Madras High Court
M/S.Naplsa Overseas Rep.By vs Indian Bank on 21 July, 2022
Author: R.Subramanian
Bench: R.Subramanian
WP.No.18472/2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 21.07.2022
CORAM:
THE HONOURABLE MR.JUSTICE R.SUBRAMANIAN
WP.No.18472/2016 & WMP.No.16180/2016
1.M/s.Naplsa Overseas rep.by
Partners Sri.S.Galeel Rajiman & Sri
S.Sirajuddin, No.29, I Floor
Wuthukattan Street
Periamet, Chennai 600 003.
2.Mr.S.Galeel Rahman
3.Mr.S.Sirajuddin ... Petitioners
Vs
Indian Bank
represented by its Assistant General Manager
Guindy Branch, SIDCO Building
GST Road, Guindy
Chennai 600 032. ... Respondent
Prayer: Writ Petition filed Article 226 of the Constitution of India praying
for issuance of a writ of certiorari calling for the records of the respondent
herein pertaining to the impugned notice No.ZO/Che[S]:231/16 dated
11.04.2016 issued by the respondent and quash the same.
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https://www.mhc.tn.gov.in/judis
WP.No.18472/2016
For Petitioners : Mr.Nalla.Surya Teja
For R1 : Mr.C.Harsharaj
ORDER
(1) The petitioner is aggrieved by the action of the respondent-Bank in branding the 1st petitioner Firm as a willful defaulter in terms of the Master Circular issued by the Reserve Bank of India [in short ''the RBI''] on 01.07.2015.
(2) A notice is issued to the 1st petitioner calling upon the Firm to show cause as to why the 1st petitioner Firm should not be termed as a willful defaulter on 09.10.2015. The petitioners send in a reply stating that the SARFAESI appeals filed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act are pending before the Debts Recovery Tribunal-III and the proceedings under the Act have been stayed. Hence, the proceedings cannot be taken to brand the 1st petitioner Firm as a willful defaulter. However, the Bank sent a reply on 08.01.2016 informing the petitioner that the pendency of the SARFAESI appeals 2/10 https://www.mhc.tn.gov.in/judis WP.No.18472/2016 cannot be a bar for the Bank to proceed under the Master Circular issued by the RBI. Thereafter, the Zonal Manager of the respondent-Bank communicated to the petitioner on 11.04.2016 that the decision to brand the 1st petitioner Firm as a willful defaulter has been approved by the Review Committee. This has triggered the writ petition.
(3) Mr.Nalla.Suriya Teja, learned counsel for the petitioner would submit that the procedure adopted by the respondent-Bank is in violation of the Circular issued by the RBI regarding willful defaulters from time to time. The learned counsel would submit that as per the procedure, it is incumbent upon the respondent-Bank to communicate the decision of the First Committee which consists of the Executive Director and 2 Senior Officers of the Bank to the borrower, seek his objections by giving him a 15 days notice. The decision of the First Committee along with the objections is to be considered by the Review Committee and only upon the Review Committee confirming the decision of the First Committee, a person could be branded as a willful defaulter. The learned counsel further 3/10 https://www.mhc.tn.gov.in/judis WP.No.18472/2016 contended that since the respondent-Bank did not communicate the order of the First Committee to the 1st petitioner Firm, the 1st petitioner Firm was deprived it of an opportunity to place it's objections before the Review Committee.
(4) The learned counsel for the petitioner would also draw my attention to the judgment of the Hon'ble Supreme Court in the State Bank of India Vs. Jah Developers Private Limited and Others reported in 2020 [3] LW 215 wherein, the Hon'ble Supreme Court had laid down the procedure to be adopted by the Banks in branding a person as a willful defaulter in terms of the Circulars issued by the RBI. (5) Paragraph 21 of the said judgment reads as follows:-
“21.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 paragraph 3 of the Revised Circular dated 01.07.2015, as it is clear that the events of wilful default as mentioned in paragraph 2.1.3 would only relate to the individual facts of each case. What has typically to be discovered is whether a unit has 4/10 https://www.mhc.tn.gov.in/judis WP.No.18472/2016 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 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 5/10 https://www.mhc.tn.gov.in/judis WP.No.18472/2016 promoter/director of a wilful defaulter cannot be made promoter or director of any other borrower company. Equally, under Section 29A 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 paragraph 3 of the Master Circular dated 01.07.2013 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 paragraph 3(b) of the Revised Circular dated 01.07.2015, 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 6/10 https://www.mhc.tn.gov.in/judis WP.No.18472/2016 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 dated 01.07.2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 01.07.2015. The impugned judgment 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.” (6) In the light of the above categorical pronouncement of the Honble Supreme Court, it is clear that under the 2013 and 2015 Circulars of the RBI, it was essential for the respondent-Bank to communicate the decision of the First Committee to the borrower and seek his response by giving him a 15 days notice. The response so received and the reasons of the First Committee are to be kept before the Review Committee and the Review Committee should pass orders after considering the conclusion of the First Committee and the 7/10 https://www.mhc.tn.gov.in/judis WP.No.18472/2016 explanation of the borrower. If this procedure is not adopted, then the declaration that the 1st petitioner Firm is a willful defaulter will have to necessarily go.
(7) Mr.C.Harsharaj, learned counsel appearing for the respondent-Bank would submit that the decision of branding the 1st petitioner Firm as a willful defaulter was taken in the year 2016 even prior to the decision of the Hon'ble Supreme Court relied upon by the learned counsel for the petitioner.
(8) I do not think such a plea can be countenanced since it is settled law that all judgments are retrospective unless they are made specifically prospective. This is based on the principle that Courts interpret the law and they do not lay down law.
(9) Evidently, in the case on hand, the respondent-Bank has not followed the procedure that ought to have been followed while declaring the 1st petitioner Firm as a willful defaulter. (10) Hence, the writ petition is allowed and the order impugned is set aside. However, the respondent-Bank is at liberty to communicate the conclusion of the First Committee to the petitioner, giving the 8/10 https://www.mhc.tn.gov.in/judis WP.No.18472/2016 petitioners 15 days notice to respond and thereafter, the Review Committee will consider the decision of the First Committee along with the explanation offered by the petitioners and thereafter, will decide the fate of the 1st petitioner Firm. No costs. Consequently, connected miscellaneous petition is closed.
21.07.2022 AP Internet : Yes To Indian Bank represented by its Assistant General Manager Guindy Branch, SIDCO Building GST Road, Guindy Chennai 600 032.
9/10 https://www.mhc.tn.gov.in/judis WP.No.18472/2016 R.SUBRAMANIAN, J.
AP WP.No.18472/2016 21.07.2022 10/10 https://www.mhc.tn.gov.in/judis