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2020 (7) TMI 27 - HC - Indian LawsWilful Defaulters or not - petitioners contend that the Show Cause Notice was issued by an Assistant General Manager of the Bank, who did not qualify even for being a member of the WDIC - Oppression and Mismanagement - siphoning of funds - HELD THAT - The writ petitioners in the instant case had avoided submitting their reply to the show cause notice of the bank, despite getting several opportunities, even within the extended time afforded by the bank. In spite of the delay, although the bank was under no obligation to do so, it dealt with the salient objections raised by the petitioners in their reply, in the impugned order declaring the petitioners to be wilful defaulters. Sufficient reasons were provided for the decision, the factual and legal merits of which are for the review committee, and not this court, under Article 226 of the Constitution, to enter into and decide. Moreover, the purview and context of a notice under Section 13 (2) under the SARFAESI Act are somewhat different from those of a wilful defaulter decision of the WDIC under the RBI guidelines of 2015. Not only are the scope and purpose of the two provisions different, but it is the legally constituted WDIC, and not the concerned bank, which passes such order in the latter case. The fallout of a notice under Section 13(2) is more serious and takes only about two more steps for the bank to take penal action against the borrower under the SARFAESI Act. Hence the scope of interference in writ jurisdiction logically ought to be wider in case of a violation of Section 13(3A), SARFAESI Act than a wilful defaulter declaration, the latter being somewhat more preliminary in nature and subject to further checks and bounds, particularly a confirmation by the review committee upon considering the legality and factual veracity of the declaration. Petition dismissed.
Issues Involved:
1. Validity of the Show Cause Notice issued by an unauthorized official. 2. Alleged denial of Natural Justice to the petitioners. 3. Maintainability of the writ petition due to the availability of an alternative remedy. 4. Allegations of mala fide and delay in communication of the wilful defaulter declaration. 5. Legality of declaring all petitioners as wilful defaulters when the notice was issued to only some. 6. Adequacy and reasoning of the impugned order declaring the petitioners as wilful defaulters. Issue-wise Analysis: 1. Validity of the Show Cause Notice: The petitioners contended that the Show Cause Notice dated April 6, 2019, was issued by an Assistant General Manager of the Bank, who did not qualify to be a member of the WDIC as per Clause 3(a) of the RBI Master Circular. The court noted that the show cause notice was the genesis of the entire chain of events declaring the petitioners to be wilful defaulters and cited the judgment of Jai Balaji Industries Ltd. v. Punjab National Bank, where a notice issued by an unauthorized official was held to be without jurisdiction. 2. Alleged Denial of Natural Justice: The petitioners argued that their reply to the Show Cause Notice, dated June 29, 2019, was not considered by the WDIC on the ground of being late, despite being received by the Bank on July 1, 2019. The court found that the WDIC had considered the reply, although it was beyond the stipulated time, and the petitioners had been given ample opportunities, including personal hearings, which they failed to attend. 3. Maintainability of the Writ Petition: The court addressed the argument that the writ petition was maintainable as there was no equally efficacious alternative remedy. The petitioners contended that the Review Committee could not review the decision due to non-consideration of their representation. However, the court held that the decision of the WDIC could be reviewed by the WDRC, and the petitioners had the right to represent before the Review Committee, making the writ petition premature and not maintainable. 4. Allegations of Mala Fide and Delay in Communication: The petitioners claimed that the classification as wilful defaulters was mala fide and high-handed, demonstrated by the delay in communication of the order. The court found that the delay was justified due to the pendency of previous litigation and that there was no statutory bar on late communication provided sufficient opportunity was given to the borrower. 5. Legality of Declaring All Petitioners as Wilful Defaulters: The petitioners argued that since the show cause notice was issued to petitioner nos. 1 and 2 only, the decision declaring all petitioners, including petitioner nos. 3 and 4, as wilful defaulters was illegal. The court held that since notice was served on the petitioner no.1-company, petitioner nos. 2 to 4 were deemed to have received the same as their declaration was due to acts committed as directors of petitioner no. 1. 6. Adequacy and Reasoning of the Impugned Order: The court found that the declaration of the petitioners as wilful defaulters was backed by sound and feasible reasoning, in line with the RBI guidelines. The grounds stated in the show cause notice were clear and the petitioners had been given several opportunities to present their case. The court held that the impugned order was sufficiently reasoned and justified, and the issues raised by the petitioners were mostly technical and not relevant to the context. Conclusion: The writ petition was dismissed, and the court directed the petitioners to pay costs to the respondents. The petitioners were given liberty to submit a representation to the Wilful Defaulter Review Committee within a specified timeframe, failing which the review committee would proceed without further hearing the petitioners.
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