Delhi High Court - Orders
Shantanu Prakash & Anr vs Idbi Bank & Anr on 25 July, 2022
Author: Sanjeev Narula
Bench: Sanjeev Narula
$~44 & 45
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 10527/2022
SHANTANU PRAKASH & ANR. ..... Petitioners
Through: Mr. Saurabh Kirpal, Senior Advocate
with Ms. Neeha Nagpal, Mr. Malak
Bhatt, Mr. Vishvendra Tomar,
Mr. Nikhil Arora and Ms. Supriya
Julka, Advocates.
versus
IDBI BANK & ANR. ..... Respondents
Through: Mr. Sidharth Barua, Mr. Praful Jindal
and Mr. Daanish Abbasi, Advocates
for R-IDBI.
+ W.P.(C) 10569/2022
VINOD KUMAR DANDONA ..... Petitioner
Through: Mr. Aditya Dewan and Mr. Sahil
Chandra, Advocates.
versus
IDBI BANK & ANR. ..... Respondents
Through: Mr. Sidharth Barua, Mr. Praful Jindal
and Mr. Daanish Abbasi, Advocates
for R-IDBI.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
ORDER
% 25.07.2022 CM APPL. 30395/2022 in W.P.(C) 10527/2022 and CM APPL. 30552/2022 in W.P.(C) 10569/2022 (exemption from filing original/ typed/ clear/ translated copy of the documents attached)
1. Exemption is granted, subject to all just exceptions.
2. Petitioners shall file legible and clearer copies of exempted documents, Signature Not Verified Digitally Signed W.P.(C) 10527/2022 & W.P.(C) 10569/2022 Page 1 of 7 By:SAPNA SETHI Signing Date:01.08.2022 20:59:23 compliant with practice rules, before the next date of hearing.
3. Accordingly, the application stands disposed of.
W.P.(C) 10527/2022 & W.P.(C) 10569/2022
4. Issue notice. Mr. Sidharth Barua, counsel accepts notice on behalf of the Respondents.
5. Counter affidavit be filed within a period of four weeks from today. Rejoinder, if any, be filed within a period of two weeks thereafter.
CM APPL. .../2022 [to be numbered] in W.P.(C) 10527/2022 and CM APPL. 30551/2022 in W.P.(C) 10569/2022 (for interim reliefs)
6. The Registry is directed to number the above-captioned unnumbered application in W.P. (C) 10527/2022.
7. Mr. Aditya Dewan, counsel for the Petitioner in W.P. (C) 10569/2022, states that the facts and also the substantive relief sought in both petitions are identical. Mr. Sidharth Barua, counsel for Respondents, agrees with the same, and hence, the instant applications are being dealt with by way of a common order.
8. Petitioners, inter-alia, seek an interim stay of order dated 28th February, 2022 [hereinafter, "WDC order"] passed by Wilful Defaulters Committee ("WDC") declaring them as wilful defaulters and the confirmatory decision dated 21st June, 2022, passed by the Wilful Defaulters Review Committee ("WDRC") [hereinafter, "WDRC order"].
9. Petitioners are ex-promoters/ directors of Educomp Solutions Limited
- a company presently in Corporate Insolvency Resolution Process ("CIRP").
Signature Not Verified Digitally Signed W.P.(C) 10527/2022 & W.P.(C) 10569/2022 Page 2 of 7 By:SAPNA SETHI Signing Date:01.08.2022 20:59:2310. IDBI Bank [Respondent No. 1] had initially sent a communication dated 15th December, 2018 pertaining to the classification of promoters/directors/guarantors of the said company as "wilful defaulters", to which, a reply was sent dated 15th December, 2018. Subsequently, a show- cause notice dated 28th October, 2020 was issued, to which Petitioners sent their replies thereto on 11th November, 2020 and 12th November, 2020, stating that there was no "intentional, calculated or deliberate action"
towards commission of wilful default on their part. Thereafter, WDC vide order dated 30th January, 2021 declared Petitioners to be "wilful defaulters".
Petitioners contend that they were not afforded an opportunity for a personal hearing and the above-said order was communicated after an inordinate delay. A representation to that effect was made to the WDC on 29th May, 2021, in response thereto, IDBI Bank afforded a personal hearing to Petitioners on 24th September, 2021 and then vide order dated 28th February, 2022, Petitioners were declared as "wilful defaulters". A representation dated 26th March, 2022 was made before WDRC and personal hearing was requested by Petitioners. However, WDRC vide order dated 21st June, 2022, by way of a detailed order, confirmed the decision of WDC.
11. Mr. Saurabh Kirpal, Senior Counsel for Petitioners, argues as follows: -
11.1. When the personal hearing was afforded to Petitioners on 24th September, 2021, WDC had already formed its view. However, since a personal hearing was being granted, the first decision should have been withdrawn and a precursor show cause notice should have been issued, prior to taking a fresh decision.Signature Not Verified Digitally Signed W.P.(C) 10527/2022 & W.P.(C) 10569/2022 Page 3 of 7 By:SAPNA SETHI Signing Date:01.08.2022 20:59:23
11.2. WDRC has not afforded any opportunity of personal hearing to Petitioners. On this aspect, Mr. Kirpal has made elaborate submissions as under:
11.2.1. Petitioners were entitled to a personal hearing in terms of the 2015 Master Circular1 read with the judgment of Supreme Court in State Bank of India v. Jah Developers Pvt. Ltd..2 This is evident from a reading of the 2013 Master Circular3, which provides for the following 'grievance redressal mechanism':
"3. Grievances Redressal Mechanism Banks/FIs should take the following measures in identifying and reporting instances of wilful default:
(i) With a view to imparting more objectivity in identifying cases of wilful default, decisions to classify the borrower as wilful defaulter should be entrusted to a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs as decided by the Board of the concerned bank/FI.
(ii) The decision taken on classification of wilful defaulters should be well documented and supported by requisite evidence.
The decision should clearly spell out the reasons for which the borrower has been declared as wilful defaulter vis-à-vis RBI guidelines.
(iii) The borrower should thereafter be suitably advised about the proposal to classify him as wilful defaulter along with the reasons therefor. The concerned borrower should be provided reasonable time (say 15 days) for making representation against such decision, if he so desires, to a Grievance Redressal Committee headed by the Chairman and Managing Director and consisting of two other senior officials.
1Master Circular on Wilful Defaulters dated 01st July, 2015 2 (2019) 6 SCC 787.
3Master Circular on Wilful Defaulters dated 01st July, 2013 Signature Not Verified Digitally Signed W.P.(C) 10527/2022 & W.P.(C) 10569/2022 Page 4 of 7 By:SAPNA SETHI Signing Date:01.08.2022 20:59:23
(iv) Further, the above Grievance Redressal Committee should also give a hearing to the borrower if he represents that he has been wrongly classified as wilful defaulter.
(v) A final declaration as 'wilful defaulter' should be made after a view is taken by the Committee on the representation and the borrower should be suitably advised."
[Emphasis supplied] Although the 2013 Master Circular has been superseded by 2015 Master Circular, and the latter does not mention a 'personal hearing' before WDC; yet, the 2013 Master Circular survives, as has been held in Jah Developers, relevant portions reads as under: -
"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 1st July, 2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 1st July, 2015".
[Emphasis supplied] The necessary corollary that emerges from above direction is that a personal hearing must be afforded to Petitioners before the WDRC. 11.2.2. In matters where challenge has been laid to the decisions of WDC or WDRC, the Courts have routinely directed that such Petitioners be afforded a personal hearing even before WDRC.
11.2.3. A personal hearing is absolutely essential as that is the only substantive right in favour of Petitioners, considering the negative impact the 'wilful defaulter' declaration on a person. It entails infringement of fundamental rights, as has been noted by the Supreme Court in Jah Developers (supra).
Signature Not Verified Digitally Signed W.P.(C) 10527/2022 & W.P.(C) 10569/2022 Page 5 of 7 By:SAPNA SETHI Signing Date:01.08.2022 20:59:2311.3. The WDC order is conflicted, unreasoned and gives no clue to Petitioners as to how the decision has been arrived at. In such circumstances, if personal hearing had been affored before the WDRC, Petitioners could have made meaningful representation and put forth their points.
12. On the other hand, Mr. Sidharth Barua, counsel for IDBI, submits that there is no concept of a personal hearing before WDRC in terms of the 2015 Master Circular. Further, the interpretation given by Mr. Kirpal qua Jah Developers (supra) is completely untenable as the final directions are being misconstrued.
13. In the opinion of the Court, the right of personal hearing before WDRC is not borne out from 2015 Master Circular. It must be noted that the entire architecture of the scheme for declaring a party to be a "wilful defaulter", as envisaged under the 2013 Master Circular, has undergone a sea of change by way of the subsequent 2015 Master Circular. In Jah Developers (supra), the Supreme Court while incorporating 2013 Master Circular in the subsequent 2015 Master Circular, held that the latter must be interpreted in light of the scheme envisaged under the 2013 Master Circular. This incorporation is primarily for directing WDRC to pass a reasoned order on a representation, which was stipulated in 2013 Master Circular. However, prima facie right of personal hearing envisaged under 2013 Master Circular cannot be extended to WDRC under 2015 Master Circular. Indeed, in the instant case, Petitioners have been afforded sufficient opportunities to put forth their case. The orders of the co-ordinate bench, as relied upon by Mr. Kirpal, do not delve into this issue and cannot be relied upon as an acknowledgment of right of personal hearing at the stage of Signature Not Verified Digitally Signed W.P.(C) 10527/2022 & W.P.(C) 10569/2022 Page 6 of 7 By:SAPNA SETHI Signing Date:01.08.2022 20:59:23 WDRC.4
14. However, the Court notes that WDRC has passed a detailed order, giving reasons, incremental to WDC order. Whether the Petitioners were put to notice of the same at the stage of WDRC or not, would require further examination and thus, at this stage, Petitioners can be granted only a limited relief. Accordingly, till the next date of hearing, Respondents shall not publish Petitioners' names, pictures, and/or any other details in newspapers or any other form of publication.
15. It is clarified that except to the above extent, there is no stay of the impugned orders. Respondents are free to continue/initiate/file any complaint and/ or proceedings against Petitioners in accordance with law, independent of the impugned orders.
16. List on 13th September, 2022.
SANJEEV NARULA, J JULY 25, 2022 nk 4 In M/s Rangoli International Pvt Ltd. v. Bank of India W.P.(C) 6520/2019 dated 22nd January, 2020.
Signature Not Verified Digitally Signed W.P.(C) 10527/2022 & W.P.(C) 10569/2022 Page 7 of 7 By:SAPNA SETHI Signing Date:01.08.2022 20:59:23