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TMI Blog2021 (12) TMI 1489X X X X Extracts X X X X X X X X Extracts X X X X ..... context of the Master Circular dated 01.07.2015, the Division Bench of this Court in M/S. KANCHAN MOTORS AND OTHERS VERSUS BANK OF INDIA AND OTHERS [ 2018 (7) TMI 1909 - BOMBAY HIGH COURT] was pleased to set aside the orders made by the WDIC and the Review Committee because such orders were found to be non-reasoned or non-speaking orders. The Division Bench did not approve the practice of simply recording conclusions without any reasons to back the same. The Division Bench observed that the absence of reasons in the order of the Review Committee amounts to a denial of justice since it is now well-settled that reasons are live links between the minds of decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity for objectivity so that the affected party can know why the decision has gone against him. The impugned orders are set aside mainly on the ground that they contain no reasons in support of their conclusion and in that sense are non-speaking orders - The respondents are granted liberty to proceed from the stage of issuance of show-cause notice dated 22.10.2020 and make such orders as may be appropriate in terms of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 22.10.2020 was not issued by the WDIC but, by the Deputy General Manager (DGM), who had no jurisdiction to issue the same. Therefore, the very initiation of proceedings is ultra vires. (iii) The impugned orders relied upon the valuation report of Shri K.R. Phadke. Despite the request, a copy of this valuation report was never made available to the petitioners. This means that some material adverse to the interest of the petitioner has been relied upon without granting the petitioner reasonable opportunity of explaining the same or countering the same. There is thus a violation of the principle of natural justice, which vitiates the impugned orders. (iv) The impugned orders contain no reasons, are non-speaking, and are made in a mechanical manner and without application of mind. (v) There are no findings in the impugned orders about default on the part of the petitioners being intentional or deliberate or calculated. In the absence of any such findings, the impugned orders are quite unsustainable. 7. Shri Kapil Hirani, learned counsel for the petitioners relied upon the decisions of this Court in the case of M/s. Kanchan Motors Vs. Bank of India [Writ Petition (L) No. 2072/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given 15 days window period to file representation against this order to the Review Committee. 11. The petitioners on 15.12.2020 submitted their representation to the Review Committee. The Review Committee vide order dated 23.03.2021 has rejected this representation and confirmed the impugned order dated 07.12.2020. 12. Now, there is no dispute that the issue of declaring any person or entity as a wilful defaulter is governed by the RBI's Master Circular dated 01.07.2015. This Master Circular consolidates the instructions on this issue up to 30.06.2015. Para no. 2 of the Master Circular contents guidelines for determining wilful defaulters. In particular, para no. 2.1.3 indicates the events in which a wilful default would deemed to have occurred. This includes inter alia the events where the unit had defaulted in meeting its payment/repayment to the lender even it has the capacity to honor such obligations; non-utilization of finances for specific purposes for which it was availed of but, was defaulted for other purposes; siphoning of the funds that not being released for the specific purpose for which they were obtained; disposal or removal of movable fixed assets or immovab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew Committee. However, if the Identification Committee does not pass an order declaring a borrower as a wilful defaulter, then the Review Committee need not be set up to review such decisions. Fourthly, as regards a non-promoter/non-whole-time director, the provisions of Section 2(60) of the Companies Act, 2013 must be kept in mind. 15. Para no. 4 provides for criminal action against wilful defaulters and para no. 5 provides for reporting with which we are not concerned for the present. 16. The Master Circular, therefore, not only provides for the event in which wilful default would be deemed to have been occurred but, also requires that the default to be categorized as wilful must be intentional, deliberate, and calculated. The mechanism for identification of wilful default incorporates inter alia principle of natural justice and fair play including, in particular, the requirement of recording all reasons. Shri Hirani's contention will therefore have to be examined having regard to such provisions of the Master Circular. 17. Para no. 3(b) of the Master Circular refers to the issuance of show-cause notice by the WDIC. In this case, the show-cause notice has been issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07.12.2020 was referred to the Review Committee, which disposed of said representation by the impugned order dated 23.03.2021. Again, the perusal of the impugned order dated 26.03.2021 indicates that even Review Committee has simply paraphrased the expressions used by the WDIC in its order dated 07.12.2020 to uphold the impugned order dated 07.12.2020. Even the Review Committee has referred to the so-called admissions on the part of the petitioners and the Company. The Review Committee, in addition, has referred to and relied upon the valuation of Shri K.R. Phadke to conclude that the facts mentioned therein are correct and based upon the same, the criteria for declaring the petitioners and the Company as wilful defaulter stands fulfilled. Importantly, even the order of the Review Committee simply proceeds to state that submissions made on behalf of the Company are not acceptable without giving any explanation as to why or based on what reason such submissions are not acceptable. 21. Therefore, in the peculiar facts of the present case, we are quite satisfied that the impugned orders dated 07.12.2020 and 26.03.2021 are non-speaking orders containing no reasons to back the conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of the same. Use of mere expression like the one referred to in paragraph 18 above does not amount to giving of reasons. The reasons must reflect some application of mind to the submissions made in the response to the show-cause notice failing which an impression is legitimately created that there is no consideration of such submissions. As noted, even para no. 3(b) of the Master Circular provides for consideration of such submissions before making the order declaring a person or an entity as a wilful defaulter and the record of reasons in support of the conclusion. 24. In the precise context of the Master Circular dated 01.07.2015, the Division Bench of this Court in M/s. Kanchan Motors (supra) was pleased to set aside the orders made by the WDIC and the Review Committee because such orders were found to be non-reasoned or non-speaking orders. The Division Bench did not approve the practice of simply recording conclusions without any reasons to back the same. The Division Bench observed that the absence of reasons in the order of the Review Committee amounts to a denial of justice since it is now well-settled that reasons are live links between the minds of decision taker to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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