A Borrower cannot be Declared as Willful Defaulter in a Mechanical Manner [Case Law]

A borrower cannot be declared as willful defaulter in a mechanical manner. 

THE HIGH COURT OF MADHYA PRADESH

Sujoy Paul J.

W.P. No.9982/2018

M/S Goel Agrigreen Fields Pvt. Ltd. Vs. State Bank of India 

16 May, 2018

Shri Kishore Shrivastava, learned senior counsel with Shri Nikhil Tiwari, Advocate for the petitioner.

Shri Sunil Khirdikar, Advocate for the respondents.

Heard on the question of interim relief.

Shri Khirdikar prayed for and is granted four weeks' time to file para wise reply.

Learned senior counsel for the petitioner submits that the decision making process adopted by respondents and the ultimate decision based thereupon runs contrary to the principles of natural justice and the governing mechanism mentioned in clause (3) (page 277). The respondents have erred in declaring the petitioner as a willful defaulter.

It is contended by the petitioner that on 1.10.2016 Annexure P/10 a show cause notice was issued to the petitioner. The petitioner filed a detailed reply on 2.11.2016 Annexure P/11 which is running in almost 9 pages. The petitioner explained the reasons because of which the loan amount could not be deposited. Thereafter, by notice dated 27.11.2017 Annexure P/12 the date of personal hearing i.e 14.12.2017 was fixed. The petitioner expressed his inability to attend the hearing on the said date and prayed for any other date after 20.12.2017. This communication dated 1.12.2017 is Annexure P/13. Thereafter, by communication dated 16.12.2017, a next date of hearing was fixed i.e. 29.12.2017. However, by communication Annexure P/15 this date was cancelled and petitioner was informed that the revised date shall be advised to him. By way of communication dated 1.1.2018 Annexure P/16 the next date of hearing was fixed on 18.1.2018. The petitioner by communication dated 15.1.2018 requested for adjournment on the ground that on 18.1.2018, he will not be in the country. In support of this contention, attention of this court is drawn on the immigration documents Annexure P/18 and the air ticket (page 185).

Shri Shrivastava, learned senior counsel urged that the petitioner did not receive any information regarding refusal of the prayer for adjournment for 18.1.2018. Indeed, a final order dated 9.4.2018 is passed (Annexure P/19) whereby the decision of review committee dated 18.1.2018 and 22.3.2018 was communicated to the petitioner.

Criticizing the decision making process, learned senior counsel argued that the said process suffers from following serious irregularity and illegalities which violates principles of natural justice and governing principles contained as clause (3) of the Master Circular -

(i) As per clause 3(a), a three member committee headed by Executive Director needs to examine the evidence of willful default on the part of the borrower. Clause (b) in no uncertain terms makes it clear that conclusion of said three member committee should be based on said evidence and then a show cause notice needs to be issued to the borrower. In the instant case, the show cause notice does not reflect any such application of mind by the committee on the basis of any evidence.

(ii) As per clause 3(b), an opportunity must be given to the borrower before taking a decision regarding willful default by borrower. In the present case, the opportunity of hearing was not adequate because on 18.1.2018 petitioner was not available in the country and a notice/information was given to the bank in advance. It is further urged that bank made it clear that hearing can be attended only by the petitioner and no counsel/representative shall be permitted to attend the hearing. In all fairness, a further date of hearing should have been given. Moreso, when on the last date of hearing the adjournment was at behest of the respondent bank. Thus, effective opportunity of personal hearing has been denied to the petitioner.

(iii) As per clause 3(c), the decision of Committee constituted under clause (a), needs a stamp of approval by way of review by another Committee headed by Chairman/CEO. The order of willful defaulter can become final only after it is confirmed by the review committee. It is urged that the document dated 9.4.2018 Annexure P/19 shows that identification committee and review committee rejected the appeal of the petitioner. Infact, no appeal was preferred by petitioner against the order of Identification Committee to the Review Committee. Learned senior counsel contended that petitioner came to know about the orders/decision of identification and review committee upon receiving the communication dated 9.4.2018 Annexure P/19. Thus, in absence of any appeal being preferred by the petitioner before Review Committee, question of its rejection does not arise.

(iv) The petitioner's reply to show cause notice was pregnant with necessary facts, reasons and details which was not considered and dealt with while passing the impugned order. Reliance is placed on 2013 SCC Online Cal 11603 (Santanu Ghosh Vs State Bank of India).

On the strength of aforesaid, it is prayed that the impugned order may be stayed.

Per contra, Shri Khirdikar contended that (i) the bank by communication dated 1.1.2018 Annexure P/16 informed the date of hearing i.e. 18.1.2018. Petitioner purchased air ticket on 15.1.2018. The petitioner's request for adjournment was earlier accepted. Clause 3 of Master Circular provides that "an opportunity should be given." Circular does not provide for giving more than one opportunity because of use of expression "an opportunity"'

(ii) the impugned orders are passed in consonance with clause 3. 
(iii) the impugned orders contain adequate reasons and therefore no interference may be made.

No other point is pressed by the parties.

I have heard the parties at length on the question of interim relief.

The Calcutta High Court in Santanu Ghosh (Supra) opined as under:

"In view of the serious consequences that visit a person being labelled as a wilful defaulter, the adjudication undertaken by the Grievance Redressal Committee and its decision have to reflect the defence of the would-be wilful defaulter against the opinion of the preliminary committee and the evidence relied upon by the preliminary committee. In this case, a detailed written representation was submitted by the petitioners to the Grievance Redressal Committee. It was incumbent on such committee to discuss the defence of the petitioners, weigh the arguments proffered against the opinion rendered by the preliminary committee in the backdrop of the evidence relied upon by the preliminary committee and, only thereafter, render an opinion as to whether the petitioners met the relevant conditions under the Reserve Bank master circular to be classified as wilful defaulters.

A perfunctory decision without any reasons cannot be a substitute for the elaborate process envisaged by the relevant master circular and, in particular, clause 3(iv) thereof.

The process of adjudication culminating in a person being labelled as a wilful defaulter - and the virtual rendition of the defaulter as a pariah in the financial and commercial world - has to be fair and transparent. The decision finding a person to be a wilful defaulter is justiciable. It is imperative, therefore, that the decision be informed by reasons for both the defaulter to be made aware of the conduct for which he stands condemned and for the forum sitting in judicial review over the decision to appreciate the application of the mind to the matter in the process of adjudication. Since the master circular expressly requires the preliminary committee to cite reasons for a person to be recommended to be branded as a wilful defaulter and since the preliminary committee is also obliged by the circular to furnish requisite evidence in support of its opinion, it would defy logic that the Grievance Redressal Committee, which is bound to consider a representation of a would-be defaulter and also give him a hearing, is seen to be invested with untrammeled authority to reject the representation on its ipse dixit without assigning any reasons therefor."

A microscopic reading of clause 3 makes it clear that a decision of issuance of show cause notice must be based on some evidence which is examined by a duly constituted committee as per clause (a). The said committee needs to provide opportunity of personal hearing to the borrower and then can pass an order by recording the reasons for the same. The said order of Identification Committee can attain finality only after its confirmation by the Review Committee.

In the present case, the document dated 7.4.2018 and 18.1.2018 prima facie shows that the facts and grounds raised by the petitioner in the reply to the show cause notice were not considered by the respondents. Reasons are held to be heart beats of conclusion. In absence of adequate reasons, conclusion cannot sustain judicial scrutiny. See: 2010 (9) SCC 496, (M/s Kranti Associates Pvt. Ltd. and another vs. Masood Ahmed Khan and others) The respondents are unable to show any appeal which is allegedly preferred by petitioner against the order of Identification Committee before the Review Committee.

As held by Calcutta High Court, a borrower cannot be declared as willful defaulter in a mechanical manner. There are serious consequences of such declaration and therefore the decision making process envisaged in clause 3 needs to be followed meticulously. In the considered opinion of this court, the principles of natural justice are codified in the shape of clause 3 of Master Circular issued by the Bank. Prima facie, it appears that decision making process adopted by respondents was not in consonance with the said clause. Prima facie, I am unable to accept the argument of Shri Khirdikar that the expression "an opportunity" means a single date fixed for hearing. Interestingly, the bank itself adjourned the hearing for administrative reasons. The principles of natural justice cannot be reduced to a technical formality of this nature. Apart from this, as noticed, no appeal was preferred by the petitioner yet it was held that appeal was dismissed by Review Committee. For these cumulative reasons, in my opinion, a strong prima facie case is made out by the petitioner. Thus, as an interim measure, it is directed that till next date of hearing the effect and operation of impugned order dated 18.1.2018 and 22.3.2018 shall remain stayed. The parties shall complete their pleadings on or before 22nd of June, 2018.

List this matter on 28th June, 2018 for further consideration/final disposal.

Certified copy as per rules.

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