The concept of wilful default and the rights of an alleged wilful defaulter, including the right to approach the review committee based on new developments.

JUDGMENT

I.P. Mukerji, J. - No organisation or businessman wants to be labelled as a wilful defaulter by a bank or a financial institution. With this label on the head, the organisation or the businessman would have a very poor rating in the business community. Nobody would take any interest to do business with him, or the organisation or giving them any financial credit. No bank or financial institution would grant them loan and those who have already given loan would not think of enhancing it. Instead, it would quickly take steps to realise it. Such a businessman cannot be a promoter or be on the board of directors of a company which has obtained or is seeking loan from a financial institution. The management of the organization may be changed by the concerned authority. Without loan or financial assistance no business can survive. Therefore, being declared as a wilful defaulter of a bank is a very serious matter for a businessman or a business organisation.

2. In this case the appellant No. 1 was the Chairman cum Managing Director of Tantia Construction Ltd. The appellant No. 2 was its whole time director. This company had borrowed money from Vijaya Bank (Now Bank of Baroda) and not repaid it. Another company Castal Extrusion Pvt. Ltd stood guarantor for this loan.

3. In this context it is relevant to state that on 10 th March, 2014 the bank had served on the borrower company and Castal Extrusion Pvt. Ltd (as its corporate guarantor) notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, (SARFAESI) Act, 2002.

4. The appellants contend that although a demand for payment was made against the borrower company no demand was made against them.

5. The bank took a step ahead. On 16 th March, 2016 it issued a notice to the borrower company and the appellants as to why they should not be declared as wilful defaulters. Castal Extrusion Pvt. Ltd was also served with a similar notice. The ground cited in the notice was as follows:

"the unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations......since you No. 2 to 17 (2 being the petitioner NO. 1 and 4 being the petitioner No. 2) are Directors in the above company and you No. 18 (Castral Extrusions Private Ltd) is a corporate guarantor, it is necessary that your name/s should also be published in the list of wilful defaulters accordingly for the reason as stated above."

6. On 4 th January, 2017 the General Manager of the respondent bank addressed a communication to, inter alia, the appellants stating that the company had the "capacity to pay but was not repaying the loan of the bank." It was regularly paying "interest on loan" and "the loan instalments" to the consortium banks. Hence, this default was construed as "wilful" default and the appellants classified as wilful defaulters by the Committee for Identification of wilful defaulters according to the Master Circular dated 1 st July, 2015 of the Reserve Bank of India in their meeting held on 10 th August, 2016 and 17 th August, 2016. Furthermore, this decision was placed before the Review Committee for wilful defaulters headed by the Managing Director and Joint Executive Officer. This committee confirmed the decision dated 10 th August, 2016 and 17 th August, 2016 declaring, inter alia, the appellants as wilful defaulters after a meeting held on 14 th December, 2016.

7. Before proceeding any further with this appeal I think it is necessary to consider some definitions contained in the said Master Circular of the Reserve Bank of India.

2.1.2 Unit : The term 'unit' includes individuals, juristic persons and all other forms of business enterprises, whether incorporated or not. In case of business enterprises (other than companies), banks/Fls may also report (in the Director column of Annex 1) the names of those persons who are in charge and responsible for the management of the affairs