2024 (3) TMI 397 - HC - Indian Laws

Declaration of bodies corporate, their promoters and directors, as wilful defaulters - seeking various declaratory reliefs whereby adherence to principles of natural justice, including provision of inspection of relevant material, is sought to be read into the due process stipulated by the Respondent No. 2, the Reserve Bank of India - HELD THAT - The Union Bank is firmly of the view that it is not obligated to provide any material to prove its allegations and that the onus is on the Petitioner to prove his innocence. Therefore, the stance of Union Bank is in conflict with first principles of the rule of law in India. Put differently, once a bank has accused someone of being a wilful defaulter (without providing supporting material), the person accused has to shoulder the onus and burden of proving his innocence. The affidavit in reply makes no bones about the Union Bank s belief that no underlying material needs to be disclosed to any noticee under the Master Circular - There cannot be a concept more alien to the constitutional protections available under the rule of law in India. The aforesaid stance flies in the teeth of the imperative requirements of transparency stipulated by the RBI in the Master Circular. It is now trite law that in proceedings that can inflict serious civil consequences on any citizen, the noticee should be able to appreciate the case made out against him so that he may deal with the allegations to the best of his ability. The only means of doing so is to provide detailed proper notice of the reasons for having formed a prima facie view when calling upon the noticee to show cause why such prima facie view must not translate into a final view. Such an approach would enable the noticee to understand in a cogent manner the case that he is supposed to meet. Union Bank is granted liberty to make a proper disclosure of materials and information on which the SCN is based. Once such disclosure is made to the Petitioner, the Petitioner is at liberty to submit a fresh reply to the SCN, after which a reasoned draft order may be issued by the Identification Committee. This draft order of the Identification Committee shall be served on the Petitioner so as to enable him to make his representation to the Review Committee why the said order ought not to be confirmed. Thereafter, a reasoned final order may be passed by the Review Committee, if it is found that there has been a wilful default attributable to the Petitioner. The Union Bank is permitted to withdraw the final order dated 28th February, 2023 passed by the Review Committee as also the draft order dated 5th August, 2022 purported to have been passed by the Identification Committee, insofar as it relates to the Petitioner - Any agency, including Respondent Nos. 3 to 6, that has published or disseminated the name of the Petitioner identifying him as a wilful defaulter on the strength of the orders that now stand withdrawn by Union Bank, shall forthwith remove such identification from publicly accessible information resources. Petition disposed off.

Summary

Issues Involved:
1. Adherence to principles of natural justice.
2. Provision of inspection of relevant material.
3. Process for declaring a person as a wilful defaulter under the RBI's Master Circular.
4. Compliance with due process and transparency requirements.

Summary of Judgment:

1. Adherence to Principles of Natural Justice:
The Petitioner sought declaratory reliefs to ensure adherence to principles of natural justice, including the provision of inspection of relevant material, in proceedings initiated by the Union Bank of India to declare the Petitioner as a "wilful defaulter."

2. Provision of Inspection of Relevant Material:
The Petitioner requested access to all material and records on which the Show Cause Notice (SCN) was based. This request was reiterated multiple times but was not addressed by Union Bank. The Court emphasized that due compliance with principles of natural justice must include providing access to the material on which allegations are based, as underscored by the Supreme Court in T.Takano Vs Securities and Exchange Board of India & Anr.

3. Process for Declaring a Person as a Wilful Defaulter:
The RBI's Master Circular on Wilful Defaulters outlines a specific process for declaring a person as a wilful defaulter. This includes:
- Examination of evidence by an Identification Committee.
- Issuance of a reasoned draft order.
- Review of the draft order by a Review Committee.
- Finalization of the order upon confirmation by the Review Committee.

The Court found that Union Bank failed to provide a reasoned draft order and did not supply the underlying material to the Petitioner, thereby violating the principles of natural justice.

4. Compliance with Due Process and Transparency Requirements:
The Court highlighted the need for a transparent mechanism as mandated by the RBI's Master Circular, which requires banks to provide detailed and proper notice of reasons for forming a prima facie view and to ensure that the exercise of discretion is reasonable and not arbitrary. The Court referred to previous judgments, including State Bank of India Vs. Jah Developers Private Limited and Others, which emphasized the importance of reasoned orders and the ability of the noticee to make representations.

Findings and Analysis:
The Court found that Union Bank's stance, which asserted that it was not obligated to provide any material to the Petitioner and that the onus was on the Petitioner to prove his innocence, was in conflict with the rule of law. The Court noted that the Review Committee's final order was a near-verbatim replication of the SCN and did not consider the Petitioner's submissions.

Directions Issued:
- Union Bank was permitted to withdraw the final order and the draft order related to the Petitioner.
- Union Bank was directed to supply all material underlying the SCN.
- The Petitioner was granted liberty to provide a fresh reply to the SCN.
- The Identification Committee was directed to deal with the Petitioner's fresh reply and submissions.
- Banks and financial institutions were instructed to identify committee members and share reasoned orders.
- Agencies that published the Petitioner's name as a wilful defaulter were directed to remove such identification.

Conclusion:
The writ petition was disposed of with the Court making the rule absolute in the stated terms and emphasizing that the law declared in this judgment should guide the conduct of proceedings under the Master Circular. No order as to costs was made.