Calcutta High Court (Appellete Side)
Pawan Kumar Patodia & Ors vs Union Bank Of India & Ors on 5 February, 2019
1 W.P. No. 1399 (W) of 2019 IN THE HIGH COURT AT CALCUTTA Constitutional Writ Jurisdiction Appellate Side Pawan Kumar Patodia & Ors.
Vs. Union Bank of India & Ors.
For the Petitioner : Md. Siddhartha Banerjee
Mr. Suchayan Banerjee
Mr. Souradeep Banerjee
For Bank : Mr. Pankaj Kumar Mukherjee
Ms. Smruti Rekha Mishra
Hearing concluded on : February 05, 2019
Judgment on : February 05, 2019
DEBANGSU BASAK, J.:-
A show-cause notice, purported to be issued under the provisions of the Master Circular on Wilful Defaulter dated July 1, 2015 is under challenge in the present writ petition.
Learned advocate for the petitioner submits that, assuming that, the impugned notice is considered to be a notice under the Master Circular, then also, the impugned notice stands vitiated as the person purporting to exercise such powers, is without jurisdiction. He refers to the Master Circular and particularly to paragraph 3 thereof and submits that, the Wilful Defaulter's Committee consisting of the 2 designated person has to meet and form an opinion that an event of wilful default, within the meaning of such Master Circular, has occurred for it to issue a show-cause notice. In the present case, a Regional Manager of the Bank has issued a notice claiming that, the petitioner would be classified as a wilful defaulter, if adequate cause is not shown. According to him, the impugned writing being wholly without jurisdiction should be quashed.
Learned advocate for the Bank submits that, the Bank has formulated a policy of Non-Cooperative Borrowers and Wilful Defaulters 2018-19. In terms of such policy, the Wilful Defaulters Committee constituted in terms of the Master Circular meets to identify the wilful defaulters. Upon such identification being made, the branch is informed of the same. The Regional Manager-in-Charge of such branch, then proceeds to issue the notice calling upon such wilful defaulter to show-cause. According to him, it is not necessary that the Wilful Defaulter's Committee itself issues the show-cause notice. Therefore, the Court should not intervene.
Reserve Bank of India formulated the Master Circular on Wilful Defaulters dated July 1, 2015. The Master Circular is binding upon the Bank. The Master Circular provides the mechanism for 3 identification of wilful defaulters. Paragraph 3 of such Master Circular, provides the mechanism for identification of Wilful Defaulters. For the sake of convenience, paragraphs 3(a) and (b) of the Master Circular are set out below:
"3. Mechanism for identification of Wilful Defaulters The mechanism referred to in paragraph 2.5 above should generally include the following:
(a) The evidence of wilful default on the part of the borrowing company and its promoter/ whole-time director at the relevant time should be examined by a Committee headed by an Executive Director or equivalent and consisting of two other senior officers of the rank of GM/DGM.
(b) If the Committee concludes that an event of wilful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter/ whole-time director and call for their submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the promoter/whole-time director for a personal hearing if the Committee feels such an opportunity is necessary."
To my understanding, the Master Circular requires formation of a Wilful Defaulter's Committee by a Bank consisting of persons identified in such Master Circular. The Committee must be of three members. The Committee must be headed by an Executive Director or equivalent of the Bank. The other two members must be of the 4 rank of General Manager/ Deputy General Manager. Upon such Wilful Defaulter's Committee being constituted, such committee is to meet to identify events of default. The master Circular requires the Committee to examine the evidence of wilful default. Upon examination of such evidence, if the Committee concludes that an event of wilful default has occurred, the Master Circular requires the Committee to issue the show-cause notice calling upon the person to explain itself. The Master Circular allows the Committee to afford the person concerned an opportunity of hearing if the Committee feels such an opportunity is necessary. The Committee must arrive at a decision on the show cause notice and the reply thereto. Such decision is required to be informed with reasons.
The power given to the Wilful Defaulter's Committee to issue the show-cause notice and decide on the issue cannot be delegated. It is so, not only because of the language used in the provisions of the Wilful Defaulter Master Circular but also by reason of the mechanism provided in the Master Circular for identification of a wilful default, the requirement to have a decision informed with reasons taken by a Committee constituted by the persons designated in the Master Circular.
5
The Master Circular requires adherence to the principles of natural justice by the Wilful Defaulter's Committee. It requires the Committee to issue the show cause notice, allow a reply to be filed and then take a decision thereon. Upon the Wilful Defaulter's Committee identifying an event of default, an opportunity is granted to the person concerned to explain itself by issuance of the show- cause notice. Therefore, the persons who issue the show-cause notice, must be the persons who are authorised by the Master Circular to form the opinion that an event of wilful default within the meaning of the Master Circular has occurred. Formation of opinion cannot be delegated. On the strength of the same logic, the requirement to issue notice cannot be delegated.
As noted above, the Committee is required to be manned by persons who are identified by their rank in the Master Circular. Therefore, such persons cannot delegate their authority to any person. The Committee must be in terms of the Master Circular. The identification of the event of wilful default must be in terms of the Master Circular. Deviations therefrom vitiate the entire process.
Paragraph 3 of the Master Circular provides that, the order of the Wilful Defaulter's Committed should be reviewed by another 6 Committee again headed by persons who are identified in the Master Circular.
In such circumstances, any policy of a Bank, which is in deviation of the Master Circular, will not help the Bank, in allowing a person other than the Committee formulated under the Master Circular to assume jurisdiction to discharge functions specifically vested upon the Committee conceived by paragraph 3 of the Master Circular. A policy of the Bank cannot be placed at a higher pedestal than the Master Circular of the Reserve Bank of India. It must be subservient to the Master Circular.
The impugned actions taken by the Bank does not meet the test laid down under the Master Circular. The impugned notice has not been issued by the persons required to do so under the Master Circular. The impugned notice is, therefore, quashed. This order will not prevent the Bank from taking steps against the petitioner in accordance with the Master Circular, in accordance with law.
WP No. 1399 of 2019 is disposed of. No order as to costs. Urgent certified website copies of this judgment and order, if applied for, be made available to the parties upon compliance of the requisite formalities.
7[DEBANGSU BASAK, J.]