2024 (6) TMI 837 - BOMBAY HIGH COURT

Willful defaulters - Declaration of loan account as fraud - It is the petitioners case that without issuing any notice to them and without giving an opportunity of hearing, petitioner no. 1 s loan account has been declared to be a fraud account under the RBI s Master Directions on Fraud - HELD THAT - It is not disputed that the fraud declaration is issued without giving an opportunity of hearing to the petitioners. Respondents were unable to place on record any document to indicate that any show cause notice with regard to the declaration of fraud was served upon the petitioners and that the copy of the fraud declaration was intimated to the petitioners. So far as the fraud declaration is concerned, the same is governed by RBI s Master Directions on Fraud. The willful defaulter orders are issued under the RBI s Master Circular. Though show cause notice was issued and a personal hearing was given to the petitioners before issuing the willful defaulter orders, a perusal of the show cause notice indicates that except for calling upon the petitioners to explain the allegations made in the show cause notice, no material was supplied to the petitioners indicating as to on what basis the respondent bank arrived at a prima facie opinion that petitioners are willful defaulters. A perusal of the allegations in the show cause notice and the observations made by WDIC and the review committee indicates that the grounds accepted by WDIC and the review committee does not form part of the allegations in the show cause notice. Thus, the petitioners are justified in making a grievance that respondent bank has not followed the basic principles of natural justice before declaring the petitioners as willful defaulters - It is a matter of record that the prima facie view taken by the bank in the show cause notice was not supported by any material supplied to the petitioners. Thus, the petitioners accused of being willful defaulters were unable to discharge their burden to prove their innocence. The orders declaring the petitioners as willful defaulters results into serious civil consequences. Hence, the bank is under obligation to provide all the material relied upon to form prima facie opinion for calling upon the noticee to issue show cause. Thus, the orders passed in both petitions, declaring the petitioners as willful defaulters, suffer from a breach of principles of natural justice and thus are arbitrary, which deserve to be quashed and set aside. Orders passed in the case of Immense Packaging Private Limited and Govinda Industries Private Limited, declaring the petitioners as willful defaulters, are quashed and set aside - fraud declarations declaring the account of Immense Packaging Private Limited and Govinda Industries Private Limited are quashed and set aside. Petition allowed in part.