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TMI Blog2021 (12) TMI 1485X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent no.2-bank whereby the Willful Defaulters Review Committee of respondent no.2-bank has confirmed the decision of Willful Defaulter Committee to declare the petitioners as "Willful Defaulters" and has further informed the petitioners to report their names to all Credit Information Companies and/or RBI. 4. Brief facts of the case are as under : 4.1) Respondent no.2-bank sanctioned Working Capital assistance to the petitioner company, which was renewed/enhanced from time to time and last renewal was done in the year 2012 comprising fund based limits of Rs. 25 crores and non-fund based limits of Rs. 50 crores. 4.2) The said facility was restructured vide sanction letter dated 20th August, 2014 after which the fund based limit was Rs. 43.48 crores and non-fund based limit was Rs. 50 crores. 4.3) A show cause notice was issued on 27th March, 2019 to the petitioners by respondent no.2 to show cause as to why the names of the petitioners should not be reported as "Willful Defaulters" to Reserve Bank of India to which the petitioners gave a detailed reply on 22nd April, 2019. 4.4) It is the case of the petitioners that respondent no.2 vide letter dated 3rd May, 2019 had mec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondents-authorities, the petitioners have preferred the present petition. 5. The learned advocate Mr. S.P. Majmudar appearing for the petitioners submitted that the petitioners were not provided with the orders passed by the Identification Committee and the Review Committee declaring the accounts of the petitioners as willful defaulter and therefore, the petitioners are unable to defend themselves as they are not aware about the reasons for such declaration. It was therefore, submitted that there is a gross violation of principles of natural justice by not providing any opportunity of hearing to the petitioners. 5.1) The learned advocate Mr. Majmudar would submit that the petitioners have not taken any loan from the respondent bank and the petitioners cannot be termed as willful defaulters as defined under Clause 2.1.3 of the RBI Circular and as such the petitioners cannot be classified as willful defaulter. 5.2) The learned advocate Mr. Majmudar further submitted that the Identification Committee has not issued any notice as required under Clause 3(b) of the RBI Circular and the notice given by the respondent bank is against the prescribed procedure provided under Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to know the reasons for rejection of the grounds raised by them in the reply filed before the respondent Bank as also as to why the petitioners have not been granted the opportunity of personal hearing. 5.6) Learned advocate Mr. Majmudar in support of his submissions relied upon the following decisions: 1. State Bank Of India Vs. Jah Developers Private Limited And Others reported in (2019) 6 SCC 787 2. M/s. Kanchan Motors and others vs. Bank of India and others reported in 2018 SCC OnLine Bom 1761. 3. Anil Products Limited Vs. Commissioner of Central Excise Ahmedabad - II reported in 2010 SCC OnLine Guj 1038. 6. On the other hand, the learned Senior Advocate Mr. Navin Pahwa with learned advocate Mr. Narendra Khare for the respondent no.2 IDBI Bank Limited supported the decision of the Identification Committee as also the Review Committee and submitted that there was no necessity to supply the copy of the order of the Identification Committee. 7. Having heard the learned advocates for the respective parties and having gone through the materials on record, in order to appreciate the contentions raised by the respective parties, it would be germane to refer to few Claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay initiate criminal proceedings against willful defaulters, wherever necessary. c. Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the willfully defaulting borrower unit. d. A covenant in the loan agreements, with the companies to which the banks/ FIs have given funded/ nonfunded credit facility, should be incorporated by the banks/ FIs to the effect that the borrowing company should not induct on its board a person whose name appears in the list of willful defaulters and that in case, such a person is found to be on its board, it would take expeditious and effective steps for removal of the person from its board. It would be imperative on the banks and FIs to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should also be ensured that a solitary or isolated instance is not made the basis for imposing the penal action. Clause no.3 : Mechanism for identification of willful defaulters. The mechanism referred to in paragraph 2.5 above should generally include the following : (a) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal hearing to the borrower and promoter, whole time director or the persons, who are to be considered as willful defaulter and the decision of such Identification Committee is to be reviewed by any other Committee, which is Review Committee as per Clause-3(c) of the Master Circular. 9. The Division bench of the Bombay High Court in case of M/s. Kanchan Motors and others vs. Bank of India and others reported in 2018 SCC OnLine Bom 1761 has held as under with regard to violation of principles of natural justice as under: "14. On the close scrutiny of the aforesaid provisions of Master Circular, it is clear that the consequences of declaring any lender as wilful defaulter are serious in nature. It is also clear that for declaring a lender to be wilful defaulter specific finding is required to have been recorded in terms of Clasue 2.1.3(a) to (d) as the case may be. The Master Circular also provides a mechanism to be adopted for identifying the wilful defaulter. It includes, availability of evidence of wilful default on the part of borrowing company and its promoter/whole-time director which needs to be examined by the Identification Committee. If the Committee concludes that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons reads thus: "The Review Committee has examined and reviewed the proceedings initiated order and the findings of the Identification Committee and found that they are in order and confirmed that you have committed the following willful default: - (Reasons) The unit has defaulted reasons in meeting its payment/repayment obligation to the lender and has not utilized the finance from lender even when it has capacity to honour the said obligations." 17. This according to our considered view the order of the Review Committee cannot be termed as reasoned order and as such it cannot be sustained. 18. We are also of the considered view that the Respondent Bank cannot be allowed to say that it is not necessary for them to supply copy of the order passed by the Identification Committee. As would be clear from Clause 3(b) of the Master Circular the Identification Committee has to record reasons while passing the order of recording the fact of commission of wilful default as also to assign valid reasons as to whether it is necessary to give the borrower and the the promoter/whole time director the opportunity of personal hearing. This requirement whether has been complied with or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified. Similarly absence of reasons in the order of Review Committee also amounts to denial of justice. It is now well settled that reasons are the live links between the minds of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity to objectivity right to reason is an indispensable part of sound judicial system. The rational is that the affected party can know why the decision has gone against him. One of the statutory requirement of the natural justice is spelling out reasons for the order made, in other words a speaking order. Even in respect of administrative order the giving of reasons is one of the fundamentals of good administration." 10. The Apex Court in case of State Bank Of India Vs. Jah Developers Private Limited and Others (Supra) while denying the right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 01.07.2015, has held that Revised Circular, being in public interest, must be construed reasonably as under: "15. The next question that arises is whether an oral hearing is required under the Revised Circular dated 1-7- 2015. We have alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the compulsive pressure of circumstances. To burke it altogether may not be a stroke of fairness except in very exceptional circumstances. Even in Wiseman [Wiseman v. Borneman, 1971 AC 297 : (1969) 3 WLR 706 (HL)] where all that was sought to be done was to see if there was a prima facie case to proceed with a tax case where, inevitably, a fuller hearing would be extended at a later stage of the proceedings, Lord Reid, Lord Morris of Borth-y-Gest and Lord Wilberforce suggested 'that there might be exceptional cases where to decide upon it ex parte would be unfair, and it would be the duty of the tribunal to take appropriate steps to eliminate unfairness' (Lord Denning, M.R., in Howard v. Borneman (2) [Howard v. Borneman (2), 1975 Ch 201 : (1974) 3 WLR 660 (CA)] summarised the observations of the Law Lords in this form). No doctrinaire approach is desirable but the court must be anxious to salvage the cardinal rule to the extent permissible in a given case. After all, it is not obligatory that counsel should be allowed to appear nor is it compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enunciated. In the last analysis, a decision has to be reached on a case to case basis on situational particularities and the special requirements of justice of the case (see para 8). 19. In Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi [Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 : 1993 SCC (L&S) 360] , this Court held that a workman under the Industrial Disputes Act, 1947 has no right, under principles of natural justice, that he must be represented by counsel. After discussing several judgments, this Court concluded: (SCC pp. 126-27 & 129, paras 12-13 & 17) "12. From the above decisions of the English Courts it seems clear to us that the right to be represented by a counsel or agent of one's own choice is not an absolute right and can be controlled, restricted or regulated by law, rules or regulations. However, if the charge is of a serious and complex nature, the delinquent's request to be represented through a counsel or agent could be conceded. 13. The law in India also does not concede an absolute right of representation as an aspect of the right to be heard, one of the elements of principle of natural justice. It ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinarily in a domestic/departmental enquiry the person accused of misconduct has to conduct his own case vide N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914] Such an inquiry is not a suit or criminal trial where a party has a right to be represented by a lawyer. It is only if there is some rule which permits the accused to be represented by someone else, that he can claim to be so represented in an inquiry vide Brooke Bond (India) (P) Ltd. v. S. Subba Raman [Brooke Bond (India) (P) Ltd. v. S. Subba Raman, (1961) 2 LLJ 417 (SC)] . 10. Similarly, in Cipla Ltd. v. Ripu Daman Bhanot [Cipla Ltd. v. Ripu Daman Bhanot, (1999) 4 SCC 188 : 1999 SCC (L&S) 847] it was held by this Court that representation could not be claimed as of right. This decision followed the earlier decision Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union [Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union, (1999) 1 SCC 626 : 1999 SCC (L&S) 361] in which the whole case law has been reviewed by this Court. 11. Following the above decision it has to be held that there is no vested or absolute right in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded with reference to accounts and the petitioner required the services of a trained lawyer for cross-examining the witnesses. There was no legal complexity in the case. We do not, therefore, accede to the contention that the absence of a lawyer deprived the appellant of a reasonable opportunity to defend himself." 22. Also, in National Seeds Corpn. Ltd. v. K.V. Rama Reddy [National Seeds Corpn. Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 : (2007) 1 SCC (L&S) 512] , this Court laid down: (SCC p. 648, para 7) "7. The law in this country does not concede an absolute right of representation to an employee in domestic enquiries as part of his right to be heard and that there is no right to representation by somebody else unless the rules or regulation and standing orders, if any, regulating the conduct of disciplinary proceedings specifically recognise such a right and provide for such representation: see N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914], Dunlop Rubber Co. (India) Ltd. v. Workmen [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 : AIR 1965 SC 1392],Crescent Dyes and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt's order is, therefore, unsustainable and is set aside." 24. Given the above conspectus of case law, we are of the view that there is no right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 1- 7-2015, as it is clear that the events of wilful default as mentioned in Para 2.1.3 would only relate to the individual facts of each case. What has typically to be discovered is whether a unit has defaulted in making its payment obligations even when it has the capacity to honour the said obligations; or that it has borrowed funds which are diverted for other purposes, or siphoned off funds so that the funds have not been utilised for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show-cause notice to elicit the borrower's submissions on the same. However, we are of the view that Article 19(1)(g) is attracted in the facts of the present case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice and the notice was issued by the respondent bank to which the petitioners filed detailed reply but the order passed by the Identification Committee recording that the petitioners have committed willful default was never provided to the petitioners. The petitioners came to know about declaring them as willful defaulter only from the website of CIBIL. 12. It emerges from the record that the copy of the order passed by the Identification Committee was never supplied to the petitioners even though written request for the same was made by the petitioners. In view of the above facts and circumstances, the respondent bank while declaring the petitioners as willful defaulter has violated the provisions contained in the Revised Master Circular and has also acted in violation of principles of natural justice. As the impugned action which is penal in nature has been taken causing serious implication to the petitioners without following the basis of principles of natural justice, the impugned action of the respondent bank identifying the account of the petitioners as willful default and subsequent reporting of name of the petitioners to the RBI/CIBIL as willful defaulters are liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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