The central legal point established in the judgment is the significance of following the prescribed procedure, including the issuance of a show cause notice and opportunities for representation, in the process of declaring a borrower as a Wilful Defaulter.

JUDGMENT

Prateek Jalan, J. - The proceedings in the matter have been conducted through hybrid mode [physical and virtual hearing].

1. The present writ petition is directed against communications dated 22.01.2020 and 12.05.2020 issued by the respondent no.1-Dhanlaxmi Bank Limited ["the Bank"] by which the petitioner has been declared as a Wilful Defaulter under the Master Circular on Wilful Defaulters ["the Master Circular"] dated 01.07.2015, issued by the Reserve Bank of India ["RBI"].

2. The petitioner was a director of a company by the name of M/s Kwality Ltd. which is presently undergoing liquidation before the National Company Law Tribunal ["NCLT"]. His principal grievance is that he was not issued any show cause notice prior to the communication dated 22.01.2020, by which he has been declared a Wilful Defaulter by the Identification Committee of the Bank.

3. The procedure for declaration of Wilful Defaulters is laid down in Clause 3 of the Master Circular, the relevant provisions whereof read as follows:-

"3. Mechanism for identification of Wilful Defaulters

The mechanism referred to in paragraph 2.5 above should generally include the following:

(a) The evidence of wilful default on the part of the borrowing company and its promoter / whole-time director at the relevant time should be examined by a Committee headed by an Executive Director or equivalent and consisting of two other senior officers of the rank of GM / DGM.

(b) If the Committee concludes that an event of wilful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter / wholetime director and call for their submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the promoter / whole-time director for a personal hearing if the Committee feels such an opportunity is necessary.

(c) The Order of the Committee should be reviewed by another Committee headed by the Chairman / Chairman & Managing Director or the Managing Director & Chief Executive Officer / CEOs and consisting, in addition, to two independent directors / non-executive directors of the bank and the Order shall become final only after it is confirmed by the said Review Committee. However, if the Identification Committee does not pass an Order declaring a borrower as a wilful defaulter, then the Review Committee need not be set up to review such decisions." (Emphasis supplied.)

4. This procedure has also been explained in a judgment of the Supreme Court in State Bank of India vs. M/s Jah Developers Limited and Ors., (2019) 6 SCC 787. Paragraph 24 of the said judgment reads as follows:-

"24. Given the above conspectus of case law, we are of the view that there is no right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 1-7-2015, as it is clear that the events of wilful default as mentioned in Para 2.1.3 would only relate to the individual facts of each case. What has typically to be discovered is whether a unit has defaulted in making its payment obligations even when it has the capacity to honour the said obligations; or that it has borrowed funds which are diverted for other purposes, or siphoned off funds so that the funds have not been utilised for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show-cause notice to elicit the borrower's submissions on the same. However, we are of the view that Article 19(1)(g) is attracted in the facts of the present case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate. This is for the reason that no additional facilities can be granted by any bank/financial institutions, and entrepreneurs/promoters would be b