Gujarat High Court
M/S Raghav Madhav Filaments Pvt. Ltd vs Bank Of Baroda on 20 April, 2022
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 11863 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S RAGHAV MADHAV FILAMENTS PVT. LTD
Versus
BANK OF BARODA
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Appearance:
MR. JAIMIN R DAVE(7022) for the Petitioner(s) No. 1,2,3,4
PRIYANK S DAVE(9465) for the Petitioner(s) No. 1,2,3,4
SHIVAM D PARIKH(9477) for the Petitioner(s) No. 1,2,3,4
MR KM PARIKH(575) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 20/04/2022
ORAL JUDGMENT
1. Heard learned advocate Mr. Jaimin R. Dave for the petitioners and learned advocate Mr. K.M. Parikh for the respondent-bank.
2. Rule. Learned advocate Mr. K.M. Parikh waives service of rule for respondent-bank.
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3. By this petition under Article of the 226 of the Constitution of India, the petitioners have challenged the action of the Committee of the Executives of Willful Defaulters (Identification Committee) and the Review Committee of the respondent-Bank of India identifying the account of the petitioners as willful defaulter and subsequent reporting of the name of the petitioners to Reserve Bank of India/ CIBIL as willful defaulter.
4. It is the case of the petitioners that the petitioners were informed about the decision of declaring the petitioners as willful defaulter vide communication dated 22nd April, 2019. The facts leading to the declaration of the petitioners as willful defaulter are as under:
4.1) On 13th September, 2011, the petitioners no. 2 to 4, incorporated a company with one Mr. Ruchir Mittal in the name and style of Raghav Madhav Filaments Pvt. Ltd. The petitioners are the Directors of M/s. Raghav Madhav Filaments Pvt. Ltd.
4.2) The respondent-bank granted various credit facilities to the borrower company i.e. M/s. Raghav Madhav Filaments Pvt. Ltd.
(for short 'the borrower company') vide sanction letter dated 12th December, 2013.
Page 2 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 4.3) Differences arose between the petitioner no. 2 to 4 and Mr. Ruchir Mittal and it was decided that petitioners no. 2 to 4 will sell their shares in the borrower company to Mr. Ruchir Mittal. Accordingly petitioner no.1 passed a Board Resolution dated 5th May, 2014 and directed the respondent-bank to operate accounts under the joint signature of petitioner no.2 and Mr. Ruchir R. Mittal.
4.4) The borrower company vide letter dated 10th July, 2014 informed the respondent bank that petitioners no. 2 to 4 have decided to move out of the said company and therefore, the private properties of petitioners no. 2 to 4 which were given as collateral security for securing the credit facilities of the bank may be released. It was also informed that Corporate Guarantee of one M/s. Surat Export Suppliers Pvt. Ltd and personal guarantees of petitioners no.2 to 4 may be released.
4.5) Respondent-bank approved the above arrangement and vide letter dated 14th November, 2014 agreed to release the private properties of petitioners no. 2 to 4 from collateral security, corporate guarantee and personal guarantee.
4.6) On 27th January, 2015, Mr. Ruchir Mittal resigned as Director from the borrower company.
Page 3 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 It is the case of the petitioners that upon such resignation being given, the petitioners vetted the accounts of the borrower company and found that Mr. Ruchir Mittal in collusion with the officers of the respondent bank had siphoned off Rs. 4,02,28,545/ from the account. The borrower company vide resolution dated 14th February, 2015 accepted the resignation of Mr. Ruchir Mittal.
4.7) It is the case of the petitioners that in the meeting held on 9th March, 2015 with the officers of the respondent bank, it was agreed that Mr. Mital will clear the bank dues of the borrowing company till 19th March, 2015 and the private properties of the petitioners no. 2 to 4 would be released from mortgage.
4.8) The petitioners thereafter addressed several letters to ensure the compliance of decision taken in the said meeting.
4.9) Respondent-bank thereafter issue notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(For short "the SARFAESI Act") and called upon the petitioners to clear the dues of the respondent- bank.
4.10) It is the case of the petitioners that a theft took place on 9th September, 2015 and Page 4 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 therefore, the petitioner reported the incident to the respondent bank and requested the bank to lodge FIR against Mr. Mittal and others. The petitioners again vide letters dated 8th October, 2015 and 19th January, 2016 requested the respondent bank to take appropriate action against Mr. Mittal.
4.11) In February, 2016 the petitioners were called upon to submit a list of debtors of the borrower company to the respondent-bank for the purpose of recovery of debts towards the payment of credit facilities. The petitioners submitted the entire list of debtors vide letter dated 12th February, 2016.
4.12) The petitioners vide letter dated 25th February, 2016 requested the Chief Manager of the respondent bank to look into the matter and pointed out about the diversion of funds from the account of the company. The petitioners also lodged FIR being CR No. 170 of 2016 on 14th December, 2016 against Mr. Mittal for theft of machinery and stock from the factory premises.
4.13) In October, 2017 respondent-bank issued E-auction notice for sale of the collateral securities which was strongly objected by the petitioners vide letter dated 2nd October, 2017.
4.14) Respondent-bank vide letter dated 9th Page 5 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 October, 2017 accepted the objections partially and dropped the E-auction qua the property of the company. The petitioners addressed yet another letter on 18th October, 2017 to the respondent bank and the respondent-bank accepted the objections and withdrew E-auction notice vide letter dated 5th November, 2017.
4.15) The petitioners thereafter vide letter dated 19th May, 2018 requested the respondent-bank to initiate penal action against the defaulting officers of the bank and reimburse the losses caused to the petitioners.
4.16) Thereafter, respondent-bank issued notice dated 4th December, 2018 proposing to declare the petitioners as willful defaulters.
4.17) The petitioners vide letter dated 11th December, 2018 requested for a copy of inspection report and other evidences based on which respondent bank issued notice dated 4th December, 2018.
4.18) The Review Committee of the respondent bank however, vide letter dated 22nd April, 2019 classified the petitioners as willful defaulters and confirmed the decision of the Committee of Executives.
4.19) On 30th May, 2019 respondent bank Page 6 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 published a public notice declaring the petitioners as willful defaulters.
4.20) Being aggrieved by the action of the respondent bank of declaring the petitioners and the company as willful defaulter, the petitioners have preferred this petition.
5.1. The learned advocate Mr. Dave appearing for the petitioners submitted that the petitioners were not provided with the orders passed by the Identification Committee and the Review Committee declaring the petitioners as willful defaulter and therefore, the petitioners are unable to defend as they are not aware about the reasons for such declaration. It was therefore, submitted that there is a gross violation of principles of natural justice by not providing any opportunity of hearing to the petitioners.
5.2. Learned advocate Mr. Dave would submit that the petitioners No. 2 to 4 have not taken any loan from the respondent bank and the petitioners No. 2 to 4 cannot be termed as willful defaulters as defined under Clause 2.1.3 of the RBI Master Circular dated July 1, 2015 and as such the petitioners cannot be classified as willful defaulter.
5.3. Learned advocate Mr. Dave further submitted that the Identification Committee has not issued any notice as required under Clause Page 7 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 3(b) of the Master Circular of RBI and the notice given by the respondent bank is against the prescribed procedure provided under Clause-3 of the said Circular.
5.4. It was submitted by the learned advocate Mr. Dave that as per the Clause 2.5 of the Master Circular dated 1st July, 2015 the persons, who are declared as willful defaulters can be met with penal measures and such person can be debarred from the institutional finance from scheduled commercial banks, financial institutions etc. and as per Clause-4 of the Circular, criminal action can also be taken against the willful defaulter. It was therefore, submitted that for the action of declaring the petitioners as willful defaulters is in gross violation of principles of natural justice as it has resulted into immense hardships to the petitioners. It was therefore, submitted that the orders passed by the Identification Committee, as well as, Review Committee are in contravention of the RBI Master Circular dated 1st July, 2015. It was submitted that before passing the impugned order declaring the petitioners as willful defaulters a show cause notice was required to be issued to the petitioners by the Identification Committee and not the respondent Bank and after considering the submissions of the petitioners, the order recording the fact of willful default committed by the petitioners by giving reasons for the same Page 8 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 could have been passed. It was also submitted that the Identification Committee ought to have granted an opportunity to the petitioners for personal hearing before passing such order.
5.5. Learned advocate Mr. Dave therefore, submitted that in the procedural requirement of hearing the petitioners prior to passing any order declaring the petitioners as willful defaulters, which is in consonance with the principles of natural justice having not been fulfilled by the Identification Committee, the order of the Identification Committee deserves to be set aside. It was further submitted that while confirming the order of the Identification Committee, the Review Committee has also not applied its mind as no reasons have been disclosed as to why the order of the Identification Committee needs to be confirmed.
5.6. Learned advocate Mr. Dave submitted that the copy of the order of Identification Committee was not supplied to the petitioners in spite of written application being made and such order of the Identification Committee cannot be sustained in absence of copy of the order as the petitioners are not able to know the reasons for rejection of the grounds raised by it before the respondent Bank as also as to why the petitioners have not been granted the opportunity of personal hearing.
Page 9 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 5.7. Learned advocate Mr. Dave in support of his submissions relied upon the following decisions :
1. State Bank Of India Vs. Jah Developers Private Limited And Others reported in (2019)
6 SCC 787.
2. M/s. Kanchan Motors and others vs. Bank of India and others reported in 2018 SCC OnLine Bom 1761.
3. Anil Products Limited Vs. Commissioner of Central Excise Ahmedabad-II reported in 2010 SCC OnLine Guj 1038.
6. On the other hand, learned advocate Mr. K.M. Parikh for the respondent Bank supported the decision of the Identification Committee as also the Review Committee and submitted that there was no necessity to supply the copy of the order of the Identification Committee.
7. Having heard the learned advocates for the respective parties and having gone through the materials on record, in order to appreciate the contentions raised by the respective parties, it would be germane to refer to few Clauses of Master Circular on willful defaulter dated 1st July, 2015 issued by the RBI.
Page 10 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 "Clause 2.1.3: Wilful Default : A 'willful default' would be deemed to have occurred if any of the following events is noted:
(a) The unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations.
(b) The unit has defaulted in meeting its payment/ repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.
(c) The unit has defaulted in meeting its payment/ repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.
(d) The unit has defaulted in meeting its payment/ repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank/lender.
The identification of the willful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/ incidents. The default to be categorised as willful must be intentional, deliberate and calculated."
Clause no. 2.5 : Penal Measures The following measures should be initiated by the banks and FIs against the willful 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 willful defaulters. In addition, such companies (including their entrepreneurs / promoters) where banks/ FIs have identified siphoning / diversion of funds, misrepresentation, falsification of Page 11 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 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 list of willful 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 willful defaulters, wherever necessary.
c. Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the willfully defaulting borrower unit.
d. A covenant in the loan agreements, with the companies to which the banks/ FIs have given funded/ nonfunded 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 willful 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 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.
Clause no.3: Mechanism for identification of willful defaulters.
The mechanism referred to in paragraph 2.5 above should generally include the following :
(a) The evidence of willful 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 willful default has occurred, it shall issue a Show Cause Notice to the concerned borrower Page 12 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 and the promoter/ whole-time director and call for their submissions and after considering their submissions issue an order recording the fact of willful 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.
(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/ nonexecutive 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 willful defaulter, then the Review Committee need not be set up to review such decisions."
8. Thus, clause 2.1.3 defines 'willful default' as to who can be said to have committed a willful default as enumerated in Clause (a) to (d). Whereas, Clause-3 provides for mechanism for identification of willful defaulters. Clause - 2.5 provides consequences of declaring any lender as willful defaulter resulting into penal measures including criminal case. On perusal of the above provisions of Master Circular, the Identification Committee is required to examine the availability of evidence of willful default on the part of the borrower company and its promoter/whole time director and if such committee concludes that the event of willful default is occurred, it is obligatory on the part of the Identification Committee to issue a show cause notice to the concerned borrower and promoter or whole time director calling for their Page 13 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 submissions and after considering their submissions an order recording the fact of willful default has to be passed giving reasons for the same. Therefore, it is incumbent upon the Identification Committee to provide an opportunity of personal hearing to the borrower and promoter, whole time director or the persons, who are to be considered as willful defaulter and the decision of such Identification Committee is to be reviewed by any other Committee, which is Review Committee as per Clause-3(c) of the Master Circular.
9. The Division bench of the Bombay High Court in case of M/s. Kanchan Motors and others vs. Bank of India and others reported in 2018 SCC OnLine Bom 1761 has held as under with regard to violation of principles of natural justice as under:
"14. On the close scrutiny of the aforesaid provisions of Master Circular, it is clear that the consequences of declaring any lender as wilful defaulter are serious in nature. It is also clear that for declaring a lender to be wilful defaulter specific finding is required to have been recorded in terms of Clasue 2.1.3(a) to (d) as the case may be. The Master Circular also provides a mechanism to be adopted for identifying the wilful defaulter. It includes, availability of evidence of wilful default on the part of borrowing company and its promoter/whole-time director which needs to be examined by the Identification Committee. If the Committee concludes that an event of wilful default has occurred, it is obligatory on the part of Identification Committee to issue a show cause notice to the concerned borrower and the promoter/whole-time director calling from their Page 14 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 submissions and after considering their submissions as may be received, an order recording the fact of wilful default has to be passed after giving reasons for the same. It is also incumbent upon the Identification Committee to give an opportunity of personal hearing to borrower & promoter/whole-time director if it feels that such opportunity is necessary. The said order of the Committee needs to be reviewed by another Committee (Review Committee) as per Clause 3(c) of the Master Circular.
15. Examining the present matter on the touch stone of the aforesaid provisions, we find that the Respondent Bank has failed to comply with the aforesaid mechanism provided under the Master Circular. It is clear from the record that in response to the notice issued by the Bank informing the Petitioners about their intentions to proceed against them for declaring them as willful defaulter and giving last chance to deposit outstanding amounts, the Petitioners have submitted a detailed reply dated 29th January, 2018 giving reasons as to why such proceeding cannot be initiated. However, it appears that thereafter the Identification Committee has passed an order on 9th March, 2018 recording that the Petitioners have committed wilful default. It is also an admitted fact that the copy of the order dated 9th March, 2018 was not supplied to the Petitioners even though a written request for the same was made. Moreover, in the stand of the Bank in reply to the Petition, it is stated that is not necessary to supply the copy of the order of the Identification Committee to the Petitioners.
16. In the circumstances, in our considered view the Respondents while declaring the Petitioners as wilful defaulter have violated the provisions contained in the Master Circular and have also acted in violation of the principles of natural justice. The impugned action which is penal in nature has been taken causing serious implication on the Petitioners without following the basis principles of natural justice. The impugned order of Review Committee as is clear from a bare reading of it, is a non speaking order as the operative part of the order of Review Committee which contains the reasons reads thus:
"The Review Committee has examined and reviewed the proceedings initiated order and the findings of the Identification Committee and found that they are in order and confirmed that you have committed the following willful default:--
(Reasons) The unit has defaulted reasons in meeting its payment/repayment obligation to the Page 15 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 lender and has not utilized the finance from lender even when it has capacity to honour the said obligations."
17. This according to our considered view the order of the Review Committee cannot be termed as reasoned order and as such it cannot be sustained.
18. We are also of the considered view that the Respondent Bank cannot be allowed to say that it is not necessary for them to supply copy of the order passed by the Identification Committee. As would be clear from Clause 3(b) of the Master Circular the Identification Committee has to record reasons while passing the order of recording the fact of commission of wilful default as also to assign valid reasons as to whether it is necessary to give the borrower and the the promoter/whole time director the opportunity of personal hearing. This requirement whether has been complied with or not could have been examined only if the said order was brought on record. But strangely in reply the Bank has taken a stand that the order dated 9 th March, 2018 passed by the Identification Committee is the internal order and it is not supposed to be served upon the Petitioners. It is also stated by the Respondents in the reply that no question arises of serving the order dated 9th March, 2018 on the Petitioners and that the order dated 9 th March, 2018 is the preliminary internal order and after its finalization by Review Committee, it is conveyed to the Petitioners. Thus from the stand taken by the Respondents, it is clear that they have neither supplied copy of the order passed by the Identification Committee to the Petitioners nor according to them it was necessary. It is also very strange that the said order has not even been brought on record by the Bank to deny the Petitioners' contention that their grounds raised through reply dated 29th January, 2018 to show cause notice against proposed declaration of wilful defaulter have not been considered and that as to why the Petitioners were denied the opportunity of being heard.
19. In our considered view the stand of the Bank that they are not obliged to furnish copy of the order passed by the Identification Committee cannot be sustained. Such stand if accepted would given rise to arbitrary exercise of powers as the Identification Committee may give complete go bye to the requirement of assigning reasons for declaring a party as Wilful Defaulter and also requirement of giving reasons as to why opportunity of personal hearing would not be necessary.
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20. In the present case, as already observed even the order of Review Committee is bereft of any reasons for arriving at the conclusion that, "the Petitioners have defaulted in meeting its payment/repayment obligation to the lender even when it has capacity to honour the said obligation.
21. Having regard to the aforesaid in our considered view failure to supply the reasons by the Identification Committee of recording the fact that the Petitioners are in wilful default and as to why they need not be given an opportunity of hearing when in their reply dated 29 th January, 2018 the Petitioners have raised various grounds opposing the proposed action of declaring them willful defaulter and sought opportunity of personal hearing cannot be said to be justified. Similarly absence of reasons in the order of Review Committee also amounts to denial of justice. It is now well settled that reasons are the live links between the minds of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity to objectivity right to reason is an indispensable part of sound judicial system. The rational is that the affected party can know why the decision has gone against him. One of the statutory requirement of the natural justice is spelling out reasons for the order made, in other words a speaking order. Even in respect of administrative order the giving of reasons is one of the fundamentals of good administration."
10. The Apex Court in case of State Bank Of India Vs. Jah Developers Private Limited and Others (Supra) while denying the right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 01.07.2015, has held that Revised Circular, being in public interest, must be construed reasonably as under:
"15. The next question that arises is whether an oral hearing is required under the Revised Circular dated 1-7-2015. We have already seen that the said circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is Page 17 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. It is even more difficult to state that in all cases oral hearings must be given, or else the principles of natural justice are breached. A number of judgments have held that natural justice is a flexible tool that is used in order that a person or authority arrive at a just result. Such result can be arrived at in many cases without oral hearing but on written representations given by parties, after considering which, a decision is then arrived at. Indeed, in a recent judgment in Gorkha Security Services v. State (NCT of Delhi) [Gorkha Security Services v. State (NCT of Delhi), (2014) 9 SCC 105] this Court has held, in a blacklisting case, that where serious consequences ensue, once a show-cause notice is issued and opportunity to reply is afforded, natural justice is satisfied and it is not necessary to give oral hearing in such cases (see para 20).
16. When it comes to whether the borrower can, given the consequences of being declared a wilful defaulter, be said to have a right to be represented by a lawyer, the judgments of this Court have held that there is no such unconditional right, and that it would all depend on the facts and circumstances of each case, given the governing rules and the fact situation of each case. Thus, in Mohinder Singh Gill v. Chief Election Commr. [Mohinder Singh Gill v. Chief Election Commr., (1978) 1 SCC 405] , in the context of election law, this Court held: (SCC p. 439, para 63) "63. In Wiseman v. Borneman [Wiseman v.
Borneman, 1968 Ch 429 : (1968) 2 WLR 320 : (1967) 3 All ER 1045 (CA)] there was a hint of the competitive claims of hurry and hearing. Lord Reid said: 'Even where the decision has to be reached by a body acting judicially, there must be a balance between the need for expedition and the need to give full opportunity to the defendant to see material against him' (emphasis added). We agree that the elaborate and sophisticated methodology of a formalised hearing may be injurious to promptitude so essential in an election under way. Even so, natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances. To burke it altogether may not be a stroke of fairness except in very exceptional circumstances. Even in Wiseman [Wiseman v. Borneman, 1971 AC 297 : (1969) 3 WLR 706 (HL)] where all that was sought to be done was to see if there was a prima facie case to proceed with a tax case where, inevitably, a fuller hearing would be extended at a later stage of the proceedings, Lord Page 18 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 Reid, Lord Morris of Borthy-Gest and Lord Wilberforce suggested 'that there might be exceptional cases where to decide upon it ex parte would be unfair, and it would be the duty of the tribunal to take appropriate steps to eliminate unfairness' (Lord Denning, M.R., in Howard v. Borneman (2) [Howard v. Borneman (2), 1975 Ch 201 :
(1974) 3 WLR 660 (CA)] summarised the observations of the Law Lords in this form). No doctrinaire approach is desirable but the court must be anxious to salvage the cardinal rule to the extent permissible in a given case.
After all, it is not obligatory that counsel should be allowed to appear nor is it compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgent meeting with the parties concerned summoned at an hour's notice, or in a crisis, even a telephone call, may suffice." (emphasis in original)
17. In Kavita v. State of Maharashtra (1) [Kavita v. State of Maharashtra (1), (1981) 3 SCC 558 :
1981 SCC (Cri) 743] (Kavita), this Court held, in the context of preventive detention, that even when a detenu makes a request for legal assistance before the Advisory Board, the Advisory Board is vested with a discretion whether to allow or disallow such legal assistance. This was despite the fact that adequate legal assistance may be essential for the protection of the fundamental right to life and personal liberty guaranteed by Article 21 of the Constitution. On facts, it was held that since the detenu had not made any request to the Advisory Board for any such permission, the Court was not prepared to hold that the detenu was denied the assistance of counsel so as to lead to the conclusion that procedural fairness under Article 21 of the Constitution was denied to him. Likewise, in Nand Lal Bajaj v. State of Punjab [Nand Lal Bajaj v. State of Punjab, (1981) 4 SCC 327 : 1981 SCC (Cri) 841] , this Court referred to Article 22(3)(b) of the Constitution of India which states that the right to consult and be defended by a legal practitioner of his choice is denied to a person who is arrested or detained under any law providing for preventive detention. This Court then went on to hold that normally, lawyers have no place in proceedings before the Advisory Board, and then went on to refer to Kavita [Kavita v. State of Maharashtra (1), (1981) 3 SCC 558 : 1981 SCC (Cri) 743] . It was finally held that since the detaining authority was allowed to be represented by counsel Page 19 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 before the Advisory Board, whereas the detenu was not, the order of detention would be quashed as this would be discriminatory.
18. In J.K. Aggarwal v. Haryana Seeds Development Corpn. Ltd. [J.K. Aggarwal v. Haryana Seeds Development Corpn. Ltd., (1991) 2 SCC 283 : 1991 SCC (L&S) 483] , this Court, after discussing the case law, held in para 4, that the right of representation by a lawyer cannot be held to be a part of natural justice. No general principle valid in all cases can be enunciated. In the last analysis, a decision has to be reached on a case to case basis on situational particularities and the special requirements of justice of the case (see para 8).
19. In Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi [Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 : 1993 SCC (L&S) 360] , this Court held that a workman under the Industrial Disputes Act, 1947 has no right, under principles of natural justice, that he must be represented by counsel. After discussing several judgments, this Court concluded: (SCC pp.126-27 & 129, paras 12-13 & 17) "12. From the above decisions of the English Courts it seems clear to us that the right to be represented by a counsel or agent of one's own choice is not an absolute right and can be controlled, restricted or regulated by law, rules or regulations. However, if the charge is of a serious and complex nature, the delinquent's request to be represented through a counsel or agent could be conceded.
13. The law in India also does not concede an absolute right of representation as an aspect of the right to be heard, one of the elements of principle of natural justice. It has been ruled by this Court in (I) N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914] , (ii) Brooke Bond (India) (P) Ltd. v. S. Subba Raman [Brooke Bond (India) (P) Ltd. v. S. Subba Raman, (1961) 2 LLJ 417 (SC)] and (iii) Dunlop Rubber Co. (India) Ltd. v. Workmen [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 : AIR 1965 SC 1392] that there is no right to representation as such unless the company by its Standing Orders recognises such a right.
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17. It is, therefore, clear from the above case-law that the right to be represented through Page 20 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 counsel or agent can be restricted, controlled or regulated by statute, rules, regulations or Standing Orders. A delinquent has no right to be represented through counsel or agent unless the law specifically confers such a right. The requirement of the rule of natural justice insofar as the delinquent's right of hearing is concerned, cannot and does not extend to a right to be represented through counsel or agent. In the instant case, the delinquent's right of representation was regulated by the Standing Orders which permitted a clerk or a workman working with him in the same department to represent him and this right stood expanded on Sections 21 and 22(ii) permitting representation through an officer, staffmember or a member of the union, albeit on being authorised by the State Government. The object and purpose of such provisions is to ensure that the domestic enquiry is completed with despatch and is not prolonged endlessly. Secondly, when the person defending the delinquent is from the department or establishment in which the delinquent is working he would be well conversant with the working of that department and the relevant rules and would, therefore, be able to render satisfactory service to the delinquent. Thirdly, not onl would the entire proceedings be completed quickly but also inexpensively. It is, therefore, not correct to contend that the Standing Order or Section 22(ii) of the Act conflicts with the principles of natural justice."
20. In Railway Protection Force v. K. Raghuram Babu [Railway Protection Force v. K. Raghuram Babu, (2008) 4 SCC 406 : (2008) 1 SCC (L&S) 1043] , this Court, in the context of a domestic/departmental enquiry held: (SCC p. 408, paras 9-11) "9. It is well settled that ordinarily in a domestic/departmental enquiry the person accused of misconduct has to conduct his own case vide N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914] Such an inquiry is not a suit or criminal trial where a party has a right to be represented by a lawyer. It is only if there is some rule which permits the accused to be represented by someone else, that he can claim to be so represented in an inquiry vide Brooke Bond (India) (P) Ltd. v. S. Subba Raman [Brooke Bond (India) (P) Ltd. v. S. Subba Raman, (1961) 2 LLJ 417 (SC)] .
10. Similarly, in Cipla Ltd. v. Ripu Daman Bhanot [Cipla Ltd. v. Ripu Daman Bhanot, (1999) 4 SCC 188 : 1999 SCC (L&S) 847] it was held by this Court that representation could not be claimed as Page 21 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 of right. This decision followed the earlier decision Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union [Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union, (1999) 1 SCC 626 : 1999 SCC (L&S) 361] in which the whole case law has been reviewed by this Court.
11. Following the above decision it has to be held that there is no vested or absolute right in any charge-sheeted employee to representation either through a counsel or through any other person unless the statute or rules/standing orders provide for such a right. Moreover, the right to representation through someone, even if granted by the rules, can be granted as a restricted or controlled right. Refusal to grant representation through an agent does not violate the principles of natural justice."
Ultimately, the Court upheld the validity of Rule 153.8 of the Railway Protection Force Rules, 1987, which permitted a friend to accompany a delinquent, who will not, however, be allowed to address the inquiry officer or be allowed to cross-examine witnesses.
21. It has also been argued before us that the present case, being a case where "wilful default"
consists of facts which are known to the borrower, and as "wilful default" would only be the borrower's version of facts, no lawyer is needed as no complicated questions of law need to be presented before the In-house Committees. Thus, in Krishna Chandra Tandon v. Union of India [Krishna Chandra Tandon v. Union of India, (1974) 4 SCC 374 : 1974 SCC (L&S) 329] , this Court held: (SCC p. 381, para 17) "17. It was next argued that the appellant had asked for the assistance of an advocate but the same was refused. It was submitted that having regard to the intricacies of the case and particularly the ill health of the appellant, he should have been given the assistance of an advocate, and since that was not given there was no reasonable opportunity to defend. The High Court has rejected this submission and we think for good reasons. The appellant was not entitled under the Rules to the assistance of an advocate during the course of the enquiry. The learned Judges were right in pointing out that all that the appellant had to do in the course of the enquiry was to defend the correctness of his assessment orders. Clear indications had been given in the charges with regard to the unusual conduct he displayed in disposing of the assessment cases and the various flaws and defaults which were apparent on the face Page 22 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 of the assessment records themselves. The appellant was the best person to give proper explanations. The circumstances in the evidence against him were clearly put to him and he had to give his explanation. An advocate could have hardly helped him in this. It was not a case where oral evidence was recorded with reference to accounts and the petitioner required the services of a trained lawyer for cross-examining the witnesses. There was no legal complexity in the case. We do not, therefore, accede to the contention that the absence of a lawyer deprived the appellant of a reasonable opportunity to defend himself."
22. Also, in National Seeds Corpn. Ltd. v. K.V. Rama Reddy [National Seeds Corpn. Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 : (2007) 1 SCC (L&S) 512] , this Court laid down: (SCC p. 648, para 7) "7. The law in this country does not concede an absolute right of representation to an employee in domestic enquiries as part of his right to be heard and that there is no right to representation by somebody else unless the rules or regulation and standing orders, if any, regulating the conduct of disciplinary proceedings specifically recognise such a right and provide for such representation:
see N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914], Dunlop Rubber Co. (India) Ltd. v. Workmen [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 : AIR 1965 SC 1392],Crescent Dyes and Chemicals Ltd. v.
Ram Naresh Tripathi [Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 :
1993 SCC (L&S) 360] and Indian Overseas Bank v. Officers' Assn. [Indian Overseas Bank v. Officers' Assn., (2001) 9 SCC 540 : 2002 SCC (L&S) 1043] "
23. The Court then held: (National Seeds Corpn. Ltd. case [National Seeds Corpn. Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 : (2007) 1 SCC (L&S) 512] , SCC pp. 650-51, para 10) "10. Learned counsel for the appellant Corporation has brought to our notice office memorandum dated 21-11-2003 by which the prayer to engage a legal practitioner to act as a defence assistant was rejected. Reference was made to the Rules, though no specific reference has been made to the discretion available to be exercised in particular circumstances of a case. The same has to be noted in the background of the basis of prayer made for the purpose. The reasons indicated by the respondent for the purpose were: (a) amount alleged Page 23 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 to have been misappropriated is Rs 63.67 lakhs, (b) a number of documents and number of witnesses are relied on by the respondent, and (c) the prayer for availing services of the retired employee has been rejected and the respondent is unable to get any assistance to get any other able co-worker. None of these factors are really relevant for the purpose of deciding as to whether he should be granted permission to engage the legal practitioner. As noted earlier, he had to explain the factual position with reference to the documents sought to be utilised against him. A legal practitioner would not be in a position to assist the respondent in this regard. It has not been shown as to how a legal practitioner would be in a better position to assist the respondent so far as the documents in question are concerned. As a matter of fact, he would be in a better position to explain and throw light on the question of acceptability or otherwise and the relevance of the documents in question. The High Court [K.V. Rama Reddy v. National Seeds Corpn. Ltd., 2004 SCC OnLine Kar 654] has not considered these aspects and has been swayed by the fact that the respondent was physically handicapped person and the amount involved is very huge. As option to be assisted by another employee is given to the respondent, he was in no way prejudiced by the refusal to permit engagement of a legal practitioner. The High Court's order is, therefore, unsustainable and is set aside."
24. Given the above conspectus of case law, we are of the view that there is no right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 1-7-2015, as it is clear that the events of wilful default as mentioned in Para 2.1.3 would only relate to the individual facts of each case. What has typically to be discovered is whether a unit has defaulted in making its payment obligations even when it has the capacity to honour the said obligations; or that it has borrowed funds which are diverted for other purposes, or siphoned off funds so that the funds have not been utilised for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show-cause notice to elicit the borrower's submissions on the same. However, we are of the view that Article 19(1)(g) is attracted in the facts of the present case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate. This is for the reason that no additional facilities can be granted by any Page 24 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 bank/financial institutions, and entrepreneurs/promoters would be barred from institutional finance for five years. Banks/financial institutions can even change the management of the wilful defaulter, and a promoter/ director of a wilful defaulter cannot be made promoter or director of any other borrower company. Equally, under Section 29-A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot even apply to be a resolution applicant. Given these drastic consequences, it is clear that the Revised Circular, being in public interest, must be construed reasonably. This being so, and given the fact that Para 3 of the Master Circular dated 1-7- 2013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Committee, we are of the view that first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following Para 3(b) of the Revised Circular dated 1-7-2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full representation on facts and law (if any). The 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 dated1-7-2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 1-7-2015. The impugned judgment [SBI v. Jah Developers (P) Ltd., LPA No. 113 of 2015 sub nom Punjab National Bank v. Kingfisher Airlines Ltd., 2015 SCC OnLine Del 14128 : (2016) 154 DRJ 164] [Kingfisher Airlines Ltd. v. Union of India, 2015 SCC OnLine Bom 6075 : (2016) 2 Mah LJ 838] is, therefore, set aside, and the appeals are allowed in terms of our judgment. We thank the learned Amicus Curiae, Shri Parag Tripathi, for his valuable assistance to this Court."
11. In view of the above conspectus of the law and undisputed facts of this case, it is apparent that the respondent bank has failed to comply with the aforesaid mechanism provided under the Revised Master Circular as petitioners were never informed by the Identification Committee by issuing show cause Page 25 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022 C/SCA/11863/2019 JUDGMENT DATED: 20/04/2022 notice and the notice was issued by the respondent bank to which the petitioners filed a detailed reply but the order passed by the Identification Committee recording that the petitioners have committed willful default was never provided to the petitioners. The petitioners came to know about declaring them as willful defaulter only from the public Notice issued by the respondent Bank.
12. It emerges from the record that the copy of the order passed by the Identification Committee was never supplied to the petitioners. In view of the above facts and circumstances, the respondent bank while declaring the petitioners as willful defaulters has violated the provisions contained in the Revised Master Circular and has also acted in violation of principles of natural justice. As the impugned action which is penal in nature has been taken causing serious implication to the petitioners without following the basis of principles of natural justice, the impugned action of the respondent bank identifying the account of the petitioners as willful default and subsequent reporting of name of the petitioners to the RBI/CIBIL as willful defaulters are liable to be quashed and set aside.
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13. In view of the foregoing reasons, the petition succeed and is accordingly allowed. The impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the name of the petitioners to RBI/CIBIL as willful defaulters is hereby quashed and set aside and the matter is remanded back to the Identification Committee of the respondent bank to follow the procedure as prescribed in Master Circular dated 1st July, 2015 by issuing a show cause notice to the petitioners and providing opportunity to the petitioners as per Clause-3 of the said circular. Such exercise by the Identification Committee and thereafter by the Review Committee shall be completed within the period of six months from the date of receipt of this order.
14. Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) JYOTI V. JANI Page 27 of 27 Downloaded on : Fri Apr 22 21:00:04 IST 2022