Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(Del) 201

IN THE HIGH COURT OF DELHI AT NEW DELHI
PRATEEK JALAN, J.
Shantanu Prakash – Appellant
Versus
Union Bank Of India & Ors.- Respondents
W.P.(C) 5309 of 2021 with CM APPLs. 16327-16329 of 2021
W.P.(C) 5313 of 2021 with CM APPLs. 16351-16353 of 2021
Decided on : 13-05-2021

Advocate Appeared:
For the Appellant :Mr. Dayan Krishnan, Sr. Adv. with Mr. Aditya Dewan & Mr. Siddharth Chechani, Advocates
For the Respondent:Mr. O.P. Gaggar, Advocate

Point of Law: Debt Recovery and Monetary Laws - Bank - Loan - Notice - Order of Identification Committee and Review Committee - Challenged - Prior to Identification Committee taking a fresh decision, Bank will address a communication to the petitioners disclosing any documents which it considers necessary in accordance with law, or alternatively stating its conclusion that no further disclosure of documents is required - Impugned orders of Identification Committee and Review Committee set aside.

Headnote:
Show cause notice - Master Circular - Petitioners were promoter-directors of Company, a borrower of Bank, and gurantors of loans taken by Company from Bank. JP claims to have resigned as a director in 2014 - Corporate insolvency resolution proceedings have commenced against Company, and matter is pending before National Company Law Tribunal - Bank issued impugned show cause notice to Company and to guarantors of Company’s debts, including the petitioners herein.
Finding of the Court: Clause 2.5 of the Master Circular itself emphasises the importance of transparency in the identification of a “defaulter”, and checks and balances necessary to avoid misuse of discretionary exercise of power - Bank will also give petitioners an opportunity of a personal hearing before Identification Committee, which may pass a fresh order in accordance with law thereafter - In event Identification Committee reaches a conclusion adverse to petitioners, petitioners will have 15 days’ time to submit a representation for consideration of Review Committee, which will thereafter proceed in accordance with procedure laid down in law, and give a reasoned decision - Question of adequacy of disclosure made by Bank pursuant to this judgment is left open - It is not necessary to conclusively decide this issue at this stage. Suffice it to say that Bank is required to disclose documents and evidence which the Identification Committee has relied upon to arrive at decision to issue show cause notice. Disclosure must be such as to enable notice to appreciate scope of allegations made against it and, if allegations are based upon documents which Bank states are already in possession of notice, such as its own accounts, to identify transactions upon which Bank seeks to rely - It is made abundantly clear that this Court has not expressed any opinion on merits of parties’ contentions.
Result: Petitions disposed of.

JUDGMENT :

PRATEEK JALAN, J.

The proceedings in the matter have been conducted through video conferencing.

CM APPLs. 16328-16329/2021 (exemption) in W.P.(C) 5309/2021

CM APPLs. 16352-16353/2021 (exemption) in W.P.(C) 5313/2021

Exemptions allowed, subject to all just exceptions.

The applications are disposed of.

W.P.(C) 5309/2021 with CM APPLs. 16327/2021 (interim relief)

W.P.(C) 5313/2021 with CM APPLs. 16351/2021 (interim relief)

1. Issue notice. Mr. O.P. Gaggar, learned counsel for respondent no. 1-Union Bank of India [“the Bank”], accepts notice. In view of the order which I propose to pass, it is not necessary to issue notice to the other respondents. The petitions are taken up for disposal with the consent of learned counsel for the parties.

2. These proceedings arise out of actions taken by the Bank against the petitioners under the Master Circular on Wilful Defaulters dated 01.07.2015 [“the Master Circular”], issued by the Reserve Bank of India. The petitioners have challenged a show cause notice dated 22.10.2020 issued to them, the order of the Identification Committee dated 04.02.2021, and the order of the Review Committee dated 06.04.2021. [The terms “Identification Committee” and “Review Committee” refer to the committees constituted under Clauses 3(b) and 3(c) of the Master Circular, respectively.]

A. Facts

3. The petitioners, Mr. Shantanu Prakash [“SP”] and Mr. Jagdish Prakash [“JP”], were promoter-directors of M/s Educomp Solutions Ltd. [hereinafter, “the Company”], a borrower of the Bank, and gurantors of loans taken by the Company from the Bank. JP claims to have resigned as a director in 2014. It is undisputed that corporate insolvency resolution proceedings have commenced against the Company, and the matter is pending before the National Company Law Tribunal [“NCLT”].

4. In the meanwhile, the Bank issued the impugned show cause notice dated 22.10.2020 to the Company and to the guarantors of the Company’s debts, including the petitioners herein. The show cause notice contemplated declaration of the noticees as wilful defaulters in terms of the Master Circular. The petitioners were required to furnish their objections, failing which the Bank intended to take action in terms of the Master Circular.

5. SP responded to the impugned show cause notice by a communication dated 03.12.2020. He requested the Bank to supply him with a copy of the minutes of the Identification Committee meeting dated 07.02.2020, upon which the impugned show cause notice was based, and any other documents which were relied upon in the show cause notice. However, he also responded to the allegations on merits, without prejudice to his rights and contentions. JP, who is the father of SP, claims that he did not receive the impugned show cause notice at all, and therefore did not respond to it. It is undisputed that neither of the petitioners participated in the personal hearing offered to them by the Identification Committee. They have stated that they failed to participate in the hearing inter alia due to COVID-19 infection and other medical issues.

6. The Identification Committee, however, considered the issue at a meeting on 22.01.2021, in the absence of the petitioners, and passed an order dated 04.02.2021. It classified the petitioners as ‘wilful defaulters’ based upon the grounds mentioned in the show cause notice dated 22.10.2020, which were reproduced in its order. The relevant extracts of the impugned order of the Identification Committee are as follows:

“After careful examination of the facts of the case and the submission from borrower/representative and Bank, the Identification Committee in its meeting held on 22.01.2021 passed the order as under:

The Committee observed that in spite of providing sufficient opportunity of personal hearing, the borrower/promoters/whole time directors/guarantors have failed to appear for personal hearing. Hence, the committee decided to classify them as wilful defaulters based on the grounds mentioned in the show ca