Delhi High Court
Shiv Sewak Singh vs Punjab National Bank And Ors on 17 September, 2018
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
$~85
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 2114/2018 & CM No. 38002/2018
SHIV SEWAK SINGH ..... Petitioner
Through: Mr Vivek Kohli, Ms Prerna Kohli, Mr
Snubha Singh Abhyankar and Ms
Neetika Bajaj, Advocates.
versus
PUNJAB NATIONAL BANK AND ORS ...... Respondents
Through: Mr Sartaj Singh, Advocate for R-1.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 17.09.2018 VIBHU BAKHRU, J
1. The petitioner has filed the present petition, inter alia, impugning the Consumer Credit Report dated 08.09.2017 bearing no. CCR17090BCR627610861 and Consumer Credit Report dated 01.02.2018 bearing no. 462358402 (hereafter referred to as ‗the impugned reports'). The impugned Reports have been uploaded on the website of respondent nos.2 and 3. The impugned reports indicate that the petitioner is jointly indebted for the loans advanced by respondent no. 1 (Punjab National Bank
-hereafter ‗PNB') which are overdue. The same is indicated by referring to the business loan as ‗Joint'.
2. The petitioner disputes that he owe any sum to PNB and, therefore, W.P.(C) 2114/2018 Page 1 of 13 prays that the impugned reports be set aside.
Factual Background
3. In 2009, National Highways Authority of India (hereafter ‗NHAI') had invited tenders for two lanning of Raibareilly-Allahabad section from km 82.00 to km 188.600 of NH - 24 B in the State of Uttar Pradesh to be executed as BOT (Toll) project on Design, Build, Finance, Operate & Transfer (DBFOT) basis (hereafter ‗the Project'). A consortium formed by Vijai Infrastructure Limited (now known as ‗VIL Limited') and Vijai Constructions submitted a bid, which was accepted by NHAI. On 08.02.2011, the said consortium incorporated a company, Raibareilly Allahabad Highway Private Limited (hereafter ‗RAHPL'), as a Special Purpose Vehicle (SPV) for implementing the Project. At the material time, one Sh. Naushad Ahmed and the petitioner were Directors of RAHPL. It is stated that the data available on the website of Ministry of Corporate Affairs, continues to reflect them as Directors of RAHPL.
4. At the material time, Vijai Construction, one of the constituents of the consortium, was a partnership firm and the petitioner was one of the four constituent partners of the said firm. PNB further states that the petitioner held 17550 shares in RAHPL on behalf of Vijai Construction and was also reflected as a promoter/director. The petitioner was also a director of VIL and held 34.67% shares in VIL Limited.
5. RAHPL required funding for executing the Project and accordingly, approached banks and financial institutions including PNB for such funds. On 04.10.2011, a Common Loan Agreement was executed between RAHPL as a borrower and banks and financial institutions (referred to as ‗senior W.P.(C) 2114/2018 Page 2 of 13 lenders'). State Bank of India was also a party to the said Agreement as the lenders' joint agent. It is stated in the counter affidavit filed on behalf of the PNB that a total loan of of ₹225 crores was sanctioned by the banks and other financial institutions and as a part of consortium of banks/financial institutions had committed ₹65 crores.
6. The loans advanced to RAHPL were secured by a corporate guarantee issued by VIL Limited. It is asserted that RAHPL has defaulted in repayment of the loan and interest. Consequently, on 07.04.2017, PNB categorised the account of RAHPL as a Non-Performing Asset (NPA). At the material time, a sum ₹69,22,85,468/- was outstanding against the said loan owed to PNB.
7. Based on the data provided by PNB, respondent nos. 2 & 3 - which are credit information agencies - generated the impugned reports indicating defaults in payment of loan due to PNB. It is stated that the impugned reports indicated 17 active accounts and 1 account showing overdue amount of ₹6,32,77,451/- The impugned reports also showed a current outstanding amount of ₹65,00,00,000/- on joint ownership basis against the corporate gurantee.
8. The petitioner is, essentially, aggrieved by the information uploaded by respondent nos. 2 & 3, as it indicates the petitioner to be a defaulter and further lowers the petitioner's credit rating.
Reasons and Conclusion
9. There is no dispute that the petitioner was one of the directors of RAHPL. It is also stated that on 31.03.2011, RAHPL had entered into an W.P.(C) 2114/2018 Page 3 of 13 Engineering, Procurement, Construction and Maintenance Agreement (EPC Agreement) with VIL Limited, whereby VIL Limited was appointed as the EPC contractor for execution of the Project awarded by NHAI. It is stated that the said EPC Agreement was revised on 31.03.2012 and thereafter on 15.09.2012.
10. The petitioner was a director of VIL Limited and also held 34.67% shares in VIL Limited. However, the petitioner claims that he resigned as a director of VIL Limited on 20.09.2011. It also appears that there are certain disputes between the petitioner and Sh. Naushad Ahmed (the other promoter/director of VIL Limited and RAHPL), which had led the petitioner to file a petition alleging oppression and mismanagement before the National Company Law Tribunal (CP No. 140 of 2014 captioned ―Shiv Sewak Singh & Ors. v. VIL Limited & Ors.‖). The petitioner also claims that Sh. Naushad Ahmed was excluding the petitioner from affairs of RAHPL and this had led the petitioner to file a petition under Section 186 of the Companies Act, 1956 before the Company Law Board captioned VIL Limited and Ors. v. Raibareilly Allahabad Highway Pvt. Ltd. and Ors.:
C.P. NO. 2/186/2015, inter alia, praying that an Extraordinary General Body meeting of RAHPL be held. The said petition was dismissed on 15.03.2016. The appeal preferred against the said order (being Company Appeal SB No. 20 of 2016 captioned ―VIL Limited and Ors. v. Raibareilly Allahabad Highway Pvt. Ltd.‖) was withdrawn on 27.02.2017.
11. There is no dispute that the petitioner had neither availed of any loan from the PNB nor guaranteed repayment of any such loan.
12. At this stage, it is relevant to refer to Section 2(b) of the Credit W.P.(C) 2114/2018 Page 4 of 13 Information Companies (Regulation) Act, 2005 (hereafter ‗the CICR Act') which defines the term ―borrower‖ in the following words:-
―(b) ―borrower‖ means any person who has been granted loan or any other credit facility by a credit institution and includes a client of a credit institution;‖
13. The term ―client‖ is defined under Section 2(c) of the CICR Act which reads as under:-
―(c) ―client‖ includes--
(i) a guarantor or a person who proposes to give guarantee or security for a borrower of a credit institution; or
(ii) a person--
(A) who has obtained or seeks to obtain financial assistance from a credit institution, by way of loans, advances, hire purchase, leasing facility, letter of credit, guarantee facility, venture capital assistance or by way of credit cards or in any other form or manner;
(B) who has raised or seeks to raise money by issue of security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), or by issue of commercial paper, depository receipt or any other instrument; (C) whose financial standing has been assessed or is proposed to be assessed by a credit institution or any other person or institution as may, by notification, be directed by the Reserve Bank;‖
14. Since the petitioner has neither availed of any loans from PNB nor guaranteed repayment of any such loans, the petitioner is neither a W.P.(C) 2114/2018 Page 5 of 13 ―borrower‖ nor a ―client‖ within the meaning of Clauses (b) and (c) of Section 2 of the CICR Act.
15. Admittedly, respondent nos.2 & 3 are Credit Information Companies registered under the CICR Act.
16. Section 14(1) of the CICR Act lists out the forms of business that may be carried on by a Credit Information Company and is set out below:-
―14. Functions of a credit information company.--(1) A credit information company may engage in any one or more of the following forms of business, namely:--
(a) to collect, process and collate information on trade, credit and financial standing of the borrowers of the credit institution which is a member of the credit information company;
(b) to provide credit information to its specified users or to the specified users of any other credit information company or to any other credit information company being its member;
(c) to provide credit scoring to its specified users or specified users of any other credit information company or to other credit information companies being its members;
(d) to undertake research project;
(e) to undertake any other form of business which the Reserve Bank may, specify by regulations as a form of business in which it is lawful for a credit information company to engage.‖
17. The expression ―credit information‖ is defined under Section 2(d) of the CICR Act which reads as under:-
W.P.(C) 2114/2018 Page 6 of 13―2(d) ―credit information‖ means any information relating to--
(i) the amounts and the nature of loans or advances, amounts outstanding under credit cards and other credit facilities granted or to be granted, by a credit institution to any borrower;
(ii) the nature of security taken or proposed to be taken by a credit institution from any borrower for credit facilities granted or proposed to be granted to him;
(iii) the guarantee furnished or any other non-fund based facility granted or proposed to be granted by a credit institution for any of its borrowers;
(iv) the credit worthiness of any borrower of a credit institution;
(v) any other matter which the Reserve Bank may, consider necessary for inclusion in the credit information to be collected and maintained by credit information companies, and, specify, by notification, in this behalf.‖
18. Since the petitioner is not a borrower in respect of any financial assistance granted by PNB to RAHPL or VIL Limited, the petitioner cannot be considered as a ―borrower‖ in respect of any information pertaining to the said loans. Thus, as far as the petitioner is concerned, the information generated by the PNB in connection with the petitioner does not fall within any of the first four sub-clauses of Section 2(d) of the CICR Act.
19. At this stage, it would be relevant to examine the reason why the petitioner has been reflected as a joint owner in respect of financial assistance granted by the PNB to RAHPL. This is discernable from the response by the letter dated 26.12.2017 sent by respondent no.2 in response to the legal notice dated 21.11.2017 issued by the petitioner. The relevant W.P.(C) 2114/2018 Page 7 of 13 extract of the said letter is set out below:-
―RBI guidelines require a credit institution to obtain 360 degree view of a customer before lending and has prescribed a format for submission of credit information in customer segment to a Credit Information Company (CIC). The prescribed format consists columns for joint applicant and guarantor while there is no column to mention name of director or promoter. Hence credit institutions (including PNB) are forced on report names of promoter and / or director as guarantors or joint applicants while submitting data to CIC.
As per the provisions of Credit Information Companies (Regulation) Act, 2005, CRIF HM is required to report data submitted by its member credit institution without any desertion. Hence, CRIF HM has included your client's name in the list of wilful defaulters published on its website and shown your client as credit guarantor for loan of INR 65,00,00,000/- which has been marked as delinquent by PNB.
CRIF HM would suggest you to take this matter up with PNB and request them to make changes in their reporting which would be updated by CRIF HM.
CRIF HM regrets the inconvenience caused to your client and provides assurance you that the required actions would be initiated as soon as we receive the corrected data from PNB or any instruction in this regard from RBI.‖
20. It is apparent from the above that the petitioner has been shown as a guarantor on account of being a promoter/director of RAHPL and/or VIL Limited. Even though there is no dispute that the petitioner has not stood as guarantor in respect of financial assistance extended by PNB to those entities, it appears that the petitioner's name has been included as a wilful defaulter.
W.P.(C) 2114/2018 Page 8 of 1321. The impugned reports, which reflects the petitioner as a jointly indebted to PNB are, thus, ex facie erroneous and to that extent cannot be sustained. The only question that remains to be considered is whether the petitioner could be included in an adverse credit report on account of the petitioner being a director of a company that has defaulted in payment of its dues.
22. The Reserve Bank of India had issued a Master Circular dated 01.07.2015 (hereafter ‗the Master Circular') for putting in place a system of dissemination of credit information pertaining to wilful defaulters. Paragraph 2.1.3 of the Master Circular lists out the events that would be considered as wilful default. Paragraph 2.5 of the Master Circular provides for measures to be initiated by the banks and financial institutions against wilful defaulters. Paragraph 2.5 of the Master Circular is relevant and is set out below:-
―2.5 Penal Measures The following measures should be initiated by the banks and FIs against the wilful defaulters identified as per the definition indicated at paragraph 2.1.3 above:
a. No additional facilities should be granted by any bank / FI to the listed wilful defaulters. In addition, such companies (including their entrepreneurs / promoters) where banks / FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks. Financial Institutions, NBFCs, for floating new ventures for a period of 5 years from the date of removal of their name from the W.P.(C) 2114/2018 Page 9 of 13 list of wilful defaulters as published/disseminated by RBI/CICs.
b. The legal process, wherever warranted, against the borrowers / guarantors and foreclosure for recovery of dues should be initiated expeditiously. The lenders may initiate criminal proceedings against wilful defaulters, wherever necessary.
c. Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the wilfully defaulting borrower unit.
d. A covenant in the loan agreements, with the companies to which the banks / FIs have given funded / non-funded credit facility, should be incorporated by the banks / FIs to the effect that the borrowing company should not induct on its board a person whose name appears in the list of Wilful Defaulters and that in case, such a person is found to be on its board, it would take expeditious and effective steps for removal of the person from its board.
It would be imperative on the part of the banks and FIs to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should also be ensured that a solitary or isolated instance is not made the basis for imposing the penal action.‖ [ underlining for emphasis]
23. A plain reading of the Master Circular clearly indicates that the promoters and directors could also be declared as wilful defaulters in certain circumstances. Indisputably, in such circumstances, the name of the promoters / entrepreneurs are required to be included as a part of the ‗Credit W.P.(C) 2114/2018 Page 10 of 13 Information' to be collected and maintained by Credit Information Companies. Paragraph 2.9 of the Master Circular expressly provides banks and financial institutions to submit certain information in regard to accounts of wilful defaulters of ₹25 lacs and above. Clearly, this would fall within the scope of the expression ‗Credit Information' under the CICR Act.
24. Paragraph 3 of the Master Circular also provides for the mechanism for identification of wilful defaulters. This entails a Committee headed by an Executive Director or equivalent and consisting of two other senior officers of the rank of GM/DGM to examine whether a person is a wilful defaulter. The said Committee is required to issue a show cause notice to the concerned promoters/whole time directors calling for their submissions in this regard and, thereafter, issue an appropriate order. Sub-paragraphs (a),
(b) and (c) of Paragraph 3 of the Master Circular are relevant and are set out below:-
―(a) The evidence of wilful default on the part of the borrowing company and its promoter / whole-time director at the relevant time should be examined by a Committee headed by an Executive Director or equivalent and consisting of two other senior officers of the rank of GM / DGM.
(b) If the Committee concludes that an event of wilful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter / wholetime director and call for their submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the promoter / whole-time director for a personal hearing if the Committee feels such an opportunity is necessary.W.P.(C) 2114/2018 Page 11 of 13
(c) The Order of the Committee should be reviewed by another Committee headed by the Chairman / Chairman & Managing Director or the Managing Director & Chief Executive Officer / CEOs and consisting, in addition, to two independent directors / non-executive directors of the bank and the Order shall become final only after it is confirmed by the said Review 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.‖
25. In view of the above, this Court had pointedly asked from the learned counsel for the PNB whether the petitioner had been declared as a wilful defaulter. Mr Sartaj Singh, the learned counsel appearing for PNB submitted that although the petitioner would be responsible for the defaults of RAHPL, no such declaration had been made. He also confirmed that no such proceedings as contemplated under Paragraph 3 of the Master Circular were conducted.
26. In view of this conceded position, the petitioner cannot be considered as a wilful defaulter in respect of the loans advanced by PNB to RAHPL.
27. In view of the above, the present petition is allowed and respondent nos.2 and 3 are directed to remove reference to the loans advanced by PNB to RAHPL or the defaults in relation to a guarantee furnished by VIL Limited in the impugned reports. It is also necessary to observe that reflecting a director as a joint owner in respect of a loan advanced to a company would be clearly erroneous if the said director has not furnished any personal guarantee and is otherwise not liable to personally repay the debt. Thus, even if entrepreneurs/wholetime directors have been declared as W.P.(C) 2114/2018 Page 12 of 13 the willful defaulters on account of defaults committed by the corporate borrowers, the same cannot be reflected as a joint loan. The credit information as shared by the banks, must correctly indicate the relationship of such entity of an individual to the entity that has defaulted in repayment of its dues.
28. The petition is disposed of in the aforesaid terms. The pending application also stands disposed of.
VIBHU BAKHRU, J SEPTEMBER 17, 2018 RK W.P.(C) 2114/2018 Page 13 of 13