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2022 Supreme(Guj) 515
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
BHARGAV D. KARIA, J.
M.S. HILLERY FASHION COTFAB LIMITED – Petitioner
Versus
THE ASSISTANT GENERAL MANAGER BANK OF BARODA – Respondent
Special Civil Application No. 17491 of 2021
Decided On : 04-05-2022
Advocate Appeared:
For the Petitioners: B.M. MANGUKIYA, BELA A. PRAJAPATI.
For the Respondent: BHASKAR SHARMA.
A bank cannot declare a borrower as a willful defaulter without following the due procedure in law and the guidelines of the RBI.
Headnote:
The Court quashed and set aside the impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the names of the petitioners to RBI/CIBIL as willful defaulters. The Court held that the respondent bank had failed to comply with the mechanism provided under the Revised Master Circular and had also acted in violation of principles of natural justice. The Court remanded the matter back to the Identification Committee of the respondent bank to follow the procedure as prescribed in Master Circular dated 1st July, 2015 by issuing a show-cause notice to the petitioners and providing opportunity to the petitioners as per Clause-3 of the said circular.
Fact of the Case:
The petitioners were declared as willful defaulters by the respondent bank without following the due procedure in law and without following the guidelines of the Reserve Bank of India (RBI). The petitioners were not given any opportunity of hearing before declaring them as willful defaulters. The petitioners filed a petition challenging the action of the respondent bank.
Finding of the Court:
The Court held that the respondent bank had failed to comply with the mechanism provided under the Revised Master Circular and had also acted in violation of principles of natural justice. The Court held that the impugned action of the respondent bank was liable to be quashed and set aside.
Issues: Whether the respondent bank had followed the due procedure in law and the guidelines of the RBI while declaring the petitioners as willful defaulters.
Ratio Decidendi: The Court held that the respondent bank had failed to comply with the mechanism provided under the Revised Master Circular and had also acted in violation of principles of natural justice. The Court held that the impugned action of the respondent bank was liable to be quashed and set aside.
Final Decision: The Court quashed and set aside the impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the names of the petitioners to RBI/CIBIL as willful defaulters. The Court remanded the matter back to the Identification Committee of the respondent bank to follow the procedure as prescribed in Master Circular dated 1st July, 2015 by issuing a show-cause notice to the petitioners and providing opportunity to the petitioners as per Clause-3 of the said circular.
JUDGMENT :
BHARGAV D. KARIA, J.
1. Heard learned Mr. B.M. Mangukiya for the petitioners and learned advocate Mr. Bhaskar Sharma for the respondent.
2. By way of this petition under Article of the 226 of the Constitution of India, the petitioners have challenged the action of the Committee of the Executives of Willful Defaulters (Identification Committee) and the Review Committee of the respondent-Bank of India identifying the accounts of the petitioners as willful defaulter and subsequent reporting of the name of the petitioners to Reserve Bank of India/CIBIL as willful defaulter.
3. It is the case of the petitioners that the petitioners were informed about the decision of declaring the petitioners as willful defaulter vide communication dated 20th April, 2021.
4. The facts leading to the declaration of the petitioners as willful defaulter are as under:
4.1 For the purpose of expanding the business, the petitioner No. 1 company required finance and, therefore, the petitioners approached the respondent Bank for loan. The respondent Bank vide sanction letter dated 01.05.2014 sanctioned various credit facilities i.e. cash credit, hypothecation limit (stock-cum-book debts) of Rs. 2.60 crores and term loan (P&M) of Rs. 2.40 crores. As per the term of the sanctioned letter dated 01.05.2014, the prime security in respect of the cash credit facility form Rs. 2.60 crores was first charge/hypothecation of all book debts, sundry debtors upto 180 days of prime security towards the term loan of Rs. 2.40 crores of hypothecation of existing as well as new plant and machinery acquired with the help of the finance released by the Bank. Copy of the sanctioned letter dated 01.05.2014 issued by the respondent Bank.
4.2 The account of the petitioner was operated regularly, however, the premise of the petitioners were sealed on account of an order passed by the Gujarat Pollution Control Board dated 17.07.2015. As a result of which, the petitioners were unable to fulfill the order received on account of the closure by the Gujarat Pollution Control Board, some of the orders were cancelled. Gujarat Pollution Control Board vide its order dated 13.08.2015 permitted the petitioners to carry on business after complying with terms and conditions as mentioned in the order for opening the premise. On account of closure the petitioners suffered severe loss.
4.3 The petitioner states that the petitioners forwarded communication dated 27th November, 2015 to the respondent Bank. On account of the order of the Pollution Board, the payments have been held up, which had temporarily affected the liquidity position of the petitioners, which has subsequently resulted delay in making payments and the account has turned bad in the books of the petitioners. The premise has been opened and they have started approaching the customers and looking to re-establish the credential. Their prime motive is to repayment of all irregularities in the account and bring the Bank account to the regular category. The petitioners requested the respondent Bank to allow operation in the account through holding on operation subject to retention of 7% of entire deposit by the bank for settlement of over dues and irregularities in the account. The petitioners are expecting Rs. 75 lakhs to one monthly deposit to start with submitting to deposit cheques of worth Rs. 2.65 lakhs.
4.4 The petitioners forwarded another communication dated 07.01.2016 to the respondent Bank, requesting for enhancement/operation in account. Petitioner’s term loan and cash credit facility may be enhanced as Rs. 1.25 crores. Petitioners would be paying a sum of Rs. 5 to 7 lakhs in overdue account and they are ready to provide further collateral security of Rs. 1.25 crores in the form of commercial residential property. The petitioners have further submitted a proposal so as to see that the dues would be cleared by March, 2016 and the amount would be regular.
4.5 The respondent bank forwarded another communication dated 30.01.2016
