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TMI Blog2024 (5) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... are not willful defaulters, leaving it open for the Bank to proceed in future on the basis of independent material, if the same comes forth. However, till date, nothing has come forward by way of independent material to substantiate the stand of the respondents - the reliance on the TAR in the decisions of the First Committee and the RC are entirely de hors the law and perverse. Several allegations have been made regarding fixed deposits being opened, furniture and cars having not been shown as assets, etc. The petitioners categorically refuted the claims by contending that there was no link between the credit taken from the Consortium and the utilization of such assets/funds. Hence, having failed to substantiate any link between the loan granted and the use alleged and in the absence of any material to substantiate that the loan was used for any other purpose than that intended, the very premise of the willful defaulter declaration goes - The Bank, vainly, has sought to project that the NCLT order was confined to the TAR not being used for lodging criminal complaints. The Bank also argues that the Central Bank of India, being a constituent of the creditor-Consortium, could have pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration in the present writ petitions is whether the respondent-Bank, that is, the Central Bank of India was justified in declaring the petitioners to be willful defaulters through its First Committee and in affirming the same in the decision of the RC. 5. Upon hearing learned counsel for the parties, each of the components of challenge is being dealt with separately hereinbelow. 6. The first ground taken by the petitioners is that the sole basis of the First Committee decision was a Transaction Audit Report (TAR) authored by M/s. Deloitte Touche Tohmatsu India, LLP, an Auditor which purportedly carried out a forensic audit of the borrower-Company. A bare perusal of the First Committee decision substantiates the fact that the entire decision is based on allegations levelled in the said TAR. No independent evidence apart from the TAR has been relied on by the First Committee in coming to its conclusions. 7. It is rather surprising that the First Committee relied on the said report. The Auditor Firm which authored the report itself indicated in several places of the report that the same was not conclusive. Instances are: In the second paragraph of the report, the Auditor stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, as noted in paragraph 13 of the Report, may change based on additional information and clarifications provided subsequently to the Auditor. It is reiterated in Paragraph 14 that no warranties or representations with respect to the Report to any user are made and the Report is neither a recommendation nor a professional advice. 12. Importantly, in paragraph 15 it is stated that the findings of the Report are not binding on any person, entity, authority or court and hence, no assurance is given that a position contrary to that expressed therein will not be asserted by any person, entity, authority, etc. The results of the work, it was stated, with respect to review of information provided should be considered only as a guide and not as a definitive pronunciation on an individual, entity, etc. 13. Paragraph 17 boldly asserts that the observations reported in those documents may not be indicative of misconduct or diversion of funds unless additional procedures are performed to validate the same and the report may not be suitable for any legal proceedings against any individual or entity [Emphasis supplied]. 14. Hence, the prelude to the report itself thoroughly vitiates the conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. 20. Thus, the reliance on the TAR in the decisions of the First Committee and the RC are entirely de hors the law and perverse. 21. Moreover, in the TAR itself, as reflected in the quoted portions thereof in the Show-cause Notice and the decision of the First Committee, no allegation has been made against the petitioners vis- -vis the Central Bank, which is the respondent no. 1 in the present writ petitions. Hence, the Central Bank cannot have an additional or independent cause of action beyond that of the lead Bank or the subject-matter of the NCLT proceeding. 22. Even from the averments recorded in the Show-cause Notice and the Willful Defaulter Decision, it is found that the sole allegation, under Clause 2.1.3(b) of the Master Circular, was not substantiated. The said Clause, read with Clause 2.2.1(c), makes it mandatory that for an allegation of diversion of funds or willful default to be made, it has to be established that the petitioners channelized the funds received by way of loan from the Consortium of Banks for any other purpose than that for which the loan was intended. 23. Moreover, the Bank had to substantiate that the alleged transactions were made by the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1-Bank does not have a cause action against the writ petitioners at all. 30. Insofar as the RC decision is concerned, the less said the better. 31. A gross mechanical approach has been adopted by the RC in passing the said order. As many as twenty-one individual entities were clubbed together for the purpose of review of declaration of willful defaulters in a single meeting. The borrower-Company was one of the said entities. In the column Details of Personal hearing, if any [Stage-(II)] , the Bank has only narrated about the fact that a hearing was given and of the filing of the writ petitions. 32. In Item 21, containing the reasons for willful default, the sole reliance was on the TAR, some of the observations of which were merely quoted. In a cryptic one-liner following such quotation, the RC held that based on the above points, it was found that funds have been diverted from the system by the borrower. The sole reliance placed was on Criterion 2.1.3(b) of the Master Circular which has been discussed above. Along with the petitioners, other entities were also clubbed and similar observations made. At the end of the minutes, the RC, in a went on to observe blandly that it propo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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