However, the Court emphasized the importance of notice and hearing in such proceedings under the Master Circular.

In both petitions, the challenge was focused on the decision of the Review Committee, with no challenge to the Identification Committee's decision or procedures leading up to the Review Committee's decision. The Court clarified the two-tier decision-making process outlined in the Master Circular, emphasizing the need for proper notice, response, and reasoned orders by the Committees. The Court highlighted that the Review Committee must consider the borrower's representation before making a decision.

Ultimately, the Court quashed the challenges limited to the Review Committee's decision, emphasizing that the petitioners did not challenge the Identification Committee's orders. The Court directed the Bank to restart the process under the Master Circular from the stage of the Identification Committee's decision. Both writ petitions were disposed of with no order as to costs. The judgments cited in similar cases were considered for their relevance in interpreting the requirements of the Master Circular on Wilful Defaulters.