IMPORTANT POINT
The main legal point established in the judgment is that the actions of the borrower-Company, including non-repayment, diversion of funds, and disposal of assets, constituted wilful default under the Master Circular of the RBI, and the petitioner, as a director and promoter, could not be absolved of the wilful default despite the CIRP proceedings.

JUDGMENT :

Sabyasachi Bhattacharyya, J.

1. The writ petition has been preferred against an order passed by the Review Committee (RC) of the respondent no. 1-Bank, affirming the declaration of Wilful Defaulter of the petitioner. Learned counsel for the petitioner contends that the petitioner used to have business of Tea Gardens. It is argued that in none of the Committee Orders, any cogent ground has been made out under the Master Circular of the Reserve Bank of India (RBI) for declaration of Wilful Defaulters. It is argued that the RC, without returning its independent findings, has mechanically repeated the decision of the Wilful Defaulters Identification Committee (First Committee). Thus, the RC Order is devoid of independent reasons and ought to be set aside.

2. Learned counsel argues that the borrower-Company, that is, Duncans Industries Limited, of which the petitioner was a Director, had approached the Bank for a One Time Settlement (OTS). The time for repayment of instalments under the OTS, which was agreed upon by the parties, had been extended from time to time. Before the last extended period expired, the borrower-Company underwent a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), 2016. Thus, it cannot be said that the borrower-Company was a ‘defaulter’, as it did not have the opportunity to repay the loan under the OTS due to the commencement of the CIRP.

3. Secondly, the borrower-Company suffered huge losses during the relevant financial years, that is, from 2014-15 to 2018-19. The Committees failed to take into consideration that due to such huge losses, it could not be said that the borrower, despite having capacity to honour the repayment obligations, had defaulted in meeting the same. It is argued that there is no allegation of siphoning off the proceeds from sales realization.

4. The premise of the allegation that Clause 2.1.3(a) of the Master Circular applies, with regard to alleged non-repayment despite having capacity to pay, is that the credit summation in the company’s cash credit account was lower than revenue earned from its operations.

5. It is argued that the Wilful Defaulter Identification Committee failed to rebut/disprove the allegation that the Company was suffering huge losses during the relevant period and consequently had no capacity to pay. Credit summation, in vague terms, cannot tantamount to or be a measure to determine “capacity to pay”.

6. The Cash Credit Account maintained by the borrower-Company with the Bank was a monitored account and there was no contemporaneous allegation that revenue from sale proceeds was not being routed through the said account. Such allegation was made for the first time in the Show-cause Notice dated February 26, 2021 issued under the Wilful Defaulter Master Circular.

7. No particulars regarding routing of sale proceeds through other accounts were provided in the Show-cause Notice.

8. As regards the allegation under Clause 2.1.3(b) of the Master Circular, that the unit had defaulted in meeting the repayment obligation and had not used finance from the lender for the specific purpose for which such finance had been availed but had diverted the funds for other purposes, is not supported by any particulars being provided in the Show-cause Notice. It is alleged that the Bank came to know from the Resolution Professional of the borrower-Company that it was maintaining a current account with the ICICI Bank, Darjeeling Branch, which made it evident that the Company did not route the entire sale proceeds with the lender Bank without permission of the lender.

9. “Diversion of Funds”, as per Clause 2.2.1 of the Master Circular, does not speak about siphoning of funds but of non-utilization of finance for the specific purpose for which it was availed. There is no allegation in the Show-cause Notice that the funds available were diverted for some other purpose through the ICICI Bank, Darjeeling Branch bank account.

10. The petitioner to