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TMI Blog2020 (7) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - W.P. No.78 of 2020 - - - Dated:- 26-6-2020 - Hon ble Justice Sabyasachi Bhattacharyya For the petitioners: Mr. Joy Saha, Mr. Sarojit Dasgupta, Mr. Meghajit Mukherjee, Mr. Vikas Tewari, Mr. Varun Pradha For the respondents : Ms. Deblina Lahiri, Mr. Shibaji Kumar Das, Mr. Mrinmoy Chatterjee, The Court:- The present challenge is against the decision of the Wilful Defaulter Identification Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners did not appear for personal hearing before the WDIC but sent another letter dated July 2, 2019 praying for sanction of the aforementioned OTS proposal. The WDIC held its meeting on July 3, 2019, in the absence of the petitioners, and declared the petitioners to be wilful defaulters on the reasons as recorded in the minutes of the said meeting. Such decision was communicated to the petitioners on January 18, 2020. Hence the writ petition has been filed with its three-pronged challenge, as stated above. The parties and counsel were gracious enough to file written notes of their respective arguments, apart from oral hearing having been held in the matter. The petitioners contend that the Show Cause Notice dated April 6, 2019 was issued by an Assistant General Manager of the Bank, who did not qualify even for being a member of the WDIC. As per Clause 3 (a) of the Master Circular issued by the Reserve Bank of India (RBI), such a committee has to be headed by an Executive Director or equivalent and should consist of two other senior officers of the rank of GM/DGM. As such, the Show Cause Notice, which was the genesis of the entire chain of events declaring the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Bank of India v. Jah Developers, reported at AIR 2019 SC 2854, to argue that the petitioners were free to represent against the decision of Wilful Defaulter within 15 days before the Review Committee, learned senior advocate for the petitioners argues that the ratio in the said reported judgment does not convert the Review Committee into an appellate authority but only provides for representation before the Review Committee since the proceedings before such committee would be more tangible and meaningful . Moreover, alternative remedy is not an absolute bar, as held in Whirlpool Corporation v. Registrar of Trade Marks, reported at (1998) 8 SCC 1. Learned counsel for the petitioners further contends that the classification of the petitioners as wilful defaulters was mala fide, high-handed, in colourable exercise of authority and an afterthought. This proposition is sought to be demonstrated by the delay in communication of the order declaring the petitioners wilful defaulters, which was passed on July 3, 2019, but was communicated only on January 18, 2020. Such delay of over 6 months remains unexplained by the respondents, according to the petitioners. The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marily due to the reduction of ₹ 476 lakh in receivables of the petitioner no. 1-company between March 31, 2015 and June 31, 2016 being treated by the WDIC to imply receipt of such amount by the company, which contradicted with the total credit turnover of the company for the financial year 2015-2016, the latter being ₹ 52 lakh, and the difference of ₹ 424 lakh between the two figures being deemed as siphoned-off funds. As per the petitioners, the recovery and/or realization of the petitioner no. 1-company for the financial year 2015-2016 was not ₹ 476 lakh, as alleged, but ₹ 970 lakh and the same was spent by the company during the said financial year in usual and normal course of business, some details of which were provided by the petitioners. The said expenditure, the petitioners sought to explain, was by way of repayment to the respondent no.1-bank to the tune of ₹ 52 lakh, another ₹ 515 lakh for purchase of assets required in the conduct of the business of the petitioner no.1 and payment of ₹ 413.6 lakh to SREI Infrastructure Finance Limited. Certain documents pertaining to a schedule containing the list of assets alleged to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-bank sent a letter dated January 16, 2018 to the petitioner, asking for an explanation for the aforesaid irregularities, to which the petitioner no. 1 replied, vide letter dated February 12, 2018 which, according to the respondent no. 1, offered only a vague explanation and lack of viable reasoning and justification. Such allegation is denied by the petitioners, who also submit that an allegation of wilful default cannot be substantiated, maintained or justified on the strength of alleged vagueness or ambiguity in the answer to a letter. The fourth allegation speaks of fake title deeds being submitted by the borrower with a mala fide intention to defraud the bank, for which complaint was allegedly lodged by the respondent no. 1-bank with the Central Bureau of Investigation (CBI), EOW, Kolkata on July 28, 2012. In answer, the petitioners deny such allegation as to submission of fake title deeds. It is sought to be elaborated that the concerned title deeds dated July 29, 2009, executed by late Murari Mohan Kejriwal, registration details of which are given in the written notes of the petitioners, were genuine and above suspicion. Such allegation, it is submitted, was never raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yet reviewed by the WDRC), the petitioners could not have approached this court by way of the present writ petition. In view of State Bank of India v. Jah Developers (supra), communication of the declaration of the first committee (WDIC) to the borrower is mandatory, the respondents contend. Hence, in the present case, the communication of the declaration dated July 3, 2019 was made to the petitioners vide letter dated January 18, 2020. On receipt of such communication, the borrowers/petitioners had the right of representation, both on law and facts, before the Wilful Defaulter Review Committee (WDRC) within 15 days. Instead, the petitioners approached this court. Therefore, it is argued, since the order dated July 3, 2019 is not a final order unless confirmed by the WDRC, within the scheme of the Circular of 2015 and the judgment referred to immediately above, the writ petition is premature and not maintainable. As far as the challenge to the show cause notice dated April 6, 2019 is concerned, the petitioners allegedly never raised the same previously; rather, they chose to exchange correspondences with respect of the same and had been given ample opportunities by inspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gist of the said argument is stated here: The first reason, with corroborative evidence, is said to conform to Guidelines 2.1.3(a), 2.2.1(d) and 2.2.2 of the Master Circular No. DBR.No.CID.BC.22/20.16.003/201516 dated July 1, 2015. It is alleged that no satisfactory reply was submitted by the petitioners to the WDIC in that regard and the explanation sought to be afforded by the petitioners, as to the difference in receivables not being reflected in the cash credit account of the petitioners, could not be proved beyond doubt. The modes of expenditure given in the petitioners repayment should have been routed, according to the respondents, through the cash credit account only, as the respondent no. 1 is the sole banker of the petitioner no.1. Keeping the petitioners account with the respondent no.1 NPA , repayment of loan to NBFC and purchase of assets through another bank account is not permissible. The second reason in the show cause is submitted to be in line with Guideline 2.2.1(b) of the said Master Circular dated July 1, 2015. The respondents argue that the petitioners could not prove the fact that they had submitted the bill of purchase of assets or compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is further alleged that the petitioners defaulted in repayments under the One Time Settlement scheme and sought to mislead by connecting the same with the exemption of their liability, which was apparently mentioned in the OTS sanction letter dated March 16, 2015, in particular covered by item nos. 7 and 9 thereof. This indicates the fraudulent motive of the borrower, which wilfully siphoned off the bank s funds. The respondents allege that the petitioners are adopting delaying tactics at each step of recovery undertaken by the respondent no. 1-bank. Irrelevant correspondence is being sent to buy time, by suppressing material facts. The next argument of respondents counsel is directed at the conduct of the petitioners in replying to the show cause notice dated April 6, 2019. Although the petitioners were required to reply to the notice within 15 days from the date of its receipt, the petitioners wrote a letter dated April 29, 2019 requesting certain information/documents/clarification from the WDIC. The borrower was given inspection of the required documents on June 18, 2019 and was granted an extension of 15 days for putting in their reply. However, vide letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents reiterate that the petitioners adopted dilatory tactics despite getting ample opportunity, including inspection of the required documents as sought for. However, the WDIC considered the reply received from the petitioners, although it was beyond time. However, a perusal of the reply to the show cause dated June 29, 2019, submitted on July 1, 2019 by the petitioner no. 1, only makes it evident that the said reply did not adequately deal with the reasons and evidence indicated in the show cause notice. The respondents further submit that the petitioners OTS proposal was initially sanctioned, giving the latter considerable time for payment, which the petitioners failed to meet. The petitioners also violated the terms of sanction while, on the other hand, the bank proceeded in terms of the guidelines issued by the RBI. The issue to be decided at the outset is the scope of interference by a writ court in the matter. Injustice is the key trigger for interference, in whatever language couched. It may be in the form of violation of a fundamental right or tenets of Natural Justice, or in the form of arbitrariness, gross miscarriage of justice, a patent illegality or exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h parties, was supported by enough reasons to satisfy judicial conscience. The declaration was also preceded by a proper show cause notice dated April 6, 2019, which was fully in consonance with the guidelines provided in the RBI Master Circular dated July 1, 2015. The grounds stated in the show cause notice cannot be said to have traversed de hors the specific provisions, particularly Clause 3, of the said guidelines which furnish the indicators for arriving at a finding of wilful defaulter. A notice (show cause notices included), it is by now well settled, ought not to be looked in to with a view to find a technical fault therein but has to be read as a whole. In the present case, the show cause notice-in-question was amply clear as to the grounds which the borrower would have to meet in the hearing. As regards the alleged non-service of notice on some of the petitioners, since notice was admittedly served on the petitioner no.1-company, petitioner nos. 2 to 4 are deemed to have the same too, since their declaration as wilful defaulters was not merely in their individual capacities but due to acts committed as directors of the petitioner no. 1 too. Feigning ignorance under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke the alleged factual incorrectness of the visit of the bank s officials to the unit of the petitioner no.1, are mostly technical in nature and are not relevant or germane in the context. As correctly argued by learned counsel of the respondents, a visit to the registered office or production unit of the company is sufficient to afford the borrower enough opportunity to produce all relevant papers regarding the alleged purchase of assets and establishing satisfactorily the channelization route of the loan. Evidence on trial to examine the factual correctness of the factum or situs (unit/factory or registered office of the borrower-company) of visit by the bank officials is irrelevant, unnecessary and beyond the scope of the instant writ petition. It was the duty of the petitioners to produce documents to the satisfaction of the bank to dispel the allegations of financial misconduct committed by the petitioners, which they failed to do. None of the allegations levelled in the show cause notice was properly met by the petitioners, which is borne out by the reasoning leading to the declaration of wilful defaulter, as found in the impugned order of the WDIC dated July 3, 2019. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther proceeding which may, in any way, relate to the pending proceeding will have to be initiated before and taken up by the Registrar and the High Court will then act as the appellate authority of the Registrar under Section 109 of the Act-in-question. On the other hand, it was held, if the proceedings are pending before the High Court, the Registrar will keep his hands off and not touch those or any other proceedings which may, in any way, relate to those proceedings, as the High Court, under Section 3 of the 1958 Act, besides being the appellate authority of the Registrar, has primacy over the Registrar in all matters under the Act. However, the context is entirely different in the present case, as the previous legal position, as laid down in the RBI Master Circular of July 1, 2013, had changed with the July 1, 2015 Circular and the review committee was conferred jurisdiction to review the first decision of the wilful defaulter identification committee. So there arises no question of any concurrent jurisdiction, which was required to be clarified in the cited judgment under discussion, since the High Court has been conferred both original and appellate powers, the first of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligation 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. As such, the element of neutrality (not so convincingly, though), can arguably be said to be a shade ahead in case of a formally constituted identification committee than the bank itself, which acts as a judge, jury and executioner in its own cause, albeit within a legal framework, under the SARFAESI Act. That apart, the consequences of a wilful defaulter decision are preliminary in nature and amenable to review on facts as well as law by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets was not routed through the respondent no. 1-bank, who was supposed to be sole banker of the petitioner no. 1 during the relevant period. On demand, the petitioners failed to produce relevant papers pertaining to such purchase of assets and repayment of term loan to SREI to the satisfaction of the respondent no.1-bank. Instead, the petitioners chose to bide time unnecessarily by seeking extension after extension of the time to file their reply to the bank s show cause notice, filed such notice late and even did not attend the personal hearing afforded to the petitioners, repeating their protracting methods by seeking for another adjournment. The petitioners found time to approach this court directly, but not to file a representation to the review committee specifying their objections within the time granted by the WDIC, in consonance with the RBI guidelines. In fact, the declaration of wilful defaulter by the WDIC has not yet attained finality sans confirmation by the review committee, before which the petitioners had a remedy in law as well as on facts. No rare or exceptional case has been made out by the petitioners to justify interference by this court in its writ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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