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TMI Blog2024 (3) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the wilful defaulter proceeding. However, it is made clear that the purported communications of the petitioners handed over by the Bank at the time of arguments cannot be looked into at this stage, having not been referred to in the Show-cause Notice. The principle laid down in MOHINDER SINGH GILL ANR. VERSUS THE CHIIEF ELECTION COMMISSIONER, NEW DELHI ORS. [ 1977 (12) TMI 138 - SUPREME COURT] is squarely applicable as well, precluding the respondent from furnishing new grounds which were not there in the original Show cause Notice. Show-cause Notice contains reference to the assets of the petitioner nos. 2 to 9, who were Directors of the Company, which assets are not part of the assets of the borrower-Company - HELD THAT:- A Show-cause Notice need no plead in detail the full particulars of the requirements of the Master Circular but is required merely to outline the broad spectrum of offences committed by the borrower, its Directors and the guarantors to be labelled as wilful defaulters. The proper stage for consideration of compliance of Clause 2.6 on all other aspects is the order passed by the Wilful Defaulter Identification Committee on consideration of the Show-cause Noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Forensic Audit Report and/or any other document, on which the bank intends to rely to substantiate the show-cause allegations, on the petitioners within a week from date. - HON BLE JUSTICE SABYASACHI BHATTACHARYYA For the Petitioners : Mr. Ranjan Bachawat, Sr. Adv., Mr. Suman Kumar Dutt, Adv., Mr. Arijit Bardhan, Adv., Mr. Sarosij Dasgupta, Adv., Mr. Soumyajit Mishra, Adv. For the Respondent : Mr. Sakya Sen, Adv., Mr. Shounak Mitra, Adv., Mr. Sidhartha Sharma, Adv., Mr. Danish Tashi, Adv., Mr. Rishav Dutt, Adv. JUDGMENT SABYASACHI BHATTACHARYYA, J:- 1. The petitioner no. 1 is a borrower-Company and the other petitioners are its Directors/guarantors. In the present writ petition, the petitioners have challenged a Show-cause Notice dated March 1, 2024 issued by the respondent-Authorities for declaring the petitioners as wilful defaulters in terms of the Master Circular on Wilful Defaulters issued by the Reserve Bank of India (RBI) on July 1, 2015. 2. Learned senior counsel for the petitioners submits that the respondent, after having failed in numerous attempts to vex the petitioners on the self-same alleged default, have issued the impugned Show-cause Notice. 3. The premise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are normally not entertained at the Show-cause stage. There has been no determination as yet on the merits of the allegations. Hence, no legal rights of the petitioners have been infringed for the petitioners to seek redress under Article 226 of the Constitution of India. 13. With regard to the NPA classification, it is argued that the petitioners themselves, in at least two communications (copies of which have been submitted in court during hearing) dated January 27, 2022 and September 19, 2022, have admitted the date of NPA to be December 27, 2020. Thus, the petitioners are precluded from disputing the said date of classification of NPA. 14. It is next argued that the default precedes the NPA classification. Only upon the account being overdue for over 90 days, it is classified as NPA. Thus, the NPA classification has nothing to do with the commission of default by the borrower. As Directors/guarantors, the petitioner nos. 2 to 9 cannot avoid liability for the default of the petitioner no. 1-Company. 15. Learned counsel for the Bank contends that although the petitioner no. 1 became a defaulter on September 30, 2020, no repayment whatsoever has been made till date. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... backed by reasons, cannot be a conclusive finding. Findings made in interim orders are tentative in nature, subject to the final adjudication of the writ. The withdrawal of an appeal preferred against the same does not matter much, since the effect would be that the interim order is still operative. Notably, the interim order did not stay the operation of the NPA classification as such. The injunction granted by the court restrained the bank from proceeding on the premise of or giving any effect to the proposal for sale of NPAs which was impugned in the writ petition. A finding leading to such restraint order was that the NPA classification was de hors the relevant RBI Circulars issued during the Covid-19 period. Hence, it cannot be said that merely by virtue of the said interim order or a finding made in connection therewith, in the absence of any other conclusive finding of court, the classification of NPA has been set aside finally. 26. Furthermore, it is rightly argued by the bank that the event of default by the borrower precedes the classification of the account as NPA. Only if an account remains overdue for the stipulated 90 days, the question of NPA classification arises. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter Circular, a guarantor may also be declared to be a wilful defaulter. Under Clause 2.6, it is clearly indicated that in connection with guarantors, in terms of Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. Therefore, when a default is made in making repayment by a principal debtor, the Bank will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor. Seen from such perspective, the mentioning of the assets of the guarantors in the context of the alleged wilful default cannot be said to be wholly irrelevant. Although Clause 2.6 further provides that a banker has to make a claim on the guarantor on account of default and the guarantor has to refuse to comply with the demand despite having sufficient means to make payment of the dues, to be treated as wilful defaulter, the stage of considering such aspects of the matter has not yet arrived. 32. A Show-cause Notice need no plead in detail the full particulars of the requirements of the Master Circular but is required merely to outline the broad spect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra) that the moratorium envisaged in Section 14 of the IBC creates no hindrance to a wilful defaulter declaration proceeding, which, as held by the Supreme Court in several judgments, is 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 and not for recovery of debts or assets of the corporate debtor, which could hamper the corporate insolvency resolution process. 38. Thus, a wilful defaulter proceeding does not come within the contemplation of Section 14 or Section 96 of the IBC, which primarily pertains to legal actions to foreclose, recover or enforce security interest, or recovery of any property of the debt-in-question. 39. Again, the Supreme Court as clarified in P. Mohanraj (supra) that the language of Section 14 of the IBC is wider than Section 96. Since the judgment of this Court excludes wilful defaulter proceedings from the Section 14 moratorium, the same principle is applicable all the more with regard to Section 96. 40. In P. Mohanraj (supra), the Supreme Court has repeatedly highlighted, particularly in paragraph nos. 35.2 and 35.3, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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