The declaration of a wilful defaulter must adhere to principles of natural justice, requiring access to relevant documents for a meaningful defense.

Judgment:

(Per Dr Neela Gokhale J.)

1) Rule. Rule made returnable forthwith. With consent of the parties the matter is taken up for final hearing.

2) The Petitioners seek quashing of Show Cause Notice (‘SCN’) dated 5th April 2023 issued by the Respondent No.1-Bank and Order dated 14th September 2023 issued by the Wilful Defaulter Committee of the Bank. He also assails the subsequent Order dated 25th October 2024 passed by the Wilful Defaulter Review Committee (‘WDRC’) and Order dated 13th June 2024 issued by the Wilful Defaulter Committee (‘WDC’).

3) The Petitioner is the erstwhile Director of the company known as Bhuwalka Steel Industries Limited (“BSIL”). Pursuant to a resolution of BSIL, under the Insolvency and Bankruptcy Code, 2016 (‘IBC’), the company came under the control of a new management. The Petitioner is essentially aggrieved by orders passed by the Respondent No.1 declaring him as Wilful Defaulter on the basis of a Transaction Audit Report (‘TAR’) prepared by one M/s. G.D. Apte & Co. at the behest of the erstwhile Resolution Professional (‘RP’) of BSIL. His main grievance is that he was deprived of a substantial opportunity of being heard inasmuch as the documents on the basis of which a decision to declare him as Wilful Defaulter was taken, were not provided to him and the TAR relied upon by the Respondent No.1 was held by the NCLT, Bengaluru Bench to be based on surmises and conjectures.

4) The facts of the case reveal that in 2018, a Company Petition (IB) No. 228/BB/2018 was filed by one Indu Corporation Private Limited against BSIL before the NCLT, Bengaluru Bench. The Petition was admitted by the NCLT on 8^th April 2019 under the Corporate Insolvency Resolution Process (‘CIRP’) and one Mr. Shivadutta was confirmed as RP. During the course of the CIRP, M/s. G.D. Apte & Co. were appointed as auditors by the RP to carry out the transaction audit/ forensic audit of the BSIL. Based on the findings in the TAR, the RP filed an application before the NCLT alleging that certain fraudulent transactions had taken place in BSIL including certain related party transaction between BSIL and its group company, called Shree Durga Trade Links Private Limited (‘SDTL’). It transpires from the observation made in the order dated 10th March 2021 passed by the NCLT that the forensic audit report/transaction audit report was based on surmises and conjectures and only assumed that the transactions were fraudulent. The NCLT observed that the said Report seemed to be based on assumptions which were neither examined nor cross-checked by confronting the parties to the transactions. Placing reliance solely on this report, the Respondent No.1 Bank proceeded to declare the Petitioner as Wilful Defaulter. It is the grievance of the Petitioner that he was not given an opportunity of a meaningful hearing since the documents underlying the TAR were inaccessible to him thereby compelling him to approach this Court by filing the present petition.

5) Mr. Simil Purohit, learned Senior Counsel appeared for the Petitioner while Mr. Prakash Shinde, learned counsel appeared for the Respondent No.1-Bank. Mr. Mohamedali Chunawala, learned counsel represented the Respondent No.2. We have heard counsels for all the parties and perused the documents with their assistance.

6) Mr. Purohit took us through the correspondence between the parties in detail. He pointed out the show-cause notice dated 5th April 2023 issued to him and his brother and co-director, Mr. Ajay under the Master Circular on Wilful Defaulters dated 1st July 2015 issued by the RBI. According to him, the show-cause notice merely reproduced an extract from the TAR, which reflected the opinion of the auditor without any supporting documents. The Petitioner then addressed an e-mail dated 22nd April 2023 to the Respondent No.1 conveying that since BSIL was under a new management, the Petitioner did not have access to previous information and data. He sought time to reply to the SCN.

7) Petitioner again