Clear procedural requirements for declaring a borrower as a wilful defaulter must be adhered to, ensuring natural justice principles are upheld.

JUDGMENT

Prateek Jalan, J. (Oral)

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

CM APPL. 2176/2021 (for condonation of delay)

This application has been filed on behalf of the petitioners seeking condonation of delay of 44 days in filing the rejoinder to the counter affidavit filed by the respondent.

For the reasons stated in the application, it is allowed.

W.P.(C) 3605/2020 & CM APPL. 12834/2020 (for stay)

1. The petitioners have filed this petition under Article 226 of the Constitution against a notice dated 27.01.2020 issued by the respondent-Canara Bank ["the Bank"], pursuant to the Master Circular on Wilful Defaulters dated 01.07.2015 ["the Master Circular"] issued by the Reserve Bank of India.

2. The petitioners were directors and guarantors of loans taken by a company by the name of Bhushan Power and Steel Ltd. ["the Company"] from the Bank.

3. By a notice dated 27.01.2020, the Bank informed the petitioners that their accounts have been identified as wilful defaulters under the Master Circular, for the reasons stated in the said notice. The petitioners were given an opportunity to submit their representations within 15 days. The petitioners responded to the show cause notice by a communication dated 15.02.2020, in which they answered the case on merits, and also sought copies of the documents referred to in the show cause notice. By a further notice dated 08.06.2020, the petitioners were given an opportunity of personal hearing before the Committee for Identification and Classification of Wilful Defaulters on 22.06.2020 ["the Identification Committee"].

4. Mr. Sandeep Sethi, learned Senior Counsel for the petitioners, submits that the impugned notices issued by the Bank are not in accordance with the Master Circular, as interpreted by the Supreme Court in its judgment dated 08.05.2019 in State Bank of India vs. Jah Developers Private Limited and Others, (2019) 6 SCC 787. The first defect, according to Mr. Sethi, is that the show cause notice has not been issued by the Identification Committee, but by the Branch In-Charge of the concerned branch of the Bank. His second submission is that the petitioners have not been furnished with the documents required to make an effective representation against the notice. In this connection, Mr. Sethi submits that the show cause notice dated 27.01.2020 refers to a review conducted by M/s BDO India LLP, which has not been supplied to the petitioners.

5. Mr. Rakesh Gupta, learned counsel for the Bank, submits that the decision to issue the show cause notice was taken by the Identification Committee itself, as would be evident from a Note dated 07.01.2020, which was submitted to the Identification Committee by the concerned officers, and the orders of the Identification Committee recorded thereupon. He contends that the issuance of the show cause notice by an officer of the Bank, pursuant to a decision of the Identification Committee, is not in breach of the Master Circular in any way. On the question of supply of documents, Mr. Gupta submits that the documents sought by the petitioners, namely the report of M/s BDO India LLP, have been supplied to the petitioners, but a copy will be furnished once again.

6. Before dealing with the aforesaid contentions of the parties, the relevant clauses of the Master Circular are reproduced below:

"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/whole-time director and call for their submissio