Calcutta High Court
Gouri Prasad Goenka vs State Bank Of India And Anr on 26 August, 2019
Equivalent citations: AIRONLINE 2019 CAL 599
Author: Debangsu Basak
Bench: Debangsu Basak
OD-13
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
ORIGINAL SIDE
WP No.223 of 2019
newly numbered as
WPO No.223 of 2019
GOURI PRASAD GOENKA
Versus
STATE BANK OF INDIA AND ANR
BEFORE:
The Hon'ble JUSTICE DEBANGSU BASAK
Date: 26th August, 2019.
Appearance:
For the petitioner : Mr. Rajarshi Dutta, Adv.
Mr. Ishan Saha, Adv.
For the respondents: Mr. Subrata Sinha, Adv.
Heard on : 26th August, 2019 Judgement on : 26th August, 2019
Debangsu Basak, J. : The petitioner is aggrieved by a decision of the bank dated March 29, 2019 by which, the petitioner was identified as a wilful defaulter under the provisions of the Master Circular on Wilful Defaulters issued by the Reserve Bank of India.
Learned advocate appearing for the petitioner submits that, the petitioner received a show cause notice dated July 31, 2014. The show cause notice was issued by a Deputy General Manager. The show cause notice cannot be 2 construed to be one within the meaning of Master Circular on Wilful Defaulters, 2014 prevailing that time. In support of such contention he relies upon the judgement and order dated February 5, 2019 passed on WP No.1399(W) of 2019 (Pawan Kumar Patodia & Ors. versus Union Bank of India & Ors.) and the judgement and order dated May 3, 2019 passed in WP 7471(W) of 2019 (M/s. Atlantic Projects Ltd. & Ors. versus The Allahabad Bank & Ors.).
Referring to the facts of the present case, learned senior advocate for the petitioner submits that, after receipt of show-cause notice dated July 31, 2014, the petitioner replied thereto on August 14, 2014. The petitioner was sought to be given a personal hearing. The petitioner submitted a further reply to the show cause notice. Thereafter, the petitioner came to learn from a communication dated March 29, 2019 that, the petitioner was included in the list of wilful defaulters in respect of M/s. Consolidated Fibres & Chemicals Ltd. He submits that, the petitioner was denied an opportunity to approach the Review Committee under the Master Circular on Wilful Defaulters, 2014. He relies upon an unreported decision of Hon'ble Supreme Court dated May 8, 2019 rendered in Civil Appeal No.4776 of 2019 (State Bank of India versus M/s. Jah Developers Pvt. Ltd. & Ors.) in support of the contention that, the petitioner is entitled to a right of hearing before the Review Committee. The same was denied to the petitioner by the conduct of the bank. Therefore, according to him, the action taken by the bank in classifying the petitioner as a wilful defaulter stands vitiated.
3
Learned advocate appearing for the bank submits that, the petitioner was well aware of the steps taken by the bank from time to time. He refers to the show cause notice. He submits that, the petitioner submitted two replies with regard thereto. He submits that, the initial reply to the show cause notice was given by the petitioner on August 14, 2014. Thereafter, the bank issued a notice dated August 11, 2016 fixing August 30, 2016 as the date for personal hearing. The petitioner not only attended the personal hearing on August 30, 2016 but also submitted another reply dated August 20, 2016. The Identification Committee considered the matter in its meeting held on August 30, 2016 and decided to classify the petitioner as a wilful defaulter. Such decision was placed before the Review Committee in terms of the circular of 2014 as, such circular of 2014 stands attracted, more so as the initiation of proceeding was under the circular of 2014. He draws the attention of the Court to the relevant clauses of Circular of 2014 and submits that, the decision of Identification Committee is required to be affirmed by the Review Committee. In the present case, the Review Committee did so. The decision of the Review Committee was thereafter communicated to the petitioner by the letter dated March 29, 2019.
Learned Advocate appearing for the bank submits that, in a decision dated July 16, 2019 passed in WP No.12622(W) of 2019 (Mukesh Kumar Rathi - Versus- The State Bank of India & Ors.) the Court did not allow such a challenge made by the writ petitioner. He submits that, the ratio laid down in Jah Developers Pvt. Ltd. & Ors. (supra) so far as it relates to the issue of natural justice, and grant of personal hearing is concerned, is obiter dicta. 4
The petitioner was one of the directors of Consolidated Fibres & Chemicals Ltd. Consolidated Fibres & Chemicals Ltd. was a borrower of State Bank of India. State Bank of India invoked the provisions of Master Circular on Wilful Defaulters, 2014 against it as well as against its directors. The petitioner was a promoter director of Consolidated Fibres & Chemicals Ltd. However, the petitioner was not proceeded against till the time hereafter noted. The bank having proceeded against Consolidated Fibres & Chemicals Ltd. and its directors excepting the petitioner, bank classified such persons as wilful defaulters under the Master Circular on Wilful Defaulters, 2014. Such decision is not under challenge. Nothing is placed on record to suggest that, such decision of the bank was challenged by the person affected thereby.
The challenge in the present writ petition is at the instance of the petitioner who was promoter director of the Consolidated Fibres & Chemicals Ltd. Bank initiated a proceeding for including the petitioner as wilful defaulter by the show cause notice dated July 31, 2014. On July 31, 2014, Master Circular on Wilful Defaulters, 2014 was in operation. Therefore, since, the initiation of the proceedings was under the Master Circular of 2014, it would be appropriate to apply the Master Circular of 2014 given the fact that, the subsequent Master Circular of 2015 does not specify that, proceedings initiated under Master Circular of 2014 will stand abated or that the proceeding initiated under the Master Circular of 2014 will be proceeded with under the Master Circular of 2015.
5
The relevant provisions of the Master Circular of 2014 are as follows:-
"Grievances Redressal Mechanism Bank/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.
(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.6
(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."
Grievances Redressal Mechanism prescribed under the Master Circular of 2014 requires the bank to constitute an Identification Committee comprising of the requisite functionaries of the bank. The Master Circular of 2014 requires the decision taken on classification of wilful defaulters to be well documented and supported by requisite evidence. The decision should be informed with reasons. It requires the bank to advise the borrower about the proposal to classify the borrower as wilful defaulter along with the reasons thereof. It requires the bank to provide reasonable time for making a representation against such decision, if he so desires, to a Grievance Redressal Committee. The Grievance Redressal Committee is required to give a hearing to the borrower if he represents that he has been wrongly classified as wilful defaulter.
In the facts of the present case, there is a show cause notice issued by the bank. Without entering into the issue as to whether such stand show cause notice stands initiated as it was not issued by the functionaries constituting the Identification Committee laid down by the Master Circular of 2014, it would be appropriate to look into the conduct of the bank subsequent thereto. The petitioner replied to such show cause notice twice. The Identification Committee took a decision of classifying the petitioner as a wilful defaulter. In terms of Clause 3(iii) of the Master Circular of 2014, the bank is required to inform the petitioner about the proposal to classify the petitioner as wilful defaulter along 7 with the reasons therefor. Therefore, necessarily, the decision of Identification Committee was required to be communicated to the petitioner.
In the present case, the bank did not inform the decision of the Identification Committee to the petitioner till March 29, 2019 by which time, the Grievance Redressal Committee affirmed the decision of the Identification Committee. In my view, there is a serious breach of principles of natural justice in the bank not communicating the decision of the Identification Committee to the petitioner in terms of Clause 3(iii) of the Master Circular of 2014 before the Grievance Redressal Committee deciding on the decision taken by the Identification Committee. Clause 3(iv) of the Master Circular on Wilful Defaulters, 2014 requires the Grievance Redressal Committee to give a hearing to the petitioner if he represents that he has been wrongly classified as a wilful defaulter. Again, in terms of Clause 3(iv) it is imperative that the bank communicates the decision of the Identification Committee to the borrower for the borrower to take a decision as to whether he wants to make a representation before the Grievance Redressal Committee or not and whether to seeking hearing before the Grievance Redressal Committee or not if he makes a representation. In the present case the petitioner was denied such opportunity by the conduct of the bank as noted above.
Jah Developers Pvt. Ltd. & Others (Supra) considered both the Master Circulars and is of the view of the principles of natural justice are to be read into such Master Circulars. Pawan Kumar Patodia & Ors. (Supra) and M/s. Atlantic Projects Ltd. & Ors. (supra) considers the Master Circular of 2015 and 8 is of the view that, the Identification Committee should communicate its decision to the borrower concerned. Mukesh Kumar Rathi (supra) in the facts of that case did not find any reason to interfere with the decision to classify the borrower as wilful defaulter. The fact scenario in the present case are different.
In the facts of the present case, the bank did not communicate the decision of the Identification Committee till March 29, 2019. All steps taken by the bank subsequent to the decision of the Identification Committee dated August 30, 2016 as communicated by the letter dated March 29, 2019 stands quashed.
This order, however, will not prevent the bank from taking steps in terms of the Master Circular of 2014 against the petitioner, in accordance with law from the stage of the decision of the Identification Committee, if so advised.
WP No.223 of 2019 newly numbered as WPO No.223 of 2019 is disposed of. No order as to costs.
(DEBANGSU BASAK, J.) sp/snn