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TMI Blog2024 (3) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... providing supporting material), the person accused has to shoulder the onus and burden of proving his innocence. The affidavit in reply makes no bones about the Union Bank s belief that no underlying material needs to be disclosed to any noticee under the Master Circular - There cannot be a concept more alien to the constitutional protections available under the rule of law in India. The aforesaid stance flies in the teeth of the imperative requirements of transparency stipulated by the RBI in the Master Circular. It is now trite law that in proceedings that can inflict serious civil consequences on any citizen, the noticee should be able to appreciate the case made out against him so that he may deal with the allegations to the best of his ability. The only means of doing so is to provide detailed proper notice of the reasons for having formed a prima facie view when calling upon the noticee to show cause why such prima facie view must not translate into a final view. Such an approach would enable the noticee to understand in a cogent manner the case that he is supposed to meet. Union Bank is granted liberty to make a proper disclosure of materials and information on which the SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate, their promoters and directors, as wilful defaulters . 3. The Petitioner is a former Joint Managing Director of IL FS Financial Services Limited ( IFIN ), a wholly-owned subsidiary of Infrastructure Leasing Financial Services Limited ( ILFS ). The Petitioner has worked with ILFS since June 1993, except for a brief period between February 2003 and August 2005. The Petitioner was eventually designated as a Joint Managing Director of IFIN with effect from 1st April 2014. The Petitioner ceased to be in the services of IFIN with effect from 31st March 2018. The Petitioner s role as a whole time director of IFIN is up for consideration by Respondent No. 1, Union Bank of India ( Union Bank ) in proceedings to declare IFIN, and consequently the Petitioner, as wilful defaulters. 4. IFIN and the Petitioner were served with a common Show Cause Notice dated 5th July 2022 ( SCN ) by Union Bank, which had sanctioned credit limits aggregating to Rs.175 Crores to IFIN. The SCN stated that Union Bank had formed a prima facie view that IFIN and the Petitioner deserved to be declared as wilful defaulters in connection with the facilities sanctioned to IFIN. The SCN sets out nine broad heads of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be issued to the borrower and its relevant whole-time directors and call for an explanation. After considering the submissions in reply, and providing an opportunity of being heard (should the Identification Committee feel such an opportunity is necessary) [Paragraph 3(b) of the Master Circular] , a reasoned order recording the wilful default must be issued; and d) The aforesaid reasoned order is not a final order, but it is a draft order that is subjected to review by another Committee headed by the Chairman or the Chairman and Managing Director or the CEO of the bank or financial institution, along with two independent directors or non-executive directors ( Review Committee ) [Paragraph 3(c) of the Master Circular] . It is only upon review of the Identification Committee s order and its confirmation by such Review Committee, that the draft order would become final. 7. Once a final order is passed, multiple grave and serious penal [Paragraph 2.5 of the Master Circular] consequences (it is the Master Circular that terms the consequences to be penal in character) follow for the persons identified as wilful defaulters. In a nutshell, the wilful defaulters are ostracised from ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SCN, without any response. 10. On 5th August, 2022, the Petitioner participated in a personal hearing, and on 15th August, 2022, filed his written submissions pursuant to the personal hearing. In these submissions, the Petitioner yet again requested access to essential documents based on which the SCN came to be issued. The Petitioner also made other submissions to the extent he was able to, with the documents and information available with him. His written submissions ran into 46 pages with various annexures from annual reports and other material in the Petitioner s possession. 11. Thereafter, the Petitioner states that he heard from Union Bank, nearly seven months later. On 28th February, 2023, Union Bank issued the final order passed by the Review Committee, essentially reproducing the contents of the SCN purporting to confirm that the Petitioner has been identified as a wilful defaulter. The Review Committee s order asserted that the Identification Committee had passed an order at its meeting held on 5th August, 2022 and that such order had been conveyed to the Petitioner on 8th September, 2022. In other words, according to Union Bank, on the same day and right after conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r are guilty of committing wilful defaults. What is noteworthy is that the RBI itself had expressed a clear policy view that it was arming banks and financial institutions with serious powers to inflict the drastic civil consequences on borrowers (the RBI terms these as penal ). Banks are essentially commercial entities without quasi-judicial expertise or experience. Therefore, the RBI took care to stipulate that it would be imperative for banks to put in place a transparent mechanism so that the penal provisions are not mis-used and the scope of discretionary powers are kept to the barest minimum . In fact, the RBI has mandated that evidence of wilful default must be examined by the bank. Evidence of the default can only come from material relevant to arriving at a finding on whether there has been wilful default and the role of individuals accused of having been instrumental in committing such wilful default. 16. The very imperative cast in the Master Circular of ensuring a transparent mechanism would entail being transparent with a noticee with all relevant facts that would form the basis of a determination of whether there has been a wilful default. The discretion conferred on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequences, it is clear that the Revised Circular, being in public interest, must be construed reasonably. This being so, and given the fact that Para 3 of the Master Circular dated 1-7-2013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Committee, we are of the view that first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following Para 3(b) of the Revised Circular dated 1-7-2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full representation on facts and law (if any). The Review Committee must then pass a reasoned order on such representation which must then be served on the borrower. Given the fact that the earlier Master Circular dated 1-7-2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 1-7-2015 [Emphasis Supplied] 18. The decision in Jah Developers was rendered on 8th May, 2019, i.e., well before the SCN issued on 5th Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposed to be declared as a willful defaulter. It is for the person who is proposed to be declared as a willful defaulter to submit all the relevant documents to prove his innocence . I say that the present case after issuance of show cause, notice dated 5th July 2022, the Petitioner has submitted his response dated 12th July 2022, 31st July 2022 and 15th August 2022. He was also given opportunity to attend personal hearing which has taken place on 5th August 2022. Thus, the grievance of denial of natural justice is misplaced. 10. ..the Circular dated 1st July 2022 does not provide that the document had to be supplied by the Bank. It is for the Petitioner to submit documents to support his case. 11. ..At the cost of repetition, I say and submit that the Petitioner was not entitled to be provided with the documents by the Bank. I say that the said allegation of making out the case of willful defaulter is clearly spelt out in the show cause notice dated 5th July 2022. The Petitioner was also afforded opportunity of a personal hearing on 5th August 2022. Thus, the allegation that the Petitioner was not provided with the documents and not given an opportunity to prove his case is false ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide access to the material on which the allegations are based. In the case of T.Takano Vs Securities and Exchange Board of India Anr. [(2022) 8 SCC 162] (Takano), after considering the law declared on access to the material underlying the allegations, across various types of enforcement proceedings under various legislations, the Hon ble Supreme Court pithily summarized the relevance of disclosure of information and record in the following words: C.2. Duty to disclose investigation material 27. While the respondents have submitted that only materials that have been relied on by the Board need to be disclosed, the appellant has contended that all relevant materials need to be disclosed. While trying to answer this issue, we are faced with a multitude of other equally important issues. These issues, all paramount in shaping the jurisprudence surrounding the principles of access to justice and transparency, range from identifying the purpose and extent of disclosure required, to balancing the conflicting claims of access to justice and grounds of public interest such as privacy, confidentiality and market interest. 28. An identification of the purpose of disclosure would lead us c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process (fair trial and transparency), it would be insufficient if only the material relied on is disclosed . Such a rule of disclosure, only holds nexus to the outcome and not the process. Therefore, as a default rule, all relevant material must be disclosed. [Emphasis Supplied] 25. A plain reading of Takano would throw light on how the Master Circular must be construed. The Master Circular consciously enables inflicting penal consequences, and underlines the imperative need to adhere to a transparent mechanism . The avoidance of information asymmetry and the means of ensuring transparency as outlined by the Hon ble Supreme Court in Takano would necessarily mean that principles of natural justice, including the need to provide the underlying material, are inherent and implicit in the process stipulated under the Master Circular. The material and information in question for disclosure to the noticee would be all relevant material and not just information that is relied upon or referred to in the SCN. 26. Not only must information that is referred to and relied on in the SCN be supplied but also information that may undermine the allegations contained in the SCN (which may there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is evident that the final order, a near-verbatim reproduction of the SCN, is not a reasoned order and is a product of non-compliance with the principles of natural justice. 28. In these circumstances, after having heard the submissions of the parties, we put it to the learned counsel for Union Bank to ask his client to consider recalling the orders of the Identification Committee and the Review Committee, with liberty to conduct the proceedings afresh from the stage of the SCN, after providing proper access to the relevant material. After review of our suggestion, Union Bank, whose officials are also present in court today, have fairly instructed learned counsel to state that the orders of the Identification Committee and the Review Committee may be considered as withdrawn, with liberty to continue the proceedings from the stage of the SCN, and that Union Bank would provide the Petitioner full access to the relevant documents and the relevant material on record. 29. We say nothing more in view of the fair stance now taken by the Union Bank. We grant liberty to Union Bank to make a proper disclosure of materials and information on which the SCN is based. Once such disclosure is mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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