The declaration of a borrower as a wilful defaulter requires strict adherence to guidelines ensuring funds involved are strictly borrowed ones and not internally sourced.

JUDGMENT :

C. HARI SHANKAR, J.

1. These appeals assail substantially similar judgments passed by a learned Single Judge of this Court in writ petitions which raised substantially similar challenges. They are, therefore, being disposed of by this common judgment. However, for the sake of convenience, we propose to treat LPA 396/2024 as the lead case and to extrapolate our decision in that appeal to the other appeals before us.

LPA 396/2024 [Bank of Baroda v Ratul Puri

The lis

2. The Bank of Baroda, [“BOB” hereinafter] assails judgment dated 29 February 2024 passed by a learned Single Judge of this Court in WP (C) 4181/2023, [Ratul Puri v Bank of Baroda]

3. By the impugned judgment, the order dated 23 March 2023 passed by the Review Committee of the BOB, declaring the respondent to be a “wilful defaulter” within the meaning of Clause 2.1.3 of the Master Circular on Wilful Defaulters, 2015, [“Master Circular” hereinafter], issued by the Reserve Bank of India, [“RBI” hereinafter], has been set aside.

Background

4. Moser Baer India Ltd, [“MBIL” hereinafter] availed loans from various banks. These included a loan from BOB, which was sanctioned vide letters dated 12 December 2006 and 24 April 2010. At the time of availing of the loan, the respondent Ratul Puri was a whole-time director of MBIL. In 2010, he decided to exit from MBIL, though he continued to remain a director on its board.

5. Following the decline in the fortunes of MBIL, BOB and other lenders, which lent monies to MBIL, found MBIL to be a fit case to consider debt restructuring. A Joint Lenders Meet, [“JLM” hereinafter], of all lenders of MBIL, therefore, was convened on 3 February 2012. Among the lenders who participated in the JLM was BOB. MBIL placed a restructuring plan before the JLM. The JLM, after considering the plan, decided to admit MBIL for Corporate Debt Restructuring, [“CDR” hereinafter], in accordance with the CDR Master Circular issued by the RBI.

6. To ascertain sustainability of the CDR, MBIL was required to submit a Flash Report, which would set out the reasons for its decline, its viability and its plan for revival. The Flash Report was intended to be forwarded by the lenders of MBIL to an independent agency for obtaining a Techno Economic Viability Report, [“TEV Report” hereinafter], which would indicate whether the restructuring plan proposed by MBIL was financially viable.

7. In terms of the aforesaid directions, MBIL submitted a Flash Report with the CDR cell of the lender banks on 18 February 2012. Among the reasons cited in the Flash Report to which the financial decline of MBIL was attributable, was the inability of MBIL to realise investments made in its two subsidiaries, Moser Baer Photo Voltaic Ltd, [“MBPV” hereinafter] and Moser Baer Solar Ltd, [“MBSL” hereinafter]. MBPV was later renamed Helios Photo Voltaic Ltd, [“HPVL” hereinafter]

8. After perusing the flash report submitted by MBIL, the CDR Empowered Group, [“CDR-EG” hereinafter] decided, on 24 February 2012, to admit the proposal of MBIL for restructuring. In the decision, MBIL was placed in the Class-B category under the CDR Scheme, which covered “Corporates/promoters affected by external factors and also having weak resources, inadequate vision and not having support of professional management”.

9. The monitoring bank of the lenders was the Central Bank of India, [“Central Bank” hereinafter]. On 4 April 2012, MBIL informed the Central Bank that the respondent was no longer associated with the day-to-day functioning of the MBIL. It was pointed out that he had exited MBIL and it was requested that the CDR proposal submitted by MBIL be considered taking into account this fact.

10. On 30 April 2012, the respondent resigned as Executive Director of MBIL and submitted Form-32 with the Registrar of Companies, [“ROC” hereinafter] to that effect. He also, therefore, ceased to be a shareholder of MBIL and transferred his shar