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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
BHARGAV D. KARIA, J.
M/S RAGHAV MADHAV FILAMENTS PVT. LTD – Appellant
Versus
BANK OF BARODA – Respondent
R/SPECIAL CIVIL APPLICATION NO. 11863 of 2019
Decided on : 20-04-2022
Willful Defaulters - Identification Committee Procedure - SARFAESI Act 2002, RBI Master Circular dated 1st July 2015 - The court quashed the action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the name of the petitioners to RBI/CIBIL as willful defaulters. The matter was remanded 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. Such exercise by the Identification Committee and thereafter by the Review Committee shall be completed within the period of six months from the date of receipt of this order.
Fact of the Case:
The petitioners challenged the action of the Committee of the Executives of Willful Defaulters and the Review Committee of the respondent–Bank of India identifying the account of the petitioners as willful defaulter and subsequent reporting of the name of the petitioners to Reserve Bank of India/CIBIL as willful defaulter. The petitioners were not provided with the orders passed by the Identification Committee and the Review Committee declaring the petitioners as willful defaulter and therefore, the petitioners were unable to defend as they were not aware about the reasons for such declaration. The petitioners were never informed by the Identification Committee by issuing show cause notice and the notice was issued by the respondent bank to which the petitioners filed a detailed reply but the order passed by the Identification Committee recording that the petitioners have committed willful default was never provided to the petitioners. The petitioners came to know about declaring them as willful defaulter only from the public Notice issued by the respondent Bank.
Finding of the Court:
The court found that the respondent bank violated the provisions contained in the Revised Master Circular and acted in violation of principles of natural justice. The impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the name of the petitioners to RBI/CIBIL as willful defaulters was quashed and set aside. The matter was remanded 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.
Issues: Violation of principles of natural justice, failure to comply with the mechanism provided under the Revised Master Circular, lack of opportunity for the petitioners to defend themselves, and failure to provide a copy of the order passed by the Identification Committee to the petitioners.
Ratio Decidendi: The court held that the respondent bank violated the provisions contained in the Revised Master Circular and acted in violation of principles of natural justice. The impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the name of the petitioners to RBI/CIBIL as willful defaulters was quashed and set aside. The matter was remanded 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.
Final Decision: The petition succeeded and was allowed. The impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the name of the petitioners to RBI/CIBIL as willful defaulters was quashed and set aside. The matter was remanded 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. Such exercise by the Identification Committee and thereafter by the Review Committee shall be completed within the period of six months from the date of receipt of this order.
JUDGMENT :
BHARGAV D. KARIA, J.
1. Heard learned advocate Mr. Jaimin R. Dave for the petitioners and learned advocate Mr. K.M. Parikh for the respondent-bank.
2. Rule. Learned advocate Mr. K.M. Parikh waives service of rule for respondent-bank.
3. By 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 account of the petitioners as willful defaulter and subsequent reporting of the name of the petitioners to Reserve Bank of India/CIBIL as willful defaulter.
4. 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 22nd April, 2019. The facts leading to the declaration of the petitioners as willful defaulter are as under:
4.1) On 13th September, 2011, the petitioners no. 2 to 4, incorporated a company with one Mr. Ruchir Mittal in the name and style of Raghav Madhav Filaments Pvt. Ltd. The petitioners are the Directors of M/s. Raghav Madhav Filaments Pvt. Ltd.
4.2) The respondent-bank granted various credit facilities to the borrower company i.e. M/s. Raghav Madhav Filaments Pvt. Ltd. (for short 'the borrower company') vide sanction letter dated 12th December, 2013.
4.3) Differences arose between the petitioner no. 2 to 4 and Mr. Ruchir Mittal and it was decided that petitioners no. 2 to 4 will sell their shares in the borrower company to Mr. Ruchir Mittal. Accordingly petitioner no.1 passed a Board Resolution dated 5th May, 2014 and directed the respondent-bank to operate accounts under the joint signature of petitioner no.2 and Mr. Ruchir R. Mittal.
4.4) The borrower company vide letter dated 10th July, 2014 informed the respondent bank that petitioners no. 2 to 4 have decided to move out of the said company and therefore, the private properties of petitioners no. 2 to 4 which were given as collateral security for securing the credit facilities of the bank may be released. It was also informed that Corporate Guarantee of one M/s. Surat Export Suppliers Pvt. Ltd and personal guarantees of petitioners no.2 to 4 may be released.
4.5) Respondent-bank approved the above arrangement and vide letter dated 14th November, 2014 agreed to release the private properties of petitioners no. 2 to 4 from collateral security, corporate guarantee and personal guarantee.
4.6) On 27th January, 2015, Mr. Ruchir Mittal resigned as Director from the borrower company.
It is the case of the petitioners that upon such resignation being given, the petitioners vetted the accounts of the borrower company and found that Mr. Ruchir Mittal in collusion with the officers of the respondent bank had siphoned off Rs. 4,02,28,545/ from the account. The borrower company vide resolution dated 14th February, 2015 accepted the resignation of Mr. Ruchir Mittal.
4.7) It is the case of the petitioners that in the meeting held on 9th March, 2015 with the officers of the respondent bank, it was agreed that Mr. Mital will clear the bank dues of the borrowing company till 19th March, 2015 and the private properties of the petitioners no. 2 to 4 would be released from mortgage.
4.8) The petitioners thereafter addressed several letters to ensure the compliance of decision taken in the said meeting.
4.9) Respondent-bank thereafter issue notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(For short “the SARFAESI Act”) and called upon the petitioners to clear the dues of the respondent bank.
4.10) It is the case of the petitioners that a theft took place on 9th September, 2015 and therefore, the petitioner reported the incident to the respondent bank and requested the bank to lodge FIR against Mr. Mittal and others. The petitioners again vide letters dated 8th October, 2015 and 19th January, 201
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