Calcutta High Court (Appellete Side)
Gaurav Dalmia vs Reserve Bank Of India And Others on 18 March, 2020
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
In the High Court at Calcutta
Constitutional Writ Jurisdiction
Appellate Side
The Hon'ble Justice Sabyasachi Bhattacharyya
W.P. No. 24289(W) of 2019
Gaurav Dalmia
Vs.
Reserve Bank of India and others
With
W.P. No. 24291(W) of 2019
Raghu Hari Dalmia
Vs.
Reserve Bank of India and others
For the petitioners : Mr. Jishnu Saha,
Mr. Anirban Ray,
Ms. Chandrani Das
For the respondents : Mr. Jayanta Kumar Mitra,
Mr. Debnath Ghosh, Mr. S. Dutt Majumder Hearing concluded on : 27.02.2020 Judgment on : 18.03.2020 Sabyasachi Bhattacharyya, J.:‐
1. The two matters, arising from identical subject‐matters, are taken up together for hearing. The petitioners in both the writ petitions, namely, Gaurav Dalmia and Raghu Hari Dalmia, were promoters and directors in PRO Minerals Private Limited (PMPL), which was incorporated in the year 2020. 2 Subsequently, the respondent no. 2‐bank issued a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
2. On August 23, 2016, an allegation of wilful default was raised by the bank. A demand letter was given by the bank on August 25, 2016, to which the petitioners gave a reply on September 2, 2016. The respondent no.2 advised the PMPL to appear before its committee on November 8, 2016. Pursuant to an order dated November 30, 2016 passed by this court in a writ petition filed by the PMPL against the declaration of wilful default, a detailed representation was filed on December 14, 2016 by PMPL to the bank against the declaration of wilful defaulter.
3. The respondent no.2‐bank gave a reply to the representation on December 29, 2016. Vide order dated January 9, 2017, the Identification Committee on wilful defaulter passed an order, declaring the petitioners and PMPL as wilful defaulters.
4. Subsequently, upon moving this court, an order was passed by a coordinate bench on January 20, 2017, directing the Identification Committee to disclose the order passed classifying the account of PMPL as wilful defaulter, to be communicated within a week.
5. On January 24, 2017, a letter was addressed to the petitioners whereby the petitioners were informed that on January 9, 2017, the wilful defaulter 3 Identification Committee had declared the company and its promoters and directors as wilful defaulters.
6. In subsequent writ petitions filed by the petitioners, challenging the declaration of wilful defaulter, such declaration was quashed by a learned Single Judge, inasmuch as the petitioners were concerned, by an order dated April 6, 2017.
7. On May 9, 2018, a Corporate Insolvency Resolution Process (CIRP) was started in respect of PMPL on the strength of an order of the National Company Law Tribunal, Kolkata Bench.
8. By the order dated April 6, 2017, the learned Single Judge had, inter alia, directed the petitioners to submit a representation to the Identification Committee of the bank within a limited period, wherein they were given the liberty to deal with the allegations of the bank as contained in a writing dated January 24, 2017, read with the findings of the Identification Committee as against the company, the charge of diversion of fund by the company and an advocate's letter dated September 2, 2016. It was further recorded that the petitioners had admitted to be in management and control of the company despite their resignation as directors of the company, in the meeting held with the bank. Being partially aggrieved thereby, the petitioners filed appeals, which were disposed of by a division bench of this court vide order dated June 12, 2017, along with the connected applications, leaving the petitioners free to approach a Review Committee within a period of a fortnight from that 4 date and held that the petitioners would be entitled to be represented by an advocate at the oral hearing before the Review Committee.
9. Accordingly, the petitioners filed a fresh representation before the Review Committee of the respondent no.2‐bank on June 23, 2017. By a notice dated July 6, 2018 the bank informed the petitioners that a hearing by the Review Committee of the respondent no.2 had been scheduled at 11 a.m. on July 30, 2018, on which date such hearing was held before the Review Committee.
10. On November 20, 2018, the Review Committee declared the petitioners as wilful defaulters. Upon writ petitions being filed against such decision of the Review Committee by the petitioners, a coordinate bench, vide order dated December 17, 2018 dismissed the said writ petitions, going somewhat into the merits of the case of both sides regarding the declaration of wilful defaulter.
11. Being aggrieved against the order dated December 17, 2018, the petitioners preferred appeals, which were dismissed on January 18, 2019, wherein the division bench went into the merits of the matter and sustained the order of the learned Single Judge, affirming the declaration by the Review Committee.
12. Subsequently, on February 22, 2019, the National Company Law Tribunal, Kolkata, accepted the resolution plan providing for transfer of PMPL and all its assets and properties to the Essel Mining and Industries Limited. On the strength of such resolution, whereby the debts of the company were resolved, the petitioners moved a special leave petition before the Supreme Court and 5 a division bench of the Supreme Court, vide order dated May 8, 2019, observed that the petitioners wished to make a representation to the Review Committee of the respondent no.2‐bank in the light of the subsequent events, on the issue that since the assets of PMPL had since been sold in liquidation of the company's debts by virtue of the corporate resolution, whether the classification of the petitioners as wilful defaulter should continue. The petitioners were permitted to make such representation within a limited period and the Review Committee under the Master Circular dated July 1, 2015 of the Reserve Bank of India would then decide the said representation and give its reasons in accordance with the judgment of the Supreme Court in the matter of State Bank of India vs. M/s Jah Developers Pvt. Ltd. [AIR 2019 SC 2854 = (2019) 6 SCC 787].
13. Pursuant to such order of the Supreme Court, the petitioners filed a fresh representation before the Review Committee of the respondent‐bank on May 20, 2019.
14. The Review Committee, by an order dated October 25, 2019, confirmed the petitioners as wilful defaulters, which order is the subject‐matter of challenge in the present writ petitions.
15. Learned senior counsel appearing for the petitioners argues that the scope of adjudication of the Review Committee, as elaborated in SBI vs. M/s Jah (supra), could encompass a full representation on facts and law, on which the Review Committee must then pass a reasoned order, which must be served on the 6 borrower. Given the fact that the earlier Master Circular of the RBI dated July 1, 2013 itself considered such steps to be reasonable, the division bench of the Supreme Court incorporated those steps into the Revised Circular dated July 1, 2015, which applies to the parties.
16. Thus, it is argued, the Review Committee refused to exercise jurisdiction vested in it by law in not looking into the grievance of the petitioners regarding the declaration of wilful default on all points available to them, including the veracity and legality of the declaration of wilful default order.
17. Although the petitioners raised all questions before the Review Committee, the same did not reconsider the original order declaring the petitioners as wilful defaulter but only took into account the subsequent event of corporate resolution. On this score, learned senior counsel for the petitioners submits that since the Review Committee is on a similar footing as the Identification Committee, a "review" by the former could not be restricted to a mere stamp of approval of the Identification Committee's order, as contemplated in SBI vs. M/s Jah (supra). Rather, all questions entered into by the Identification Committee ought to be reviewed by the Review Committee. Otherwise, the order of such Committee would be an illusory remedy and a mere reproduction of the order of the Identification Committee, which is not contemplated by law.
18. It is further argued that, in view of the PMPL itself being absolved of its wilful defaulter tag while the Committee of creditors had accepted the resolution 7 plan and upon a consequent transfer of PMPL to ESSEL Mining and Industries Limited, the petitioners, as promoters/directors of PMPL, could not remain to be tagged as wilful defaulters since the said tag had been erased by the resolution process itself. It is argued that the liability of the petitioners could not exceed that of the company itself. The liabilities of the latter having been extinguished by virtue of the resolution, the petitioners could not be continued to be declared as wilful defaulters.
19. Learned senior counsel for the petitioners next argues that the Review Committee as well as the Identification Committee adopted erroneous legal principles in labelling the petitioners as wilful defaulters as well. It is argued on basis of the July 1, 2015 Circular that a 'unit' was to be held a wilful defaulter. The expression 'unit' separately included individuals, juristic persons and all other forms of persons enterprises whether incorporated or not, as per clause 2.12 of the Circular. In case of business enterprises, (other than companies), banks/financial institutions may also report in the director column of the annexure 1 thereto, the names of those persons who are in charge and responsible for the management of the affairs of business of the company. Such expressions are disjunctive. Hence, in case a company is declared to be wilful defaulter, the promoters/directors could not be incriminated for the same offence.
20. It is argued by the petitioners that in view of the petitioners' last representation being comprehensive and not confined to only the subsequent 8 event of resolution, the Review Committee acted palpably without jurisdiction in refusing to look into such allegations, since the Supreme Court, in its order dated May 8, 2019 passed in the petitioners' appeals, had specifically directed the Review Committee to decide the said representation and give reasons in accordance with the Supreme Court's judgment in SBI vs. M/s Jah (supra). Since the latter reported judgment contemplates a full consideration of both facts and law, the Review Committee, in the present case, acted palpably without jurisdiction in giving no opportunity to the petitioners to canvass all their grievances regarding the original order of the Identification Committee.
21. Such a consideration was incumbent on the Review Committee, in view of the direction of the Supreme Court, but was flouted.
22. As such, learned senior counsel submits that the impugned order of the Review Committee, sustaining the Identification Committee's observations against the petitioners, should be set aside.
23. On the other hand, learned senior counsel appearing for the respondents submits that in view of the declaration of the Identification Committee being affirmed up to a division bench of this court, the same could not be reopened fully by the Review Committee again.
24. The direction given by the Supreme Court was to consider the representation, which was observed to be in the light of the subsequent developments and as 9 such, the consideration had to be restricted only to the question of the petitioners' continuance of being tagged a 'wilful defaulters' in view of the resolution plan being accepted subsequently. Hence, the petitioners are not justified in arguing that the entire decision of the Identification Committee should have been reopened.
25. It is further submitted that the resolution of the claim for loan by the resolution process could not have any bearing on the declaration of the petitioners as wilful defaulters in their capacities of promoters/directors of PMPL. Even if the assets of PMPL merged with another company and the dispute as regards the loan debts was resolved between the corporate debtors and the creditors as well as all necessary parties, the tag of wilful default, even though removed from the company, would be sustained as far as the petitioners are concerned. The petitioners were, in their capacities as promoters and directors, liable for the offences on which the wilful default declaration was made and there was no reason why they should be absolved from such liability by the resolution of the company's loan. It is argued by learned senior counsel for the respondents that the petitioners subjected themselves to the Review Committee pursuant to the order of the Supreme Court, in terms of the Master Circular dated July 1, 2015. As such, the decision of the Review Committee is binding on them.
26. It is further argued that the petitioners were very much represented before the said committee and the objections of the petitioners were considered at 10 length, both by the Identification Committee and the benches of this court which looked into the challenge thereto by the petitioners. In all fora, the courts affirmed the observations of the Identification Committee on merits. Hence, such question cannot now be reopened and the petitioners are debarred by the principle of res judicata from doing so.
27. The only altered circumstance before the Supreme Court for passing the order dated May 8, 2019, was the corporate resolution of the dispute as regards the loans themselves. Therefore, the jurisdiction of the Review Committee was restricted only to a consideration of the effect of the subsequent event.
28. Even on merits, it is argued, there was justification, as borne out by the materials annexed to the writ petitions, that the petitioners were wilful defaulters within the contemplation of the Master Circular dated July 1, 2015, since the company was guilty of diversion of funds as well as siphoning of the funds, which justified the petitioners, who were the promoters and directors of the defaulting company, also to be tagged as wilful defaulter.
29. It is argued on the basis of clause 3 of the said Master Circular, that the mechanism for identification of wilful defaulters includes taking promoters and directors, as well as persons responsible for management of the company, even after their resignation if the case may be so, to task.
30. Thus, it is argued that the Review Committee was justified in passing the impugned order.
11
31. Upon considering the materials on record and the submissions of both sides, it is seen that the initial order of the Identification Committee declaring the petitioners as well as the PMPL as wilful defaulters, was upheld both by the coordinate bench of this court on April 6, 2017 and affirmed by a division bench of this court, sitting in appeal over the order of the learned Single Judge, passed on June 12, 2017.
32. The fresh representation thereafter, before the Review Committee, might have contained several allegations, including some already adjudicated by the Identification Committee on merits, which attained finality, the scope of enquiry of the Review Committee, which was opened up only by the order of the Supreme Court dated May 8, 2019, was restricted, by the said order itself, to the subsequent event of corporate resolution and its effect on the 'wilful defaulter' tag on the petitioners.
33. Hence, the first issue raised by the petitioners has to be turned down, since the Review Committee was justified in restricting its enquiry only to such subsequent event and its effect and not reopening the merits of the declaration of wilful defaulters by the Identification Committee, since the same had already attained finality.
34. However, as far as the subsequent event is concerned, the petitioners are justified in arguing that since the wilful default tag was attached to the petitioners merely in the capacity of the promoters and directors of the defaulting company, which itself had been absolved of such default, 12 automatically removing its wilful defaulter tag, such tag could not be sustained thereafter. The petitioners were castigated as wilful defaulters only due to the alleged actions taken by them in commission of the default by PMPL. Hence, the term 'wilful default', even in respect of the petitioners, does not pertain to their general conduct as company officials but is restricted to the default committed by the company, of which they were promoters/directors. As such, it is a 'Dog in the Manger' policy to sustain the tag 'wilful defaulter' for the petitioners for a default which had been absolved by the corporate resolution. Whatever might have been the veracity of the allegations against the petitioners, they could not continue being labelled as wilful defaulters for a default which itself had been resolved. Thus, the Review Committee adopted a palpably erroneous legal process in taking the view that the petitioners and the company were individually labelled as wilful defaulters. The impact of the sustenance of such tag would be severely detrimental to the petitioners, more so in view of the provisions of Section 29A of the Insolvency and Bankruptcy Code, 2016.
35. In view of the same default, which was marked as wilful default, having been allegedly committed by the company on the one hand and the petitioners, in their capacity as promoters/directors thereof on the other, the declaration of wilful defaulter in respect of the company and that of the directors/promoters could not be segregated, since the root cause is the same default. Once the default itself is resolved through a Corporate Resolution Process and the 13 company is itself absolved from such tag by its merger with a different company, the default cannot be said to continue in respect of the directors, since it has already been absolved. It was not separate causes of action, which led to the declaration of the petitioners and the PMPL as wilful defaulters, but the same alleged defaults.
36. Once the default itself goes by virtue of a corporate resolution, the 'wilful defaulter' tag of the petitioners, in the capacity of promoters and directors of such company only and not in their individual capacities, had to go. Thus, the Review Committee acted palpably without jurisdiction in refusing to withdraw the wilful defaulter tag attached to the petitioners, on an unjust and unfair basis.
37. Just as new transactions could be entered into with the assets and the goodwill of PMPL by the new company with which it merged, the petitioners should also be left free to act as directors/promoters of other companies and/or carry on their independent businesses in their individual capacities, by virtue of the resolution of the default. Since the loan giving rise to the default itself does not exist any more, neither does the default or tag of wilful defaulter associated with it.
38. Accordingly, W.P. No.24289(W) of 2019 and W.P. No.24291(W) of 2019 are allowed on contest, thereby setting aside the impugned orders dated October 25, 2019 passed by the Review Committee and declaring that the "wilful defaulter" tag of the petitioners are withdrawn. The petitioners will be at 14 liberty to participate in business activities in their individual capacities or as promoters/directors of other companies. The respondents are directed to take necessary consequential steps accordingly.
39. There will be no order as to costs.
40. Urgent certified website copies of this order, if applied for, be made available to the parties upon compliance with the requisite formalities.
( Sabyasachi Bhattacharyya, J. )