Gujarat High Court
Sonalben Jayeshbhai Patel vs Bank Of India on 26 November, 2020
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/6618/2019 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6618 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 10215 of 2020
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
======================================
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 ?
======================================
SONALBEN JAYESHBHAI PATEL
Versus
BANK OF INDIA
======================================
Appearance:
MR. NAVEEN PAHWA, SR. ADVOCATE THAKKAR AND PAHWA ADVOCATES(1357) for
the Petitioner Nos. 1,2,3,4,5
MR KM PARIKH(575) for the Respondent
======================================
CORAM: HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 26/11/2020
COMMON ORAL JUDGMENT
1. Heard learned Senior Advocate Mr. Naveen Pahwa for the Thakkar And Pahwa Advocates for the petitioners and learned advocate Mr. K.M. Parikh for the respondent through video conference.
Page 1 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021C/SCA/6618/2019 JUDGMENT
2. By these petitions 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 accounts of the petitioners as willful defaulter and subsequent reporting of the name of the petitioners to Reserve Bank of India/CIBIL as willful defaulter.
3. 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 21st February, 2019.
4. The facts leading to the declaration of the petitioners as willful defaulter are as under : 4.1 The respondent - bank granted various credit facilities to the borrower company i.e. Vimal Oil and Foods Limited (for short 'the borrower company') vide sanctioned letter dated 18th November, 2009 and 11th January, 2012. The petitioner of Special Civil Application no.10215 of 2020 stood as guarantor for the said company by executing a Guarantee Deed dated 23rd January, 2015 in favour of the respondent
- bank to secure payment of credit facility sanctioned in favour of the borrower company. The petitioners of Special Civil Application no.6618 of 2019 are promoters and shareholders of the said company. The borrower company defaulted in payment/repayment obligation to the respondent - bank.
4.2 It appears that the bank of Baroda filed insolvency petition being Company Petition No.135/7/NCLT/AHM/2017 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'the Page 2 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT I.B. Code') before the National Company Law Tribunal, Ahmedabad Bench (hereinafter referred to as 'the NCLT') against the borrower company. The NCLT by order dated 19th December, 2017 admitted the said petition and ordered moratorium under Section 14(1)(a) of the I.B. Code prohibiting the institution of suits or continuation of pending suits or any proceedings against the borrower company. A Resolution Professional and Management was appointed and the Management of the borrower company was suspended.
4.3 The RBI has issued a Circular dated 1st July, 2015 followed by Master Circular upon willful defaulter dated 1st July, 2018 for prescribing the procedure for identification of the willful defaulter by the bank with a purpose to put in place a system to disseminate credit information pertaining to willful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them.
4.4 Accordingly, the Identification Committee headed by the Executive Director of the respondent Bank of India identified the borrower company to be declared as willful defaulter. As per the said Circular, the show cause notice is required to be issued by the committee to the concerned borrower and the promoter, full time Director and call for their submissions. According to the petitioners, no notice was issued by the Identification Committee but the respondent bank issued the show cause notice dated 27th June, 2018 to the borrower company, its Directors, promoters and shareholders, as well as the guarantors . By the said notice, the petitioners were calledupon to pay outstanding amount within 15 days, failing which it was informed that appropriate steps for declaring the borrower company, as well as, the petitioners as willful defaulter would be initiated. The reply was submitted to the said Page 3 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT notice by the petitioners on 10th July, 2018 containing that the petitioners are not liable to make payment as demanded by the respondent and that the petitioners cannot be declared as willful defaulter unless the bank comes to the conclusion that the petitioners have sufficient means to make payment of dues in case of failure of borrower company.
4.5 It appears that thereafter, the Identification Committee did not reply to the petitioners nor sent any guidelines or notification which classifies the petitioners as willful defaulter though demanded by the petitioners in the reply. It appears that meanwhile, the proceedings before the NCLT continued and it was made clear before the NCLT that the borrower company cannot make repayment. The respondent bank has also lodged its claim before the resolution professional, which would be considered as per the provisions of the I.B. Code.
4.6 The petitioners thereafter, received a letter dated 21st February, 2019 from the respondent bank that Identification Committee and Review Committee have passed orders declaring the petitioners as willful defaulters in terms of RBI Circular dated 1st July, 2015 and the respondent bank issued notice dated 24th May, 2019 calling upon the petitioners to pay the outstanding dues of the borrower company. The petitioners thereafter, requested the respondent bank to provide the copies of the orders passed by the Identification Committee and the Review Committee declaring the petitioners as willful defaulter.
5. The learned Senior Advocate Mr. Naveen Pahwa 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 accounts of the petitioners as willful defaulter Page 4 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT and therefore, the petitioners are unable to defend themselves 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.
5.1. The learned Senior Advocate Mr. Pahwa would submit that the petitioners have not taken any loan from the respondent bank and the petitioners cannot be termed as willful defaulters as defined under Clause 2.1.3 of the RBI Circular and as such the petitioners cannot be classified as willful defaulter.
5.2. The learned Senior Advocate Mr. Pahwa further submitted that the Identification Committee has not issued any notice as required under Clause 3(b) of the RBI Circular and the notice given by the respondent bank is against the prescribed ppocedure provided under Clause3 of the RBI Circular.
5.3. It was submitted by the learned Senior Advocate Mr. Pahwa 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 Clause4 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 as per Master Circular dated 1st July, 2015. It was submitted that before passing the impugned order declaring the Page 5 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT 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 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.
5.4. The learned Senior Advocate Mr. Pahwa therefore, submitted that in the procedural requirement of hearing the petitioners prior to passing any order declaring the petitioners as willful defaulter, 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.
5.5 The learned Senior Advocate Mr. Pahwa submitted that the copy of the order of Identification Committee was not supplied to the petitioners in spite of written application made on 9th March, 2019 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 them in the reply dated 10th July, 2018 filed before the respondent Bank as also as to why the petitioners have not been granted the opportunity of personal hearing.
5.6. Learned Senior Advocate Mr. Pahwa in support of his submissions relied upon the following decisions :
Page 6 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021C/SCA/6618/2019 JUDGMENT
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, the learned advocate Mr. K.M. Parikh for the respondent Bank of India 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.
"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 Page 7 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT 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 accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, financial institutions, Page 8 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT 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 Page 9 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT part of the borrowing company and its promoter/wholetime 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 and the promoter/ wholetime 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/ wholetime 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/ 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 willful defaulter, then the Review Committee need not be set up to review such decisions."
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, Clause3 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 Page 10 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT 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 in 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 whole time director calling for their 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 Clause3(c) of the Master Circular.
8. 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/wholetime director which needs to be ex amined by the Identification Committee. If the Committee concludes that an event of wilful default has occurred, it is obligatory on the part of Iden tification Committee to issue a show cause notice to the concerned borrow er and the promoter/wholetime director calling from their submissions and after considering their submissions as may be received, an order re cording 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/wholetime director if it feels that such opportunity is necessary. The said order of the Page 11 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT Committee needs to be reviewed by another Committee (Review Commit tee) as per Clause 3(c) of the Master Circular.
15. Examining the present matter on the touch stone of the aforesaid pro visions, 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 Janu ary, 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 de claring the Petitioners as wilful defaulter have violated the provisions con tained in the Master Circular and have also acted in violation of the prin ciples of natural justice. The impugned action which is penal in nature has been taken causing serious implication on the Petitioners without follow ing 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 initi ated 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/re payment obligation to the 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 Commit tee 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 or der 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 wil ful 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 opportun ity of personal hearing. This requirement whether has been complied with or not could have been examined only if the said order was brought on re cord. But strangely in reply the Bank has taken a stand that the order Page 12 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT dated 9th March, 2018 passed by the Identification Committee is the in ternal 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 or der dated 9th March, 2018 is the preliminary internal order and after its fi nalization 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 declara tion 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.
20. In the present case, as already observed even the order of Review Com mittee is bereft of any reasons for arriving at the conclusion that, "the Pe titioners 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 29th January, 2018 the Petitioners have raised various grounds opposing the proposed action of declaring them willful defaulter and sought opportunity of personal hear ing 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 indis pensable part of sound judicial system. The rational is that the affected party can know why the decision has gone against him. One of the stat utory requirement of the natural justice is spelling out reasons for the or der made, in other words a speaking order. Even in respect of administrat ive order the giving of reasons is one of the fundamentals of good adminis tration."
8. The Apex Court in case of State Bank Of India Vs. Jah Developers Private Limited and Others (Supra) while denying the right to be Page 13 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT represented by a lawyer in the inhouse 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 172015. 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 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 showcause 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 circum stances of each case, given the governing rules and the fact situation of each case. Thus, in Mohinder Singh Gill v. Chief Election Commr. [Mo hinder 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 bal ance 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 capsu lation under the compulsive pressure of circumstances. To burke it alto gether may not be a stroke of fairness except in very exceptional circum stances. 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 Page 14 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT 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 Reid, Lord Morris of BorthyGest 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)] sum marised 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 Maha rashtra (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 Advis ory Board is vested with a discretion whether to allow or disallow such leg al 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 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 enun Page 15 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT ciated. 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 [Cres cent 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 Indus trial 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. 12627 & 129, paras 1213 & 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 repres entation as an aspect of the right to be heard, one of the elements of prin ciple 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 (In dia) (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. (In dia) Ltd. v. Workmen [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 : AIR 1965 SC 1392] that there is no right to repres entation as such unless the company by its Standing Orders recognises such a right.
***
17. It is, therefore, clear from the above caselaw that the right to be represented through counsel or agent can be restricted, controlled or regu lated by statute, rules, regulations or Standing Orders. A delinquent has no right to be represented through counsel or agent unless the law specific ally confers such a right. The requirement of the rule of natural justice in sofar 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 Stand ing Orders which permitted a clerk or a workman working with him in the same department to represent him and this right stood expanded on Sec tions 21 and 22(ii) permitting representation through an officer, staff member 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 end lessly. Secondly, when the person defending the delinquent is from the de partment 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 de linquent. Thirdly, not only would the entire proceedings be completed quickly but also inexpensively. It is, therefore, not correct to contend that Page 16 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT 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 Pro tection Force v. K. Raghuram Babu, (2008) 4 SCC 406 : (2008) 1 SCC (L&S) 1043] , this Court, in the context of a domestic/departmental en quiry held: (SCC p. 408, paras 911) "9. It is well settled that ordinarily in a domestic/departmental en quiry the person accused of misconduct has to conduct his own case vide N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomot ive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914] Such an in quiry is not a suit or criminal trial where a party has a right to be repres ented 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 of right. This de cision followed the earlier decision Bharat Petroleum Corpn. Ltd. v. Maha rashtra General Kamgar Union [Bharat Petroleum Corpn. Ltd. v. Maha rashtra 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 ves ted or absolute right in any chargesheeted 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 rep resentation 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 Pro tection Force Rules, 1987, which permitted a friend to accompany a delin quent, who will not, however, be allowed to address the inquiry officer or be allowed to crossexamine 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 InHouse 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 re gard to the intricacies of the case and particularly the ill health of the ap pellant, he should have been given the assistance of an advocate, and since Page 17 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT 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 ad vocate 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 en quiry was to defend the correctness of his assessment orders. Clear indica tions 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 of the assessment records them selves. 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 crossexamining 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 rep resentation 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 Rub ber 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. 65051, para 10) "10. Learned counsel for the appellant Corporation has brought to our notice office memorandum dated 21112003 by which the prayer to en gage a legal practitioner to act as a defence assistant was rejected. Refer ence 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 pur pose were: (a) amount alleged 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 Page 18 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT employee has been rejected and the respondent is unable to get any assist ance to get any other able coworker. None of these factors are really relev ant for the purpose of deciding as to whether he should be granted permis sion 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 practi tioner 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 en gagement of a legal practitioner. The High Court's order is, therefore, un sustainable 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 inhouse proceedings contained in Para 3 of the Revised Circular dated 172015, as it is clear that the events of wilful default as mentioned in Para 2.1.3 would only re late to the individual facts of each case. What has typically to be dis covered 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 showcause notice to elicit the borrower's submis sions on the same. However, we are of the view that Article 19(1)(g) is at tracted 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 entrepren eurs/promoters would be barred from institutional finance for five years. Banks/financial institutions can even change the management of the wil ful defaulter, and a 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 de faulter 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 172013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Com mittee, we are of the view that first and foremost, the Committee compris ing of the Executive Director and two other senior officials, being the First Page 19 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT Committee, after following Para 3(b) of the Revised Circular dated 17 2015, must give its order to the borrower as soon as it is made. The bor rower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full represent ation 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 172013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 172015. 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 On Line 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."
9. 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 notice and the notice was issued by the respondent bank to which the petitioners filed detailed reply on 10 th July, 2018, 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 website of CIBIL.
10. It emerges from the record that the copy of the order passed by the Identification Committee was never supplied to the petitioners even though written request for the same was made by the petitioners. In view of the above facts and circumstances, the respondent bank while declaring the petitioners as willful defaulter 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 Page 20 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021 C/SCA/6618/2019 JUDGMENT 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.
11. In view of the foregoing reasons, the petitions succeed and are accordingly allowed. The impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the names 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 1 st July, 2015 by issuing a show cause notice to the petitioners and providing opportunity to the petitioners as per Clause3 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. Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J.) AMAR RATHOD...
Page 21 of 21 Downloaded on : Mon Aug 23 06:49:29 IST 2021