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TMI Blog2024 (3) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... Energy Ltd., as necessary documents were not available. Merely because necessary documents were unavailable to the Forensic Auditor, the Respondent Bank could not have drawn an inference of diversion of funds. In doing so, the Respondent Bank failed to adhere to the requirement of Clause 2.1.3 read with Clause 2.5 of the Master Circular to identify Wilful Default which is intentional, deliberate and calculated and based on objective facts and circumstances of the case . The Respondent Bank cannot merely quote an observation from the Forensic Audit Report, which itself is not conclusive, and conclude that the same amounts to the diversion of funds. The Petitioner did not furnish his personal guarantee for the CDR package nor did he participate in any of the deliberations for the approval of the CDR package. The lender banks still approved the CDR package and acted upon it without the presence and personal guarantee of the Petitioner. The lender banks, therefore, tacitly acquiesced to the Petitioner s exit from MBSL and approved the CDR package of MBSL without his presence in any capacity or personal guarantee - Further, the undertaking relied upon by the Respondent Bank was not give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke appropriate enquiries as to whether a borrower is in genuine financial difficulty or whether there exist events of fraud and malfeasance. If the lender banks find fraud or malfeasance, the CDR-EG must either refuse CDR completely or impose such additional onerous conditions as provided in the CDR Scheme itself - In the present case, the lender banks were fully aware of all the transactions, which are now alleged to be acts of Wilful Default. This fact is part of the documents leading to the finalization of the CDR scheme. Despite noting all transactions, financial statements, balance sheets, TEV Report and Stock Audit Report, the lender banks placed MBSL in Class-B of CDR Master Circular which cannot be assigned if there is diversion of funds. They found no occasion to order a forensic audit of MBIL before finalization of CDR scheme. The lender banks, therefore, never treated the alleged acts of Wilful Default as an act of diversion or siphoning either during finalization of CDR scheme or after its failure. The lender banks may become aware of such acts subsequently, may be, on their own, or on the basis of subsequent Forensic Audit Report. Having considered such acts, which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to thousands of crores from banks and it is stated that there has never been any default in servicing the debt since inception. 3. However, the Respondent Bank sought to declare the Petitioner as a Wilful defaulter with respect to his association in another company known as Moser Baer Solar Ltd. ( MBSL ) under the Master Circular, thereby, depriving the Petitioner from availing credit facilities for his present and prospective business enterprises. 4. It is stated that another company namely Moser Baer India Limited ( MBIL ) was a company incorporated in 1983 by the father of the Petitioner to manufacture storage discs. MBIL exported discs to large multinational companies like Sony, Hitachi, TDK, Fuji, Mitsubishi etc. 5. As per the case of the Petitioner, around the year 2005, it was realized that the business of storage discs began to slow down due to technological advancement and emergence of new mediums of storage like Cloud. Hence, it was decided to diversify the business into more upcoming fields, at that time, like the solar cells and modules. 6. It is stated that, accordingly, MBSL, the company in question, was incorporated on 06.03.2007 and was engaged in the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Executive Director of MBSL and Form-32 to that effect was filed with the Registrar of Companies ( RoC ). The Petitioner, on 16.11.2022, completely exited MBSL, when he resigned as a whole time Director of MBSL and Form-32 to that effect was filed with the RoC. 15. It is submitted by the Petitioner that as MBSL faced financial decline and there was a looming threat of loan repayment default, the lenders, including the Respondent Bank, considered MBSL s case for Corporate Debt Restructuring ( CDR ) in accordance with the CDR Master Circular ( CDR Master Circular ) issued by the RBI. To ascertain the sustainability of CDR, the lenders required MBSL to submit a Flash Report, which would present the reasons for its decline, its viability and plan for revival. The said Flash Report would then be forwarded by the lenders to an independent agency for obtaining a Techno Economic Viability ( TEV ) Report. The TEV Report would indicate whether the restructuring plan proposed by MBSL was financially viable or not. The lender banks would also get conducted a Stock Audit of MBSL. 16. In compliance thereof, on 24.03.2012, MBSL submitted an application and its Flash Report to the lender bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r panels was increasing substantially, both nationally as well as internationally. With the anticipated anti-dumping duties on Chinese companies, the viability of MBSL would improve. It was suggested that the core strategy and operating plans of MBSL are technically feasible. 22. The lender banks, thereafter, issued a Final Restructuring Scheme ( FRS ) of MBSL. On 21.01.2013, the lender banks further issued a modified FRS in respect of MBSL. 23. On 18.03.2013, the CDR-Cell issued a letter stating that on 21.01.2013, the CDR-EG had approved the proposed restructuring package of MBSL. The Respondent Bank was appointed as the Monitoring Institution, leading the CDR process along with other consortium banks. The details of approved package was outlined in Annexure-1. MBSL was classified as Class-B borrower under the CDR Scheme, which has Classes from A to D. In the Class-B category, MBIL was classified as Corporate/promoters affected by external factors and also having weak resources, inadequate vision and not having support of professional management. The Class-C is assigned to those corporates who diverted funds to unrelated fields with or without lenders' permission. 24. On 22.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was stated that earlier also, the Respondent Bank attempted to declare the Petitioner as Wilful Defaulter, for which, W.P. (C) No. 7797 of 2017 was filed before this Court. However, the Respondent Bank stated before this Court that it was not taking any action against the Petitioner. Hence, the Writ Petition was disposed of vide order dated 14.11.2017. It was contended that after the Petitioner exited from MBSL, the lender banks admitted MBSL for CDR as per the CDR Master Circular. It is stated that if any act of Wilful Default was noted at that stage, then MBSL would not have been admitted to CDR. The Petitioner contended that during the CDR process, the lender banks were informed that the personal guarantee of the Petitioner was not available, which was accepted by them. Hence, the Show Cause Notice deserved to be withdrawn. 34. On 07.02.2020, the Wilful Defaulter Identification Committee of the Respondent Bank declared the Petitioner as Wilful Defaulter for failing to meet the loan repayment obligations and for diversion of the funds for other purposes. 35. On 26.02.2020, the Petitioner sent a representation to the Respondent Bank reiterating his non-involvement in any act of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. Relevant discussion in W.P. (C) No. 4181/2023 45. This Court in W.P. (C) No. 4181/2023 titled as Ratul Puri v. Bank of Baroda, has extensively dealt with the scheme of RBI s Master Circular for declaring a person as Wilful Defaulter , standard of proof to decide the validity of event of Wilful Default under the Master Circular, scope of judicial review in administrative action and scheme of CDR issued by RBI. 46. The scheme of the RBI s Master Circular for declaring a person as Wilful Defaulter , as discussed in terms of paragraph nos. 48 to 59 is reproduced as under:- 48. Before going into the facts of the case, it is essential to examine the scheme of the Master Circular. In order to put in place a system to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them, the RBI, in exercise of power under Sections 21 and 35A of the Banking Regulation Act, 1949 issued the Master Circular dated 1.7.2015. 49. Originally, a scheme for declaration as wilful defaulter was framed by the RBI in 1999 on the recommendations made by the Central Vigilance Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorised as wilful must be intentional, deliberate and calculated. 52. A bare reading of Clauses 2.1.3(b) and (c) clearly reveals that an event of wilful default can only take place when the loan amount lent by the bank is diverted or siphoned off by the borrower, for any use, other than for which the loan was granted. 53. Clause 2.2 of the Master Circular defines diversion of funds and siphoning of funds as under: 2.2 Diversion and siphoning of funds : The terms diversion of funds and siphoning of funds should construe to mean the following: - 2.2.1 Diversion of funds , referred to at para 2.1(b) above, would be construed to include any one of the undernoted occurrences: (a) utilisation of short-term working capital funds for long-term purposes not in conformity with the terms of sanction; (b) deploying borrowed funds for purposes / activities or creation of assets other than those for which the loan was sanctioned; (c) transferring borrowed funds to the subsidiaries / Group companies or other corporates by whatever modalities; (d) routing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faulters (suit filed accounts) are forwarded to SEBI by RBI and Credit Information Bureau (India) Ltd. (CIBIL) respectively. The following measures should be initiated by the banks and FIs against the wilful defaulters identified as per the definition indicated at paragraph 2.1 above: a) No additional facilities should be granted by any bank / FI to the listed wilful defaulters. In addition, the entrepreneurs / promoters of companies where banks / FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, Development Financial Institutions, Government owned NBFCs, investment institutions etc. for floating new ventures for a period of 5 years from the date the name of the wilful defaulter is published in the list of wilful defaulters by the RBI. b) The legal process, wherever warranted, against the borrowers / guarantors and foreclosure of recovery of dues should be initiated expeditiously. The lenders may initiate criminal proceedings against wilful defaulters, wherever necessary. c) Wherever possible, the banks and FIs should adopt a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Banks / FIs should, however, submit the quarterly list of wilful defaulters where suits have not been filed only to RBI in the format given in Annex 1. (c) In order to make the current system of banks/FIs reporting names of suit filed accounts and non-suit filed accounts of Wilful Defaulters and its availability to the banks by CICs / RBI as current as possible, banks / FIs are advised to forward data on wilful defaulters to the CICs/Reserve Bank at the earliest but not later than a month from the reporting date. d) After examining the recommendations of the Committee to Recommend Data Format for Furnishing of Credit Information to Credit Information Companies (Chairman: Shri. Aditya Puri) it has been decided to implement the following measures with regard to reporting and dissemination of information on wilful defaulters: a. Banks/FIs may continue to furnish the data on wilful defaulters (non-suit filed accounts) of Rs. 25 lakhs and above for the quarter ending June 30, 2014 and September 30, 2014 to RBI in the existing format. b. In terms of Credit Information Companies (Regulation) Act, 2005, banks/FIs are advised to furnish the aforementioned data in respect of wilful default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncludes that an event of wilful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter/whole-time director and call for their submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the promoter/whole-time director for a personal hearing if the Committee feels such an opportunity is necessary. (c) The Order of the Committee should be reviewed by another Committee headed by the Chairman / CEO and MD and consisting, in addition, of two independent directors of the Bank and the Order shall become final only after it is confirmed by the said Review Committee. (d) As regard a non-promoter/non-whole time director, it should be kept in mind that Section 2(60) of the Companies Act, 2013 defines an officer who is in default to mean only the following categories of directors: (i) Whole-time director (ii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that in the test of validity of civil action on preponderance of probability, the graver the consequences of such civil action, the higher is the degree of proof required. The conclusion of the said discussion is encapsulated in the paragraph reproduced as under:- 69. From the aforesaid enunciation of law, it is evident that in the test of validity of civil action on preponderance of probability, the graver the consequences of such civil action, the higher is the degree of proof required. The court must first consider the existing probabilities, followed by a comparative analysis of the respective weights to be attached to the probabilities. The degree of probability is based on the subject matter. The subject matter under scrutiny is one of the circumstances to be kept in mind while deciding the degree of proof. While accepting the probability in favour of one fact over the other, the court must be in a position to say that a reasonable person could proceed with a supposition that such fact exists. This test is not only in conformity with the precedents discussed above but is also in tandem with Section 3 of the Indian Evidence Act, 1872. If this principle of law is tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever necessary, the banks may also carry out forensic audit of the company. Clause 3 of the CDR Master Circular reads as under: - 3. SCRUTINY BEFORE CDR REFERENCE/APPROVAL 3.1 Referring Institution (RI) should ensure prima facie viability of units at the time of submission of Flash Report. Wherever necessary TEV study from independent reputed agencies be conducted while drafting the final CDR package. 3.2 RI/MI may also examine the possibility of change of management while drafting the final CDR package. If the case has been found to be adversely affected due to incompetent management of the Company or where diversion/misuse of funds has taken place, change of management should be the first option. 3.3 Wherever necessary and specially in cases of diversion of funds, forensic audit/ special investigative audit may be got carried out by the MI. 72. Similarly, Clause 6.3 of the CDR Master Circular provides that companies indulging in frauds and malfeasance will remain ineligible for the CDR Scheme. Clause 6.3 reads as under: - 6.3 Wilful Defaulters RBI in its guidelines on CDR mechanism has stipulated as under: While corporate indulging in frauds and malfeasance even in a single bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical to the definition of wilful default as defined in the Master Circular in question in the present case. 76. Paragraph 2 of Annexure III of the CDR Master Circular then mandates that Banks/ FIs should take specified measures in identifying and reporting instances of wilful default . These steps are similar to the steps provided in the Master Circular viz. identification by Identification Committee, show cause notice to borrower, representation before Grievance Redressal Committee/ Review Committee and finally a decision. 77. Paragraph 4 restates that Cases of Wilful Defaulter Not Eligible Under CDR . This clarifies again that cases of reported siphoning of funds or misfeasance, fraud etc. are prima facie not eligible to be covered under CDR. 78. Paragraph 5 mandates referring institution to check list of wilful defaulters as maintained by RBI/ CIBIL to verify whether any FI/ bank has reported the company as wilful defaulter and inter alia, report such instances to the CDR-EG. 79. Where a borrower is classified as a wilful defaulter, the core group may review the reasons for such classification and even such exceptional cases may be admitted for CDR, but they are required to unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, the lower the Class assigned, the higher the conditions are to be placed. 84. As per Clause 8.1, A decision of the CDR Empowered Group relating to prima facie feasibility and/or final approval of Restructuring Scheme shall be taken by a Super-Majority Vote at a duly convened meeting, after giving reasonable notice, to the Lenders and to the Eligible Borrower. 85. As defined in Clause 8.3, Super-Majority Vote means not less than 60 per cent of number of lenders holding not less than 75 per cent of aggregate principal outstanding Financial Assistance. 86. On admission of Flash Report, as per Clause 9.3, the borrower should open a current account with the MI (Monitoring Institution) to be designated pre-TRA account and the procedure for which is described in Clauses 9.3 (i) to (xiii). 87. Clause 10 provides for a Monitoring Mechanism to ensure success of CDR mechanism and provides for an exhaustive process for proper implementation of the restructuring scheme. Clause 22 provides for criteria and procedure for exit from CDR. 88. After the TEV Report is made by an independent agency and an independent auditor conducts a Stock Audit of the company (both appointed by banks/ consortiu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Wilful Defaulter cannot be taken on the basis of isolated transactions/incidents. A similar obligation is cast on the lender banks in Clause 2.5 of the Master Circular, which require the lender banks 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 is required to be ensured that solitary or isolated instances are not made the basis for imposing the penal action under the Master Circular. 55. In the present case, the satisfaction to issue Show Cause Notice does not appear to have been recorded in accordance with the requirements of the Master Circular. Keeping the object of the Master Circular in mind and the consequences that it entails, both civil and penal, the lender banks have an obligation to comply with the inbuilt safeguards in the Master Circular. Lest, the line between persons who commit mere default in repayment of loan obligations and those who commit Wilful Default in terms of the Master Circular, would get obliterated. Whether the Petitioner committed acts of Wilful Default? 56. The first ground relied upon by the Identification C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verted the aforesaid position. It thus appears that the first alleged act of Wilful Default is based on a factually incorrect premise that the security deposits by MBSL to MBIL were 58.82% of the rental. 60. The record of this case would further reveal that in March, 2007, MBSL had entered into an Agreement with Applied Materials, USA for supply of the Thin Film Solar Module Line. The said Agreement necessitated MBSL to establish its manufacturing unit for effecting supplies. 61. As noted above, MBSL was a 100% subsidiary of MBIL. MBIL had 27.5 acres of land as Special Economic Zone ( SEZ ) in Greater Noida (U.P.) for non-conventional sources of energy. MBIL was approved by the competent authorities as the developer of the said SEZ. The law at that time and the approval letter dated 01.09.2006 of the competent authority produced by the Petitioner, did not permit any entity other than MBIL to develop and operate the SEZ. 62. MBIL, therefore, developed the necessary infrastructure including buildings and manufacturing facilities at the SEZ at a cost of Rs. 353.53 Crores. The developed infrastructure was then given by MBIL to MBSL on financial and operating leases. The term of these l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments were executed prior to the review period and reflected in the audited financial statements of that period. However, the Forensic Auditor had no access to the same being prior to the review period. 66. Since the documents of the relevant time were unavailable to the Forensic Auditor, the Report concludes that in absence of supporting documents justifying agreed rates for leased assets, lease income, electricity and water charges, the lease transactions are questionable. Hence, it may be classified under Section 66 of the IBC. It is thus evident that the Forensic Audit Report has not given any conclusive finding that in the execution of the lease agreements, MBSL diverted any borrowed funds. This inference has been drawn by the Identification Committee of the Respondent Bank on its own without any other supporting material. 67. It is also worthwhile to mention that the Bank of Baroda, which is another public sector bank, had also charged the Petitioner for Wilful Default on this allegation. However, considering the explanation given by the Petitioner, the said allegation was dropped by the Review Committee of Bank of Baroda in its order dated 23.03.2023. It appears that lender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or siphoning to take place, it is to be seen whether the company in question resulted in losses as a result of the transaction in question. 75. The figures produced by the Petitioner and which have not been disputed by the Respondent Bank establish that had MBSL functioned normally, MBIL, over a period of 10 years, would have paid MBSL an amount of Rs.382.77 Crores under the operating leases as against an amount of Rs. 390.05 Crores to be paid by MBSL to MBIL under the financial leases. 76. It, therefore, appears that the net outflow and inflow are nearly the same with respect to lease transactions ranging between 7-10 years and therefore no significant loss or profit would be made by either MBSL or MBIL under these transactions. In fact, MBSL would have made a financial gain of Rs. 5.46 Crores. A transaction where the borrower is making financial gain can hardly be described as diversion of funds. It appears that merely because the Forensic Auditor observed the execution of operating lease by MBSL in favour of MBIL to be unusual, perhaps since the Financial Auditor did not have access to documents of this period, the Respondent Bank could not have drawn an inference of diversion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of lease liabilities. Accordingly, the lease liabilities towards MBIL were deferred. This document again shows that the lender banks were fully aware about the lease agreements and lease liabilities of MBSL at the time of approval of the CDR package of MBSL. 81. After the approval of the CDR package, the lender banks issued FRS, which is admittedly their own internal document. No adverse finding regarding the lease agreements is recorded in the FRS. The lender banks, including the Respondent Bank, subsequently entered into MRA and TRA with MBSL without any demur. 82. It is thus evident that the lender banks were aware of the lease agreements and the nature of liabilities of MBSL pursuant to the said Agreements since 2008. Neither before the approval of the CDR package in 2012 nor thereafter, the lender banks considered the same to be not over board. The lender banks never raised any concern regarding the same until the Show Cause Notice was issued by the Respondent Bank alleging the lease agreements to be an act of diversion of funds. The act of invoking the Master Circular against the Petitioner by the Respondent Bank, based on observations made in the Forensic Audit Report, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PV cells, which was a critical component for MBSL in its assembly line of solar cells. 87. The Petitioner further contends that the investments made by MBSL in Helios Photovoltaic Ltd. were duly reflected in the financial statements and audited balance sheets of MBSL. The lender banks, by virtue of the terms of the loan approval terms, always had access to the financial statements and audited balance sheets of MBSL and were fully aware of the investments. 88. Further, prior to the admission of MBSL in the CDR Scheme, MBSL had submitted its Flash Report in 2012 to lender banks which also disclosed the investments made in Helios Photovoltaic Ltd. 89. Even during the consideration of the CDR Scheme, the lender banks had a JLM meeting on 10.10.2012. In the said meeting, the representative of PNB Investments Services Ltd., which conducted the Economic Viability Assessment, addressed the lender banks and explained that long term funds were utilized for investment on subsidiaries. 90. In the letter dated 18.03.2013, which approved the restructuring package, the details of package were earmarked in Annexure-1. In Clause 1.1(iii), the lender banks noted that the investments were made by MB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investments and treating them to be strategic, which is required to be retained, the Respondent Bank, after several years, cannot be permitted to do a volte face and hold that the said investment amounted to diversion of funds. 95. For declaring the Petitioner as Wilful Defaulter, the Respondent Bank has relied upon the Forensic Audit Report. In the said Report, it is noted that investment is made by MBSL in Helios Photovoltaic Ltd. which was incurring losses since 2011-12. The Forensic Auditor could not verify any losses prior to this period, as it was beyond the review period. The Forensic Auditor has questioned the wisdom of making these investments in Helios Photovoltaic Ltd., when it was incurring losses. 96. Learned Senior Counsel for the Petitioner submits that the Petitioner resigned as Executive Director of MBSL on 16.04.2012 and as full time Director on 16.11.2012. For 2011-12 or onwards, whether Helios Photovoltaic Ltd. was incurring losses or not; or MBSL made further investment or not, is not known to the Petitioner. The Petitioner cannot be held liable for any act that has transpired after he ceased to have any position in MBSL. He further submits that the Forensic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord a finding on these submissions. 99. The last and fourth ground relied upon by the Respondent Bank is that MBSL had given supplier advances and loans to M/s Value Solar Energy Ltd. of Rs. 25.60 Crores as on 31.03.2012, and of Rs. 29.67 Crores as on 31.03.2015. MBSL did not provide supporting documents to the Forensic Auditor. Hence, the Forensic Auditor could not ascertain the basis as well as terms and conditions on which the loans and advances were made. 100. This Court also perused the Forensic Audit Report in this aspect. The Forensic Audit Report states that MBSL had made loans and advances to M/s Value Solar Energy Ltd. In 2019, when the Forensic Audit took place, the then management of MBSL did not provide the supporting documents to the Forensic Auditor. Hence, the Forensic Auditor could not ascertain the basis as well as terms and conditions on which the loans and advances were made. 101. This Court is of the view that the aforesaid observation can hardly be categorized as diversion of funds. The Forensic Auditor has noted the factum of loans and advances. However, it is not in a position to comment on their nature of such transactions, as necessary documents were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the Respondent Bank has alleged that the Petitioner s exit from MBSL was intentional. He has also relied upon an undertaking dated 24.08.2010 and 22.09.2010 of MBSL contending that the management of MBSL would not be changed without the permission of the Respondent Bank. It is alleged that the breach of this undertaking by the Petitioner supports the finding of Wilful Default rendered by the Respondent Bank. 106. This argument though impressive on first blush, lacks merit on deeper scrutiny. In this case, the Petitioner resigned from MBSL as Executive Director on 30.04.2012 and as full time Director on 16.11.2012 and submitted Form-32 to that effect with the RoC. Contemporaneously, MBSL had informed the lender banks about the resignation of the Petitioner from MBSL. When MBSL was about to default in its loan repayment obligations, MBSL informed the lender banks to consider the CDR package on the assumption that the Petitioner was no longer associated with MBSL and his personal guarantee was not available. On 20.09.2013, the CDR-EG noted that the lender banks have agreed to the substitution of personal guarantee of the Petitioner with collateral security of Rs.33 Crores. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it report contains several disclaimers, restricting the operation of the same to the proceeding in which they are filed, as well as confined to the impression of the authors thereof on the basis of the documents which are available to them. 22. Under no stretch of imagination can such a report be conclusive proof of the allegations against the petitioners. 111. This Court is inclined to agree with the aforesaid proposition of law. Even under the Indian Evidence Act, 1872, the opinion of an expert witness under Section 45 is not a conclusive proof. It is subject to cross-examination and the opinion and conclusions of an Expert are subject to challenge. In the present scheme of things, the Master Circular casts a specific obligation on the Respondent Bank to act independently and objectively under Clause 2.1.3 read with Clause 2.5 as discussed above. It would, therefore, be unsafe if lender banks start to declare borrowers as Wilful Defaulter merely on the basis of observations made in the Forensic Audit Report without there being an independent application of mind. The lender banks must follow the mandate of Clause 2.1.3 read with Clause 2.5 of the Master Circular and independently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rystalline modules and 40 MW Thin Films PV. The company began its commercial operations at an initial cost of Rs. 439.21 Crores. In 2011, the company consolidated and set up a project for advanced high-performance selective emitter high efficiency crystalline silicon cell with annual capacity of 90 MW. The cost of this project was Rs. 624.69 Crores. The company demonstrated strong EPC capabilities and quality manufacturing. It has commissioned more than 50 PV projects in India and Germany. The company has significant customer base in Europe, Asia, Pacific, Middle East and the US. 115. The FRS noted that 2011-12 onwards, the company s financial operations were adversely affected due to (a) the global solar photovoltaic market was operating under stress due to huge supply addition from China; (b) China offering USD 43 billion subsidy to its domestic companies, which led to abnormal fall in the prices of solar cell. The company, however, has been able to service its debt till 31.12.2011. The CDR-EG had admitted MBSL in Class- B as per the CDR Master Circular, which applies where MBSL was classified as a Class-B borrower under the CDR Scheme, which has Classes from A to D. In the Class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with paragraphs C and D of Annexure IV. Significantly, before CDR Reference/Approval , Clause 3.3 of CDR Scheme expressly empowers Banks to commission a Forensic Audit wherever necessary and specially in cases of diversion of funds . 122. The aforesaid provisions in the CDR scheme leads to the conclusion that the categorization of a borrower in one of the categories between A and D has to be based on an objective satisfaction. 123. This Court is of the view that it is incumbent upon banks who are dealing with public funds and discharging a public duty to make appropriate enquiries as to whether a borrower is in genuine financial difficulty or whether there exist events of fraud and malfeasance. If the lender banks find fraud or malfeasance, the CDR-EG must either refuse CDR completely or impose such additional onerous conditions as provided in the CDR Scheme itself. 124. In the present case, the lender banks were fully aware of all the transactions, which are now alleged to be acts of Wilful Default. This fact is part of the documents leading to the finalization of the CDR scheme. Despite noting all transactions, financial statements, balance sheets, TEV Report and Stock Aud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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