Madras High Court
M.Thiagarajan vs Industrial Development Bank Of India on 4 April, 2012
Author: K.Chandru
Bench: K.Chandru
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 04.04.2012
CORAM
THE HONOURABLE MR.JUSTICE K.CHANDRU
W.P.No.8987 of 2012
and
M.P.Nos.1 and 2 of 2012
M.Thiagarajan .. Petitioner
Vs.
1.Industrial Development Bank of India,
No.115,Anna Salai,
P.B.No.805,Saidapet,
Chenai-600 015.
2.Industrial Development Bank of India Ltd.,
Redressal Committee,
IDBI Tower, WTC Complex,
Cuffe Parade, Colaba,
Mumbai-400 005.
3.The Reserve Bank of India,
Department of Banking Operations
& Development,
Central Office, 13th Floor,
Central Office Building,
S.Bhagat Singh Marg,
Mumbai-400 001, Mumbai. .. Respondents
This writ petition is preferred under Article 226 of the Constitution of India praying for the issue of a writ of certiorari to call for the records and minutes of the meeting of the 2nd respondent held on 16.12.2009 and the consequential order Ref:IDBI/5483/KMS/WD/PAPL/09-10, dated 15.2.2010 passed by the first respondent and quash the same.
For Petitioner : Mr.AR.L.Sundaresan, SC
for Mr.Suchidran B.N.
- - - -
ORDER
The petitioner has come forward to challenge the minutes of meeting of the second respondent, Industrial Development Bank of India Ltd., Redressal Committee, dated 16.12.2009 and the consequential order of the first respondent, i.e., Industrial Development Bank of India (for short IDBI), dated 15.2.2010.
2.The impugned order dated 15.02.2010 came to be passed pursuant to the petitioner moving this court with W.P.No.13178 of 2009, dated 27.8.2009. By the aforesaid writ petition, the petitioner company, i.e., M/s.Paramount Airways Pvt. Limited, of which the petitioner is the Chairman and Managing Director, has sought to set aside the order dated 28.5.2008 and also not to report the petitioner as a willful defaulter to the Reserve Bank of India and CIBIL or any other person as willful defaulter on the grounds stated in the letter of the respondent dated 19.6.2009. In the letter dated 19.6.2009, the petitioner was informed that pursuant to the Facility Agreement entered with the respondent Bank and various instruments signed, the petitioner was directed to pay interest and other charges. But they had failed and neglected to pay the same and committed defaults in performance of other conditions of the Facility Agreement. In view of the defaults committed, their case was examined vis-a-vis the criteria on willful default as laid down by the RBI and it was observed that the company met the RBI criteria of willful defaulter. It was also observed that the Company had committed various irregularities such as deliberate non payment of dues despite adequate cash flow and good networth, i.e., capacity to honour, diversion of funds and disposal / removal of securities without bank's knowledge. Having regard to these facts, it was decided that the names of the company and its Directors except nominee directors will be reported to the RBI for inclusion in the list of willful defaulters.
3.The grounds under which such conclusion was arrived at was set out in the same letter which is as follows:
"During six-month period ended March 31, 2008, the company has earned net profit of Rs.117 lakh. Equity capital has increased from Rs.2530 lakh as on Sept.2007 to Rs.22530 lakh as on March 31, 2008. Regular cash flows from operations / capital from PE investors is being utilized to expand fleet, addition of new routes and payment to other banks except IDBI, implying that it has capacity to honour the debt obligations. However, it has defualted in settlement of its dues to IDBI.
The receivables is one of the security for Cash Credit facility, however, the company is not routing the transactions through IDBI, instead through other banks (Kotak, HDFC Banks), which do not have charge on the receivables. Company has not complied with our repeated requests for closure of these accounts. This deliberate action of the company by diversion of receivables for purposes other than for servicing the IDBI dues, tantamounts to willful default.
Insurance policies for other banks have been renewed. However, the same was not renewed for IDBI and the company has not taken steps for renewal. Non-renewal of insurance, and inducing cancellation of insurance policies, inspite of lender (IDBI) advising the company for renewal of policies tantamounts to willful default, as insurance is one of the security for IDBI."
4.Challenging the communication, the petitioner company filed W.P.No.13178 of 2009. The said writ petition came to be disposed of on 27.8.2009 with a direction which is as follows:
"6.In the result, the writ petition is disposed of in the following terms:
(1)The petitioner is at liberty to submit explanation and other materials for the show cause notice impugned in the writ petition within a period of two weeks from the date of receipt of copy of this order.
(2)The said explanation and the other materials submitted by the petitioner to the respondent shall be placed before the Grievance Redressal Committee and in that event, the said Committee shall afford sufficient opportunity to the petitioner including personal hearing and thereafter pass appropriate order strictly in accordance with law.
(3)It is further directed that if adverse order is passed against the petitioner by the said Committee, the same shall be communicated to the petitioner forthwith and the same shall not be enforced for four weeks from the date of service of the order of the Committee on the petitioner.
(4)It is further directed that on expiry of the period of four weeks' time, if there is no other order from any Court, the Reserve Bank of India may pass consequential orders in the matter.
(5)It is made clear that all the defences, which has been raised in the present writ petition, are open to be raised by the petitioner before the Grievance Redressal Committee."
(Emphasis added)
5.Pursuant to the order passed by this court and after hearing the petitioner, the impugned order came to be passed. It is necessary to refer to the order in extenso which is as follows:
"Working capital facilities granted to Paramount Airways Pvt. Limited Defaults committed Reporting to RBI Wilful Defaulter ***** We refer to the hearing held on December 16, 2009 before the Wilful Defaulters Redressal Committee at Mumbai. The Redressal Committee, after careful examination, has resolved that there are no merits in the submissions made by the Company represented by Mr.M.Thiagarajan and directed us to go ahead with the process of declaring Paramount Airways Private Limited and its directors in the RBI list of wilful defaulters (suit-filed cases), in accordance with the order dated August 27, 2009 passed by the Hon'ble High Court of Madras in W.P.No.13178 of 2009."
6.Once again, the petitioner is before this court challenging the impugned order as well as the minutes of the meeting held on 16.12.2009. In fact, the petitioner himself had participated in the said meeting and made extensive submissions on behalf of the company. The Redressal Committee held that there was not merit in the submission made by the petitioner and that the IDBI should go ahead with the process of declaring the name of the company and its directors in the RBI list of willful defaulters keeping in mind the time frame indicated in the orders of the High Court. Even before coming to this court, on behalf of the petitioner a legal notice was issued on 15.11.2011 and that the bank has sent a reply to the counsel for the petitioner on 17.12.2011.
7.Heard Mr.AR.L.Sundaresan, learned Senior Counsel leading M/s.Suchindran and Ananth Padmanabhan, learned counsel appearing for the petitioner.
8.The contention raised by the petitioner was that the order has been passed without any application of mind. The order did not give any reason for that decision. It was only the reproduction of the minutes of the meeting held on 16.12.2009. The enquiry was conducted in a biased manner. The action of the first respondent in classifying the petitioner as a Willful Defaulter in implementing the decision of the committee is violation of the order of this court. They have not considered whether any default in payment by itself is willful. The delay in payment by the petitioner company on no account is called as willful. They have offered valid explanation. The company is willing to clear all pending dues. On the date of the order, neither the petitioner nor Ms.Lakshmi Murugesan were Directors of the Paramount Airways. The order was also contrary to the Master Circular on Willful defaulters. The petitioner will be put to irreparable loss and hardship if the impugned order is given effect to.
9.The learned Senior counsel appearing for the petitioner referred to the RBI Master circular dated 1.9.2009 which was enclosed in page 36 of the typed set. The circular defines as to what was meant by the term "Willful Defaulter". The Willful default was to be broadly covered the following :
"a)Deliberate non-payment of the dues despite adequate cash flow and good networth;
b)Siphoning off of funds to the detriment of the defaulting unit;
c)Assets financed either not been purchased or been sold and proceeds have misutilized;
d)Misrepresentation / falsification of records;
e)Disposal / removal of securities without bank's knowledge;
f)Fraudulent transactions by the borrower."
10.Each of the head has been separately defined and the said circular also directed the Banks and financial institutions to evolve grievance redressal mechanism and it is stated as follows:
"Banks/FIs should take the following measures in identifying and reporting instances of wilful default :
(i)With a view to imparting more objectivity in identifying cases of wilful default, decisions to classify the borrower as wilful defaulter should be entrusted to a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs as decided by the Board of the concerned bank/FI.
(ii)The decision taken on classification of wilful defaulters should be well documented and supported by requisite evidence. The decision should clearly spell out the reasons for which the borrower has been declared as wilful defaulter vis-z-vis RBI guidelines.
(iii)The borrower should thereafter be suitably advised about the proposal to classify him as wilful defaulter along with the reasons therefor. The concerned borrower should be provided reasonable time (say 15 days) for making representation against such decision, if he so desires, to a Grievance Redressal Committee headed by the Chairman and Managing Director and consisting of two other senior officials.
(iv)Further, the above Grievance Redressal Committee should also give a hearing to the borrower if he represents that he has been wrongly classified as wilful defaulter.
(v)A final declaration as 'wilful defaulter' should be made after a view is taken by the Committee on the representation and the borrower should be suitably advised."
11.The learned Senior Counsel further referred to the Credit Information Companies (Regulation) Act, 2005 (Central Act 30/2005) for the purpose of emphasizing the privacy principle stated therein. Under Section 22 of the Act it is stated that no person shall have access to credit information in the possession or control of a credit information company or a credit institution u less the access is authorised by the Act. Any contravention of the Act has been made as a penal offence. Under Section 29, the Credit information company is under obligation to maintain fidelity and secrecy.
12.The learned Senior Counsel also referred to a judgment of the Delhi High Court in Sudarshan Overseas Ltd. Vs. Reserve Bank of India and another reported in 160 (2009) DLT 77, wherein the Delhi High Court had observed in paragraph 19 as follows :
"19.State Financial Corporation are a Public Sector Undertaking; where as the second respondent is a Private bank. However, in the present case no adjudication order for recovery is being made. Banks and financial institutions are required to follow the guidelines of Master Circular introduced by the Reserve Bank of India before declaring a borrower a willful defaulter and communication has to be sent to the borrower. In case of violation, complaint to Reserve Bank of India can be made. Action to declare a borrower as willful defaulter is an internal action of the bank in question and declaration to the same effect is required to be made after giving hearing and right to representation. The borrower is also entitled to receive documents and evidence relied upon by the bank/financial institution. The Master Circular has taken precaution to ensure that genuine borrowers or others, who have committed defaults in making the payment of money are not categorized as willful defaulters. In case of wrong classification, aggrieved person can move to Court or approach Reserve Bank of India in case there is breach of the conditions mentioned in the Master Circular."
(emphasis added)
13.However, the petitioner cannot be allowed to have several rounds of litigation on the same subject. The right of the petitioner and the obligation of the respondents have already been settled by this court in the order passed in the earlier writ petition. The petitioner was given an hearing and a reasoned order has been passed. Ultimately, the respondent being the Creditor company is entitled to take steps which are open to them to get back the amount advanced and reporting the default company in public place is the method which is designed by the respondents. This court do not find any violation of either the Central Act 30 of 2005 or the Master Circular issued by the RBI. Ultimately even after the respondent IDBI bank informed the RBI, the RBI can still examine whether the norms have been followed as they are the supervising authority for allowing the banks to consider the petitioner as a willful defaulter.
14.The term "Willful" came to be used in many enactments. It cannot have a pure dictionary meaning in all enactments and it all depend upon the enactment under which the term is used. In the present case, the petitioner company is the defaulter and they have huge dues to be paid is not denied. The respondent also found that there were diversion of funds and falsification of records. Therefore, it cannot be said that it is a case of mere default without any intend. Merely because the petitioner had offered to clear the dues will not take the case any further. The present attempt by the petitioner before this court is to seek a gag order against the respondent IDBI Bank, which is the banking institution advanced huge amount without there being any hope of return and the bank is entitled to adopt methods which are open to them which include a declaration of the petitioner company as willful defaulter. The case of the petitioner has been heard by the Redressal committee as directed by this court and the petitioner was also heard.
15.When a writ petition came to be filed preventing the nationalised bank from advertising the name of defaulters, this court vide judgment in K.J.Doraisamy Vs. Assistant General Manager, State Bank of India, Erode and another reported in (2006) 4 MLJ 1877 = 2006 (5) CTC 829 had negatived the plea by stating that there is no right to privacy in such matters and if a person, who had availed loan, had committed default by adopting novel method, it is also open to the bank to device a new method to recover the said loan. In paragraph 31, this court had observed as follows:
"31.Lastly, with the advent of the Right to Information Act, 2005, the Bank has become obliged to disclose information to the public. Section 3 of the said Act entitles all citizens to a right to information. Section 4(2) of the said Act provides as follows:
"(2)It shall be a constant endeavour of every public authority to take steps in accordance with the requirements of clause (b) of sub-section (1) to provide as much information suo moto to the public at regular intervals through various means of communications, including internet, so that the public have minimum resort to the use of this Act to obtain information."
Public Authority is defined under Section 2(h) of the Act to include "any body owned, controlled or substantially financed". Therefore, the respondent Bank is a Public Authority within the meaning of the Act and they owe a duty to disseminate information even suo moto.
Certain exemptions are listed out under Section 8 of the Right to Information Act, 2005, two of which are of significance and they read as follows:
-omitted-
Thus the aforesaid provision leaves no room for any doubt that the 'Right to Privacy' fades out in front of the 'Right to Information' and 'larger public interest'.
The said judgment was also confirmed by a division bench of this Court.
16.Ultimately, in the days of RTI Act where even a citizen who is interested in maintenance of public sector financial institutions is entitled to question the credit policy of the institution and get the names of huge defaulters and that such information when it is available in the public realm, it is too late for the petitioner to protest and contend that they cannot be held as defaulter. There is no constitutional right of the petitioner is violated and that the transaction is purely contractual.
17.The Supreme Court in Federal Bank Ltd. v. Sagar Thomas reported in (2003) 10 SCC 733 in paragraph 32 had observed as follows:
"32.Merely because Reserve Bank of India lays the banking policy in the interest of the banking system or in the interest of monetary stability or sound economic growth having due regard to the interests of the depositors etc. as provided under Section 5(c)(a) of the Banking Regulation Act does not mean that the private companies carrying on the business or commercial activity of banking, discharge any public function or public duty. These are all regulatory measures applicable to those carrying on commercial activity in banking and these companies are to act according to these provisions failing which certain consequences follow as indicated in the Act itself. As to the provision regarding acquisition of a banking company by the Government, it may be pointed out that any private property can be acquired by the Government in public interest. It is now a judicially accepted norm that private interest has to give way to the public interest. If a private property is acquired in public interest it does not mean that the party whose property is acquired is performing or discharging any function or duty of public character though it would be so for the acquiring authority."
18.Even if the writ petition is maintainable against the first respondent, that does not mean every activity of the respondent can be supervised by this court in exercise of power under Article 226 of the Constitution. In this context it is necessary to refer to a judgment of the Supreme Court in Indian Bank v. Godhara Nagrik Cooperative Credit Society Limited reported in (2008) 12 SCC 541 and in paragraph 16, it was observed as follows:
16.It is one thing to say that the public sector banks having regard to the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 should discharge their functions keeping in mind the larger public interest but ordinarily in the matter of enforcement of contract, they are to be governed by the terms thereof, which would not be amenable to writ jurisdiction of the High Court unless the actions of the banks are found to be wholly arbitrary and unreasonable.
19.In the light of the above, the writ petition will stand dismissed. However, there will be no order as to costs. Consequently connected miscellaneous petitions stand closed.
04.04.2012 Index : Yes Internet : Yes vvk To
1.Industrial Development Bank of India, No.115,Anna Salai, P.B.No.805,Saidapet, Chenai-600 015.
2.Industrial Development Bank of India Ltd., Redressal Committee, IDBI Tower, WTC Complex, Cuffe Parade, Colaba, Mumbai-400 005.
3.The Reserve Bank of India, Department of Banking Operations & Development, Central Office, 13th Floor, Central Office Building, S.Bhagat Singh Marg, Mumbai-400 001, Mumbai.
K.CHANDRU, J.
vvk W.P.No.8987 of 2012 04.04.2012