Procedural fairness and adherence to natural justice are crucial when classifying individuals as wilful defaulters under banking regulations.

JUDGMENT

Prateek Jalan, J. (Oral)

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 e